Surcharges are the fees banks charge noncustomers for use of their ATMs. Surcharges are deducted directly from the consumer’s account at the time of the transaction. (When you withdraw $20 and your receipt says $21.50, you have paid a $1.50 surcharge to the bank that owns the ATM.)
Surcharges are anti-competitive and threaten the viability of small banks and credit unions. In most regions, a handful of large banks own the majority of ATMs. By imposing surcharges, these banks create an incentive for customers of small banks and credit unions to move their account to one of the dominant banks in order to avoid the surcharge. Former Federal Trade Commission policy director David Balto argues that surcharges create a “perverse form of price competition where firms can actually gain customers by raising prices.”
As a result, small financial institutions are losing market share, despite the fact that they offer consumers a better deal.
In the late 1990s and early 2000s, consumer groups and community financial institutions worked to enact state and local laws to prohibit surcharges. But several of the nation’s largest banks, together with the Office of the Comptroller of Currency (OCC), the federal agency that regulates national banks, filed lawsuits challenging surcharge bans on the grounds that they are preempted by federal law.
In March 2002, a federal judge struck down Iowa’s long-standing surcharge ban. Courts found in favor of Bank of America and Wells Fargo against surcharge bans enacted by the California cities of San Francisco and Santa Monica, and the U.S. Supreme Court denied an appeal. The courts reasoned that state and local governments have no authority to regulate “national” banks overseen by federal agencies.
- Rogue Agencies Gut State Banking Laws — The sordid history of how two federal banking regulators systematically dismantled state laws restricting predatory lending, ATM surcharges, and other big bank abuses. Article from the Fall 2001 issue of The New Rules.
- ATM Surcharge Fact Sheet (June 2000)
- Testimony to New York City Council on Surcharges (December 2000)
- Minnesota Should Ban ATM Surcharges – Minneapolis Star Tribune commentary by ILSR Researcher Stacy Mitchell, November 1999.
- The National Bank Robbery – Within five years, industry analysts predict, just five networks will control 90 percent of ATM transactions. Fees to use these machines will go up, while community-based financial institutions will decline. Some states are fighting back–but can they win? Article from the Fall 1999 issue of The New Rules.
Santa Monica, California, became the first city in the nation to ban ATM surcharges in 1999. Wells Fargo and Bank of America filed suit and, with the support of the federal Office of the Comptroller of the Currency (OCC), succeeded in getting the law overturned by the courts. Continue reading
Wells Fargo and Bank of America filed suit and, with the support of the federal Office of the Comptroller of the Currency (OCC), succeeded in getting San Francisco’s ATM surcharge ban overturned by the courts. Continue reading
ATM networks in most regions are owned or controlled by a handful of large banks, which, not surprisingly, tend to adopt network rules and rate structures that boost their own profits and undermine smaller competitors. Iowa was, for many years, an exception. In the 1970s, Iowa lawmakers had the foresight to enact a set of rules to ensure that the ATM infrastructure would be equitably shared among the state’s financial institutions. Continue reading
Connecticut was one of two states that prohibited ATM surcharges. The state’s ban was the result of an administrative order issued by Banking Commissioner John Burke in 1995. His interpretation was challenged in 1997 by two national banks, First Union and FleetBoston Financial. In December 1999, the Connecticut Supreme Court overturned Burke’s order as an invalid interpretation of existing state law. Continue reading