Berkeley Moves to Outlaw Banks’ ATM Surcharges

The battle over ATM surcharges is headed for a showdown in Berkeley as the city attempts to become the first in the nation to ban the fees at cash machines within city limits.

Such an ordinance won preliminary approval at a City Council meeting late Tuesday and put Berkeley at the center of a legal struggle between consumer groups seeking to outlaw ATM surcharges and the banking industry, which argues that cities have no authority over federally regulated financial institutions.

At issue are the ATM surcharges--usually from $1 to $3--consumers pay when they use automated teller machines not owned by their bank. A recent study by the California Public Interest Research Group found that 99% of ATMs in California impose such fees.

Consumer groups say the fees are excessive and anti-competitive. Bank officials say the surcharges are needed to pay for the installation and operation of ATMs, particularly those in locations that are less profitable for banks, but more convenient for consumers, such as hotels, hospitals, grocery stores and restaurants.

Efforts to ban ATM surcharges have failed in about 25 states, including California. A federal proposal died last year. Only Ohio and Connecticut have succeeded in banning the surcharges, and court challenges are underway in both states.

After repeated losses against heavy bank-industry lobbying at the state and federal levels, consumer groups are moving their campaign to cities and counties, where they hope for a groundswell of support.

Santa Monica, Santa Cruz and San Francisco are considering the bans. The San Francisco proposal was effectively killed by the city’s governing body in February, but proponents vow to put it on the next citywide ballot.

“We can’t seem to win at the national level, so we are going back to the cities,” said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, which has been leading the campaign against ATM surcharges.

Consumer groups used a similar local strategy to win support for anti-smoking legislation, which began with cities passing laws restricting smoking in public places and eventually worked its way up to the state and federal level.

The Berkeley City Council approved the ban on surcharges Tuesday by a 6-1 vote, with two abstentions.

But the ordinance must be approved a second time before it can take effect. Normally, a second vote would occur in two weeks, but in light of the opposition from the banking industry it’s not clear when the final vote will occur, says council member Kriss Worthington.

“My constituents are saying it’s a rip-off to be charged a fee at an ATM machine just to take out your own money,” Worthington said. “There are a lot of irate bank customers out there, and we want banks to know they should be doing something about it.”

Under the ordinance, the city wouldn’t be responsible for enforcing the surcharge ban. Instead, customers would be entitled to file a lawsuit against the financial institutions and collect a $250 fine, punitive damages up to $5,000 and legal costs.

The ordinance would apply only to ATMs owned by financial institutions, not those owned by other businesses, including many situated in convenience stores or at gas stations.

Banking officials remain staunchly opposed to the bans, saying federal law preempts any regulation by states and cities of federally chartered banks and savings institutions.

“What’s next?” asked Greg Wilhelm, lobbyist for the California Bankers Assn. “Will cities tell gasoline companies how much they can charge? Will they set milk prices?”

The trade group called the Berkeley proposal unconstitutional because it does not apply to ATMs owned by nonbank businesses. It hinted that its members might sue to overturn the ordinance if it is enacted.

The U.S. Office of the Comptroller of the Currency--the unit of the Treasury Department that oversees 2,800 banks--has sided with the banking industry on the ATM fee issue, asserting that it has exclusive enforcement authority over federally chartered banks.

In Connecticut, the U.S. comptroller is suing the state’s banking department over its effort to enforce an ATM surcharge ban, though the comptroller hasn’t taken a position on the merits of the ban. A U.S. district judge this month granted a preliminary injunction that blocked the state from enforcing its ban.

Nevertheless, most banks in Connecticut and Ohio have stopped levying the ATM surcharges pending a final legal ruling.

The Office of Thrift Supervision, which regulates federal savings institutions, hasn’t yet ruled on whether state and local bans on ATM fees are preempted by federal law, said Paul Lockwood, a spokesman for the agency.

Last year, however, the agency issued two opinions asserting that federal rules override conflicting state laws regarding the operation and establishment of ATMs.

In California, legislators will face the ATM surcharge issue again this year under Senate Bill 270, introduced by state Sen. Betty Karnette (D-Long Beach). The bill’s first hearing is scheduled for May 12. A similar bill failed in 1997.

Representatives of California’s two largest banks, Bank of America and Wells Fargo, declined to say whether they would abide by local surcharge bans, if they were approved in Berkeley or other cities.