7 Banks Fight ATM Fees of Industry Giants

Amid growing rancor over rising fees for automated teller machine use, a group of California banks and thrifts is promising not to charge noncustomers for ATM use, in protest of the new surcharges by industry giants Bank of America and Wells Fargo.

In an unusual alliance to be announced today, seven financial institutions--including Union Bank of California and Glendale Federal--said the surcharges were excessive and put them at a competitive disadvantage because the state’s two largest banks control almost half of the state’s ATMs.

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

Most financial institutions have long charged their customers when they use ATMs owned by other banks. That fee, typically $1, is split among 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--of $1.50 a transaction--to noncustomers using its ATMs, essentially lifting the cost to $2.50 for a withdrawal by a noncustomer. Wells Fargo followed suit a month later, and Home Savings of America is now doing the same. B of A and Wells Fargo operate about 7,000 of the 15,000 ATMs in California.

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 noncustomers are taking advantage of that.

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

But consumer groups--and now some rival banks and thrifts--have voiced outrage at the practice.

“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 bank 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 out of every five ATMs in the United States imposes a surcharge on noncustomers, typically $1 to $2.

Gene Galloway, executive vice president at Sanwa Bank of California, which joined the group protesting the surcharge, called the additional fee an unfair tactic by big banks aimed at squashing their smaller rivals.

“It places smaller institutions at a competitive disadvantage,” he said. Other members of the group are 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 deny that the surcharge is aimed partly at attracting customers. Wells Fargo, for example, said 13% of its ATM transactions are made by noncustomers.

“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.

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 yet 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 noncustomer--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 maintain 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.