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Rule filed under Banking

ATM Surcharge Bans

| Written by ILSR Admin | No Comments | Updated on Mar 9, 2004 The content that follows was originally published on the Institute for Local Self-Reliance website at

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.

More Information:



ATM Surcharge Bans – Santa Monica

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

ATM Surcharge Bans – Iowa

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

ATM Surcharge Bans – Connecticut

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

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