Wells Fargo May Rescind Free ATM Use : Banks: Service fee of $1 could be levied for withdrawing money from another bank or savings-and-loan machine.

For the last two years, Wells Fargo has not charged customers its standard $1 service fee when they withdraw money from other banks’ automated teller machines in San Diego County.

But Wells Fargo may be changing that policy soon, reflecting financial institutions’ need for new ways to produce non-interest-generated revenue, industry observers say.

Tom Byrne, Wells Fargo’s vice president for marketing in Southern California, says his bank’s service-free policy for ATM use in San Diego may be terminated later this year, after the San Francisco-based institution makes final its acquisition of Great American Bank’s California branches, including 64 in San Diego County.

“That has been discussed. . . . No specific decision has been reached,” but free use of competitors’ ATMs is not going to continue forever, Byrne said.

The profit squeeze being felt by many banks has changed their attitude toward some of the free services offered up to now, said Gerry Findley, a Brea-based banking consultant and editor of the Findley Report. “Their bottom lines are under pressure (so) they’re all looking at the charges for services they provide in all areas.”

Most banks in California already charge service fees of 75 cents to $1 when their bank card customers use a competitor’s ATM. They make the charges mainly because the service is not free to the bank. “It’s actually a very expensive process going through other banks,” said Chris Chenoweth, general counsel for the California Bankers Assn. in San Francisco.

Wells Fargo, for example, belongs to the San Diego-based STAR System network of ATMs, which charges the bank a fee when its customers use another bank’s ATM for a transaction. A certain part of the fee then goes to the bank whose ATM was used.

“There’s a cost to Wells Fargo (and waiving service fees) could wind up being very expensive to the bank,” Chenoweth said.

But acquiring the Great American branches will eliminate Wells Fargo’s primary motive for the San Diego ATM policy, which was to compensate for the lack of “locational convenience” the bank offered its San Diego customers.

Before the acquisition, Wells Fargo had so few branches that “we elected to provide this (service), at least on a temporary basis. . . . We just didn’t offer the same convenience” in terms of branches or ATMs as other banks in the county, Byrne said.

After the Great American branch acquisition is complete, “you probably won’t be able to drive six blocks without finding a Wells Fargo Bank in San Diego,” he added. There will be at least two or three Wells Fargo ATMs at every bank location in the county, including the branches acquired from Great American.

“It was a temporary kind of thing, (and) we did it for a very specific reason,” Byrne said. “It probably would make some sense to make some modifications to it now.”

Wells Fargo operated 18 branches in San Diego County two years ago, when it introduced the service-free transaction program. Now the bank has 24 branches in the county with an estimated $1.6 billion in deposits.

The addition of customers from the 64 Great American branches, whose local deposits amount to an estimated $5.5 billion, will give Wells Fargo a combined deposit base of $7.1 billion, more than any other financial institution in the county.

Wells Fargo officials would not disclose how many individual accounts or depositors the bank has at its San Diego County branches, nor how many it is gaining through the Great American deal. Historically, the savings-and-loan-dominated San Diego market has been a tough one for banks like Wells Fargo.

One bank that does impose service fees for transactions done on non-proprietary machines is Security Pacific.

“There’s a hard dollar cost to the institution,” said Michael Occhino, a first vice president who manages Security Pacific’s Electronic Delivery Division. “Customers don’t have a problem with reasonable prices for services.”

Nevertheless, some banks have been willing to provide service-free transactions as a way to attract customers.

Banks “love to be able to use (free ATM use) for marketing,” Findley said.

Byrne emphasized that Wells Fargo’s policy in the county was aimed strictly at satisfying existing customers.

“We never advertised it,” Byrne said. “We didn’t use it as an offensive tool. And the reason we didn’t was that we didn’t intend for it to last forever and ever and ever.”

Some banks have been willing to absorb the expenses because it would cost too much for them to purchase and maintain enough ATMs to satisfy their customers, said STAR Systems president Ronald Congemi. “It’s a strategic pricing decision.”

But Congemi said he thinks many of the West Coast banks that have not charged service fees will soon be following the practice of most U.S. banks, which is to charge fees for such transactions.

“The trend was actually quite late in hitting the West Coast,” he said, attributing the delay to the sluggish development of local and regional ATM networks in the West.

Even if banks that have not charged transaction fees do reconsider their policies, as Wells Fargo has in San Diego, some customers may continue to have access to conditional service-free ATM use.

For example, Great American does not charge its customers to use other banks’ ATMs if the customers maintain a balance of more than $20,000 in their combined personal accounts. Great American has also waived fees for customers who live in areas where their local branches do not have Great American ATMs.

However, these policies may change after Great American’s California branches are acquired by Wells Fargo, Great American spokesman Brian Luscomb said.

“That’s a Great American policy. . . . The branches will be Wells Fargo branches and subject to their practices and procedures” after the acquisition, Luscomb said.