Banks have won yet another round in the ongoing national spar over automated teller machine fees.
In the latest developments, the city council of Santa Monica, Calif., has suspended a measure it passed to ban the fees, and the two largest banks that do business in the city, Wells Fargo & Co. and Bank of America Corp., have responded by restoring ATM service to noncustomers in that city.
Wells Fargo, which has 12 ATMs in Santa Monica, resumed service for noncustomers Thursday. Bank of America, which operates 21 teller machines in the city, said it would do so early this morning.
ATM surcharges are resuming along with the service. Spokesmen for both banks said the fee for non-account-holders is $1.50 per transaction, the same as it was in October 1999, before the Santa Monica council banned banks there from charging ATM fees to noncustomers.
The following month, Wells Fargo and Bank of America complied with the Santa Monica law, but also limited use of ATMs in the city to their own customers. Then as now, the banks do not charge these fees to their depositors.
Also in November 1999, voters in nearby San Francisco passed a referendum to abolish ATM fees. Together, the cities became a focal point for the national debate over ATM surcharges. Courts and other authorities have consistently upheld banks' rights to charge the fees.
Bank of America, Wells Fargo, and the California Bankers Association went to court to block both measures, and on June 29 of this year U.S. District Court Judge Vaughn Walker ruled that the local ordinance and the voter referendum were preempted by federal law that lets companies set their own prices. He ordered both cities to suspend their bans.
Though Santa Monica suspended its ordinance, which was popular with consumers and consumer groups, it has appealed the injunction to the Ninth District Circuit Court.
Adam Radinsky, deputy city attorney for Santa Monica, who drafted the ordinance and is defending it in court, said Judge Walker's decision was "based on a faulty interpretation of the law."
Mr. Radinsky said that since banks have the power to charge fees, the judge misinterpreted that to mean states and local municipalities cannot regulate any bank fees. "That's wrong," Mr. Radinsky said. "States and cities do have broad powers to protect their consumers through banking laws, specifically through banking ATM laws. Federal law is squarely on our side."
Mr. Radinsky said the two banks control 72% of all ATMs in Santa Monica, and 86% in San Francisco.
He said the 1978 Electronic Funds Transfer Act, which governs ATM transactions, says that state and local laws that provide more protections than the federal law itself "are encouraged."
But so far, no legal body has sided with Mr. Radinsky's view.
Ashleigh Adams, a spokesperson for Bank of America in Los Angeles, said: "Like any business, we're asserting our right to price our products and services in the free market. And in this case we should not be expected to provide free service to non-account holders."
Larry Haeg, a spokesman for Wells Fargo, said: "We've always said right from the start, we built our very extensive network of ATMs for the use and convenience of our customers. Why would we want to subsidize the customers of our competitors? If they want to use our machines, they're free to do so, but we feel they should pay for the service."
Nonetheless, opponents of surcharging are vowing to press on, and to use the issue to cast the banks in a bad light.
Sam Jordan, an adviser to U.S. Rep. Maxine Waters, D-Ca., said Judge Walker's decision is "certainly not the last word. What Bank of America is doing is showing its consumer-unfriendly side."
Mr. Jordan said it was ironic that as banks have merged and consolidated, costs have gone up, not down.
An ATM transaction, he said, is "a paperless transaction. So what's the cost? There is no need to charge that fee. They're simply tapping out the consumer."
Mr. Radinsky called the banks' arguments "completely disingenuous" because the banks are already compensated for every non-account-holder ATM transaction through the interbank interchange fee. The interchange fee is paid to the ATM bank by the customer's bank. He said it is roughly 50 cents. Consumer groups routinely refer to ATM surcharges as "double dipping," because the bank gets the surcharge on top of the interchange fee.
