7 Banks Fight ATM Fees of Industry Giants

In the face of escalating fees at automated teller machines throughout California, a group of seven banks and thrifts, including Union Bank and Glendale Federal, has pledged to hold the line on extra ATM fees charged to non-customers.

The unusual alliance expected to be announced today is a direct slap at the controversial surcharges recently levied by three of the state’s largest lenders, Bank of America, Wells Fargo and Home Savings of America, which together control about half of the state’s ATMs.

The surcharges, which also have proliferated nationwide, have angered consumers and prompted legislators in California and elsewhere to introduce legislation to ban them.

Most financial institutions have long charged their customers for using ATMs owned by other banks. That fee, typically $1 per transaction, is split between the customer’s bank, the ATM network system and the owner of the ATM.

But last November, Bank of America became the first major bank in California to levy a surcharge on non-customers who used its ATMS. The $1.50 surcharge essentially lifted the cost to $2.50 for a withdrawal by a non-customer. Wells Fargo quietly followed suit a month later, and Home Savings of America, the nation’s largest thrift, is now doing the same. B of A and Wells operate about 7,000 of the 15,000 ATMs in California.

Smaller banks fear that they will lose customers who want the convenience of plentiful ATMs but don’t want to pay the extra fees charged by B of A and others.

“It places smaller institutions at a competitive disadvantage,” said Gene Galloway, executive vice president at Sanwa Bank of California, which joined the group protesting the surcharge.

B of A officials have defended the surcharge, saying that they have invested heavily in building the nation’s biggest network of ATMs and that non-customers are taking advantage of that.

“It’s a convenience premium,” company spokesman Cary Walker said Monday.

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But consumer groups have protested what they call excessive profiteering, while bank customers have complained and in some cases changed their banking practices.

“I don’t go into B of A anymore because of the surcharges,” said Valerie Hall, a Sanwa Bank customers since 1987. “What I do is try to arrange my day so if I need cash, I try to go to my branch so I don’t get surcharged.” Hall said she withdraws $40 on an average transaction.

Bunny Pitsenbarger, a Burbank resident and Sanwa customer, said she refuses to use outside ATMs because of the fees they charge.

“I get my cash when I’m grocery shopping,” she said.

Such surcharges were begun years ago at ATMs in Las Vegas casinos, but the practice has spread quickly since last April when the two national ATM networks, Cirrus and Plus, gave in to pressure from the banks to allow the surcharge.

“The banks are making a profit without the surcharge, and they make an unconscionable profit with it,” said Edmund Mierzwinski, consumer director at the California Public Interest Group in Washington. Experts estimate that one in five ATMs in the United States imposes a surcharge on non-customers, typically $1 to $2.

The alliance of California financial institutions also includes Sumitomo Bank, Coast Federal, Bay View Federal and CU Cooperative, which operates credit union ATMs. Combined, the group has more than 1,500 machines in the state. Each one will be marked with a red sign with a slash over the word “surcharge.”

Neither B of A nor Wells Fargo denies that the surcharge is aimed partly at attracting customers. Wells Fargo, for example, said 13% of its ATM transactions are made by non-customers.

“The trend in the industry is to charge a fee,” Wells Fargo spokeswoman Kathy Shilkret said.

Iowa is the only state that prohibits a surcharge on ATM use, although a few other states limit the amount that can be levied.

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The surcharge, however, faces a legislative test in Washington and California. A bill is pending before the U.S. Senate Banking Committee, and California Assemblyman Michael Sweeney (D-Hayward) has introduced legislation to ban the surcharge in California. Last Friday, the Senate Finance Committee held an informational hearing on the issue. The bill has not progressed beyond committee.

“The defining site will be California,” said Gail Hillebrand, an attorney at Consumers Union in San Francisco, who testified at that hearing. Hillebrand said statistics suggest that through networks such as the Star System in the western United States, banks are generally paid more than 50 cents for each ATM transaction made by a non-customer--about twice the actual cost of that transaction to the bank.

B of A and other banks declined to say how much they make on ATM use. Nikki Waters, senior vice president at Star System in San Diego, the largest regional ATM network in the West, took issue with Hillebrand’s statistics.

“The established fee may or may not cover the true cost,” she said.

John Stafford, a spokesman at the California Bankers Assn., which represents most of the 331 commercial banks in the state, said it costs $30,000 to $35,000 to buy and install an ATM. While acknowledging that some association members are against the surcharge, he said the group was opposed to Sweeney’s bill.

“We believe that government should not be in the business of interfering in an area that really’s up to the marketplace to determine,” he said. “It’s a voluntary choice to use that ATM, it’s not a fee that’s being exacted against your will.”

Freelance writer Miguel Helft contributed to this story.