Rising Atm Charges Could Trigger Backlash Banking Industry Defends Fees, But Consumers Say It’s Gouging

For many, automated teller machines are a modern necessity that has closed the gap between people and their money. But the ATM also has become something else: a prominent symbol of the changing rules and costs of personal banking.

As the industry consolidates and megabanks prosper, it’s getting harder - if not impossible - to find free checking and other routine services that used to be offered for no charge.

It makes Audrey Sims boil every time she makes a withdrawal. Sims, 35, works in the District of Columbia but lives two counties away, where she banks at the local credit union. She faces a dilemma common to customers at small banks and credit unions, which rarely have a network of machines of their own: Pay the fee or go without the cash.

Sims reluctantly pays, but “every month when I get my statement and see all those fees, I want to scream.”

Two decades ago, when the first ATMs appeared, they were set up at local banks as an after-hour convenience and a way of cutting costs. Then they started attracting noncustomers, and soon banks saw that the machines were wildly popular and could be a source of revenue.

Others realized the same thing, and over the last 10 years, even nonbanks began setting up ATM machines everywhere there were people - in convenience stores, sports stadiums, strip malls, even restrooms.

In the process, they’ve become the flash point in the debate about the new forces overtaking banking. Bankers say they are simply offering services customers demand at a reasonable price. Critics say the banks are gouging customers and that the government must step in to protect the average working man and woman.

All this for a charge that nationally averages $1 per transaction.

The one undeniable truth is that ATMs are popular and are contributing handsomely to the bottom lines of some banks. The number of ATM transactions has soared from 4.4 billion in 1988 to 11 billion this year, according to Bank Network News, a trade publication that tracks ATM use.

The number of ATM units nationwide has more than doubled over the same period, from 72,492 to 165,000. The number is expected to swell beyond 220,000 in the year 2000, according to Mentis Corp., a research firm in Durham, N.C.

The debate about ATM fees is rising almost as fast as the number of machines and the profits they earn. Revenue from ATM fees from consumers reached $1.9 billion in 1996, according to a nationwide survey by the U.S. Public Interest Research Group, a consumer organization.

With increased automation come rising profits. Bank stocks are the healthiest they’ve been in some time, financial analysts say, and one reason is revenue generated from ATM fees.

When ATMs first appeared, people avoided them because they preferred dealing with a human teller. But attitudes have changed.

“You’ve got to have them now,” said Edward Thomas, president of the Bank of Delmar, a community bank serving small towns on the Delaware-Maryland border. Although Thomas said his bank is not heavily into ATMs, it is adding two more, pushing its total to seven.

“They’re a necessity even for small banks,” Thomas said, “because kids and young adults are comfortable with computers and they aren’t going to bank at a bank without ATMs.”

But convenience has its price, which is why 28-year-old Walter Pineda treks more than a mile on his lunch hour to draw $10 from an ATM near the White House. “I want to save $2,” he said. “There are no NationsBank ATMs near where I work, and I shouldn’t have to pay to get my own money.”

Such laments have been ricocheting with lawmakers around the country.

At least four states have outlawed or considered limiting ATM fees. And there are bills in both houses of Congress that would ban or reduce transaction fees for ATMs.

The fees have prompted Independent Rep. Bernard Sanders of Vermont to call banks “rip-off artists” and Republican Sen. Alfonse D’Amato of New York to take banks to task for their “predatory” practices. A senior bank official, meanwhile, accuses D’Amato of “pandering to the public.”

Congress has held hearings on the matter this year, and lawmakers hope to schedule additional hearings in the next few weeks. But real action is more likely next year, when politicians will be looking for a popular issue in an election year and the congressional calendar will be less crowded.

Bank officials bristle at suggestions they are being unfair or anti-competitive. They also insist that new disclosure laws give consumers all the information they need to decide if they want to pay for the convenience or not.

Most of all, bankers say Congress should simply keep out and let the marketplace dictate fees. There is some evidence that consumers are paying attention. In 1995, 43 percent of all ATM transactions involved a “foreign” cardholder, meaning that the customer could have been charged a fee because the machine wasn’t owned by his or her bank. That number dipped to 39 percent last year.

“It’s difficult for people sitting in Washington to be able to legislate every service or fee or every individual marketplace. Let the local competition and local markets sort it out,” said John Hall, a spokesman for the American Bankers Association.

But Congress is not likely to back down.

“Recent estimates show that the average consumer is paying a whopping $155 per year to use automated teller machines,” said D’Amato, chairman of the Senate Banking Committee and one of the loudest critics of ATM fees. “The average family will pay several times that amount. That’s outrageous. The banks are making windfall profits from working people.”

Ed Mierzwinski, consumer program director for U.S. PIRG, calls the practice of charging noncustomers a fee to withdraw their own money part of a strategy by the nation’s megabanks to smother smaller banks and reduce competition.

Potential customers are often drawn to bigger banks because they have more ATMs and the customer can avoid fees when using those machines, he said.

Big banks, such as NationsBank and First Union, say the charges only apply to noncustomers who use their ATMs and that the fees only cover costs.

No one argues that setting up an ATM network, buying the machines and keeping them filled with money and working properly isn’t expensive. A typical ATM machine costs $45,000. The cost goes much higher if a building has to be constructed or if landscaping is needed. Then there’s the maintenance and troubleshooting.

Where the controversy will lead is unknown. Congress is in no hurry to act. Banks have historically been heavy campaign contributors, and bank supporters say there isn’t enough evidence of a problem. Sanders agrees that the road ahead will be tough, but for a different reason. “It’s no secret that this Congress has not been consumer-friendly,” he said.

Bankers see it differently. “At the end of the day, the arguments (against fees) don’t work,” said a large bank’s senior executive, who asked not to be identified. “A $1.25 surcharge will not drive (customers) into the arms of First Union or NationsBank. I wish it would, but that’s not going to happen.”