automated teller machine surcharges are taking their case directly to the voters.

On Nov. 2, for the first time, ATM surcharges will be the subject of a local referendum. The initiative seeks to prohibit financial institutions from charging noncustomers a fee to use their ATMs. If passed, it would apply to all ATMs owned by banks, credit unions, and thrifts within the city limits.

Because of the contentiousness of the issue, the San Francisco test is likely to be viewed as one with national implications and a classic confrontation between consumer advocates and business interests.

"There are few marketplace practices that consumers are more angry about than paying more money just to get their own money," said Jon Golinger, consumer program director at the California Public Interest Research Group, which led the ballot effort. "This is the first case where people, not politicians, get to decide this issue."

Surcharging became prevalent after Cirrus and Plus, the national networks of MasterCard International and Visa U.S.A., respectively, dropped their bans of the practice in 1996. Though state banking regulators in Connecticut and Iowa have since banned surcharges, legislative attempts to adopt similar prohibitions have failed at the federal level and in other states. Surcharging continues to proliferate, and even in Connecticut and Iowa, regulators are facing challenges.

Bankers say the fees are a reasonable charge for customer convenience. Consumer groups argue that institutions are charging twice, or "double-dipping," since the ATM owner also receives an interchange fee from the card-issuing bank.

In San Francisco, a coalition of consumer, senior citizen, and labor groups backed an ordinance to ban surcharges drafted by the Board of Supervisors president, Tom Ammiano. The proposal won endorsement from a board committee in February but was tabled and effectively killed -- by the board later that month.

California PIRG said Charlotte, N.C.-based Bank of America Corp. and San Francisco-based Wells Fargo & Co. were the first- and second-largest contributors, respectively, among organizations that spent more than $70,000 to lobby against the ordinance.

Though organizers of the ballot initiative are optimistic, they said they fully expect another legal fight should it pass.

The California Bankers Association, which has more than 300 member institutions, said the banking industry would definitely challenge such a law in court. A group of initiative opponents, calling itself the Coalition for ATM Choice, is being organized as a campaign vehicle.

California bankers would contest the ban on constitutional grounds, said John Stafford, vice president for communications at the state association. A ban would impair contracts with merchants that host ATMs, he said. It would also deny equal protection under the law, since nonfinancial institutions would still be allowed to surcharge.

Of 665 ATMs in San Francisco, roughly one-third are owned by independent operators, Mr. Stafford said.

The banking interests would also maintain that the decision is one for the federal level, not San Francisco city officials or their constituents.

"We will immediately contend that it is the right of the Office of the Comptroller of the Currency to regulate this issue," said Mr. Stafford.

In April a federal judge ruled against Connecticut regulators, saying it is up to the OCC to decide whether nationally chartered banks can impose surcharges in that state. The judge stopped short of authorizing the fees, however, leaving national banks confused. The case is now before the Connecticut Supreme Court, to be decided this fall, Mr. Golinger said.

California PIRG, which needed 10,510 signatures to get the measure on the ballot, gathered more than 17,000 from April to July. The petition was submitted July 5, said Mr. Golinger.

Public interest research groups, which are associated with the consumer advocate Ralph Nader, have been tracking the issue since the surcharging floodgates opened in 1996. According to a March U.S. PIRG survey of 336 banks, 93% surcharge nonaccountholders, up from 71% in a 1998 study. The average surcharge rose to $1.37, from $1.23, and nearly all institutions charge their own customers "foreign" fees averaging $1.20, according to the survey.

Mr. Stafford contended that the average ATM charge may be increasing because of deployment of new ATMs, not because fees are going up on older installations.

Anti-surcharge activists argue that surcharging is anti-competitive. It is more difficult for customers of smaller banks with smaller ATM networks to avoid paying a fee, they say, so customers are easily lured to larger banks with more ATMs.

In some cases, this has led to selective surcharge alliances, in which participating institutions mutually agree to waive fees for each other's customers.

Should bankers establish that the issue is a federal matter, however, a ban would, ironically, end up applying to small, state-chartered banks, said Mr. Stafford. He estimated that state-chartered banks own just 45 of San Francisco's ATMs.

Mr. Golinger said he expects a ban in a city as prominent as San Francisco would have repercussions nationwide. "People are smart, they're angry, and we think they're excited to decide this issue," Mr. Golinger said. Unlike local politicians, he said, the voters "don't depend on campaign contributions to get reelected next year."

Mr. Stafford said that because there are no surcharges when customers use their own banks' ATMs, "customers vote on this every day.'' Consumer groups have "essentially turned to this populist strategy in America's most liberal city to try to get one victory on the books," he said.

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Pulse EFT Association is making it possible for member institutions to participate in a surcharge-free alliance.

Members of the Houston-based automated teller machine network who join the program, Select ATM, will be allowed to waive the fees for each other's customers starting Oct. 1.

Typically, customers can use ATMs owned by their own financial institution at no charge, but surcharges are imposed for using machines owned by other banks.

Pulse is offering access to Select ATM on a nondiscriminatory basis. It said participating financial institutions can thus avoid the burden of negotiating and executing individual, bilateral, surcharge-free agreements. This would benefit smaller financial institutions by broadening the number of ATMs their customers can use surcharge-free, Pulse said.

"Pulse believes free-market competition among financial institutions and ATM deployers ensures that consumers will continue to have a wide range of choices when using ATMs," said Stan Paur, the network's president and chief executive officer.

The Texas Credit Union League was instrumental in developing Select ATM.

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