The Office of Thrift Supervision added its voice to the debate over automated teller machine surcharging last week, arguing that financial institutions' right to impose usage fees on noncustomers is guaranteed under federal law and cannot be undermined by a municipal ordinance.

The city council of Santa Monica, Calif., voted Oct. 12 to ban ATM surcharging and proposed making banks liable for $5,000 in punitive damages for each violation.

The ordinance prompted Ann E. Lederer, general counsel of Santa Monica-based First Federal Bank of California, to ask the OTS for its opinion as to whether the law applied to savings associations.

A Nov. 22 response from OTS general counsel Carolyn J. Buck to Ms. Lederer said, "We conclude that the ordinance does not apply to [First Federal] or other federal savings associations by reason of federal preemption."

The opinion echoed a brief issued Nov. 4 by the Office of the Comptroller of the Currency, which claimed that a similar law in San Francisco was overridden by provisions of the National Bank Act.

The 20-page opinion laid out the OTS position, which holds that the Santa Monica ordinance is preempted because the Home Owners' Loan Act gives the agency "exclusive authority to regulate the operations of federal savings associations."

It also noted that the agency's own implementing rules, adopted after federally mandated notice and comment periods, specifically allow ATM surcharging.

A thrift, the OTS opinion said, "is a for-profit business and should not be compelled by local government fiat to provide its services … for free." The letter noted that it costs First Federal approximately $50,000 to set up an ATM and $28,500 a year to maintain one. The thrift charges noncustomers $1 to $1.50 to use the machines, depending on their location.

First Federal's decision to charge nonclients for using its ATMs "is a business decision designed to help defray the costs of providing ATM services," the opinion said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.