U.S. military.

The Department of Defense wants to prohibit the 63 banks and 171 credit unions that operate on military bases from imposing the increasingly common extra charge on noncustomers. The Pentagon said it wants to provide a benefit to low-paid military personnel.

"Soldiers in this country remain low on the wage totem pole," said Tom Summers, a Defense Department staff accountant. "It is important for us to try to find ways to help soldiers limit the fees they have to pay to access their money."

Service personnel are particularly hard hit by ATM fees, he explained, because they often do not switch banks when transferred to new locations. Therefore it is not uncommon for a soldier in North Carolina to be 2,000 miles away from the nearest branch or ATM of his or her home bank.

The Pentagon has received about 50 comment letters on the policy, which was formally proposed in August. A decision is expected in about 60 days, Mr. Summers said.

Bankers contend that the proposal would hurt servicemen, not help them. The argument is the same as in the civilian world: that without the revenue generated by surcharges, the industry would have less of a motive to deploy machines widely.

The surcharge controversy has been raging since 1996 when the MasterCard and Visa associations, under pressure from ATM marketers, lifted their prohibitions on the practice. Most attempts by legislators and consumer activists to legally ban surcharges have failed. The city of Santa Monica, Calif., just imposed a ban, and San Francisco is holding a voter referendum next month.

If the Defense Department manages to impose the anti-surcharge rule -- something that former Sen. Alfonse D'Amato of New York failed to achieve on a national level -- "the thin profit margins these banks operate under will decrease further, and they will have to cut some services," said Henry W. Neill Jr., executive vice president of the Association of Military Bankers of America in Springfield, Va. "Several banks have also expressed concern over their ability to continue to operate on military installations should their revenue decline."

The American Bankers Association also filed a comment letter against the proposal.

The rule would affect banks of all sizes, from $23 million-asset Fort Riley National Bank in Kansas up to $614 billion-asset Bank of America Corp. which has 300,000 military customers worldwide. At the Fort Riley institution, vice president Alan R. Swarts said he is not sure it would be able to maintain its 13 ATMs without the charges collected from other banks' cardholders.

"We have been as accommodating as we can be to requests for new machines, but those machines cost money," he said. "When you use a product, you expect to have to pay for it. I don't see why using our machines should be any different."

He said Fort Riley National might consider making the machines available only to its depositors should the proposed rule go through.

"In the long term, I believe this will be detrimental to the soldiers on the bases," he said.

Mr. Summers at Defense countered that before direct payroll deposits became popular, banks on military bases dispensed cash without collecting fees. They were required to cash paychecks gratis.

"Obviously, a rule like this is not going to be very popular with everyone," he said. "But the need is real, and it is something we intend to address."

Taking the department's side, John R. Davis, president of $140 million-asset Fort Sill (Okla.) National Bank, said "surcharging makes it more expensive for our customers stationed elsewhere to do business with us, and is an incentive for them to bank elsewhere."

Fort Sill National, which also has branches on bases in Texas, California, South Carolina, and Delaware, operates 37 surcharge-free ATMs. Mr. Davis said he believes other bankers are exaggerating when they talk about the impact of a surcharge ban.

"All of these banks had machines before surcharging was allowed, and they seemed to eke out a profit," he said. "Of course it is an expense, but it is a manageable expense."

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.