No matter what happens on appeal, the banking industry, the public, and lawmakers should all learn some important lessons from the flap in Santa Monica and San Francisco over ATM surcharges.

The first is that it's easy to pass laws banning automated teller machine charges but a lot harder to make those laws effective.

Bank of America and Wells Fargo are already fighting back by restricting access to ATMs in those cities to customers only.

But there are deeper lessons.

If banks had set the basic interchange fee high enough to provide adequate compensation for those that honor other banks' ATM cards, there never would have been a ruckus over the surcharges. Customers resent being nickel-and-dimed. For whatever reason, people would rather pay $3 to one vendor than $2 to one and $1 to another.

Meanwhile, lawmakers have to realize that any ban on ATM surcharges would concentrate banking in fewer hands.

Studies show that consumers aren't quick to change banks to avoid fees. Many small-bank customers are perfectly willing to pay fees at foreign ATMs, because they prefer banking with the smaller institutions.

But if it becomes a choice of changing banks or not getting service at all from the nearest ATM, the customer may very well switch accounts to the larger bank.

Community banks, therefore, must band together in networks to provide surcharge-free service to other network members - or face serious deposit shrinkage.

The irony is that the very activists who now scream for a ban on ATM surcharges will scream just as loud if ATM operators no longer accept other banks' cards.

People will either have to travel further, to their own banks' ATMs; pay the high fees charged by the corner stores; or switch banks, making the large banks even larger.

Robert Frost warned, "Before I built a wall I'd ask to know / What I was walling in or out." Activists and lawmakers might want to think about that the next time they call for a ban on surcharges. Mr. Nadler, an American Banker contributing editor, is professor of finance at Rutgers University Graduate School of Management.

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