Mellon Bank Corp. and PNC Bank Corp. have brought ATM surcharges to Pittsburgh, and community banking advocates are crying foul.

Both institutions, which together dominate the local retail banking market, recently decided to charge 50 cents each time a noncustomer uses one of their automated teller machines.

And what happened recently in Washington is playing out at the state level: Legislators are threatening to outlaw the fees, which are seen as a threat to smaller banks' survival.

"It's an attempt by the big banks, which own the greatest number of ATMs, to snuff out the competition by siphoning off customers from the smaller, independent, community-based banks and credit unions," said Leonard J. Bodack, a Democratic state senator representing Pittsburgh.

Along with a colleague, the Pennsylvania lawmaker has introduced legislation to prohibit such fees. The measure is similar to a federal measure introduced by Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y.

Pennsylvania is likely to be one of many places - and Pittsburgh one of many urban centers - where big ATM-owning institutions must answer allegations of predatory competition after they impose the surcharges to customers of other banks.

The fear is that consumers frustrated by the fees will defect to banks that have the biggest ATM systems, which are free to their customers.

"We frown upon any bank using a surcharge as a means to create a market monopoly," said Viveca Ware, director of payment systems with the Independent Bankers Association of America.

Banc One Corp. of Columbus, Ohio, began months ago to charge $1.50 a transaction in most of its markets. It plans to impose the fee nationwide. And Cleveland-based National City Corp. has instituted a surcharge in its Kentucky operation.

KeyCorp of Cleveland and Norwest Corp. of Minneapolis are among those surcharging in states outside their home markets. Norwest does it in Nevada, Montana, and Texas. KeyCorp is charging $1 to $1.25 in Idaho, Maine, Utah, and Wyoming.

"I think all major banks will be doing it by the end of the year," said Banc One spokesman John Russell.

PNC began charging 50 cents per transaction in June.

Mellon, which has 670 teller machines in five states, began last week to charge 50 cents per transaction to noncustomers. The charge applies in Pennsylvania, Delaware, Maryland, Massachusetts, and New Jersey.

Banks that are assessing these surcharges are unrepentant, saying they have costs to cover and arguing that customers of other banks have gotten a free ride for too long.

"Noncustomers say, 'Why are you charging me?' and we say, 'Because you're not a customer,'" said Banc One's Mr. Russell.

Representatives of PNC and Mellon said the banks will use the increased income to expand their already large ATM networks. PNC, which has about 2,000 machines, added 127 in convenience stores and other locations in western Pennsylvania over the past few months, said spokesman Brian Goerke.

PNC faced negative publicity about its fee, but in doing so helped clear the way for the competition. "We took our lumps early," Mr. Goerke said.

Nonetheless, Mellon said it had considered the fee before PNC acted. - "What we do is not based on what other banks do," said Mellon spokesman Steven Dishart. He did concede that the 50 cent charge was influenced by PNC.

Most banks are perceived to be testing the fee in selected markets before imposing it systemwide.

One exception is First Chicago NBD Corp., which received heavy criticism for imposing fees of up to $3 on branch-teller transactions more than a year ago. Encouraging use of electronic delivery systems, First Chicago has been emphatic about not instituting ATM surcharges. It is relishing the chance for one of its big competitors to start charging an ATM fee, said spokesman Thomas Kelly.

In Cincinnati, PNC and Banc One started the surcharge ball rolling, and Fifth Third Bancorp and Provident Bancorp followed.

In Pittsburgh, lawmakers believe Mellon and PNC are taking advantage of consumers. One of the biggest complaints, said James Hertzler, a spokesman for Pennsylvania Sen. Bodack, is that the surcharge is on top of other fees already in place.

"Customers are being double-charged for essentially the same service," Mr. Hertzler said. "We believe this represents a serious threat to competition, especially for the small community financial institutions."

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