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. Iowa established its ATM network as a common carrier–similar to telephone wires and railroads. All banks and credit unions, regardless of size, were guaranteed access to the network under the same terms and had an equal say in setting network rules and pricing.

This nondiscriminatory language was the basis ofBanking Superintendent Richard H. Buenneke’s 1992 opinion declaring surcharges illegal (see below).

Iowa’s policy nurtured competition. By the 1990s, in most other states, two or three banks owned most of the ATMs.  In contrast, the top four banks in Iowa owned fewer than 20 percent of the ATMs in 2000. Iowa’s approach was so effective that it won the support of three groups that rarely agree on anything—the state’s bank, credit union, and consumer associations. Iowa had a high number of ATMs per capita and among the highest rate of ATM usage in the country.

In March 2002, a federal court upheld a challenge brought by the OCC and five national banks—Bank of America, Firstar, Metrobank, US Bank, and Wells Fargo—against Iowa’s ATM law. The court voided the ban on surcharges. Other portions of the law were struck down in a separate lawsuit brought by Bank One, also with the backing of the OCC. WellsFargo and other banks collected almost $5 million in surcharge revenue in the first six months after the ban was lifted.

For more on the OCC’s long history of aggressive attacks on state banking laws, see Rogue Agencies Gut State Banking Laws.

Iowa Banking Commissioner’s No ATM Surcharge Order


Mr. James W. Jorgensen
Vice President
Communications & Special Projects
ITS, Inc.
6700 Pioneer Parkway
Johnston, Iowa 50131

Dear Jim:

This letter responds to your correspondence of November 22, 1991, in which you requested the opinion of the Banking Division and Credit Union Division, Iowa Department of Commerce, regarding “surcharging” of electronic fund transactions at satellite terminals established pursuant to Iowa Code chapter 527 (1991). Your letter notes:

Surcharging would involve a terminal-establishing (bank or credit union) directly charging a fee to consumers (both their own cardholders and cardholders from other financial institutions) for using a satellite terminal.

Although your letter asked, specifically, about the filing of informational statements with the Banking Division and Credit Union Division, due to our opinion on the more fundamental issue of whether surcharging is permitted by the Iowa Code, we need not reach the question of when surcharging must be disclosed on informational statements.

Iowa Code S 527.5(2)(a) provides as follows:

A satellite terminal shall be available for use on a nondiscriminatory basis by any other financial institution…, and by all customers…who have been provided with an access device (emphasis added).

A complete understanding of this section is achieved by a review of the broad scope of Iowa Code Chapter 527 and recognition of the tenor of that legislation. See Iowa Code S 527.1(3) (“[E]lectronic funds transfer systems are essential facilities in the channels of commerce.”) Read as a whole, the provisions of chapter 527 mandate an electronic fund transfer system accessible to each Iowan on an equal, non-discriminatory basis.

It is our opinion that surcharging of individual users of a satellite terminal is not permitted by Iowa Code Chapter 527 (1991). We reach this conclusion for the following reasons:

1. Charges to individuals are not provided for in the statute. (All charges to financial institutions must be justifiable either as (1) a cost of operating a satellite terminal or as (2) a fair, reasonable return on investment of capital. See, Iowa Code S 527.5(6)).

2.Surcharging does not appear to be consistent with statutory provisions requiring “non discriminatory” service. The effect of surcharging would be to render the cost of electronic transfer services variable–dependent upon ownership of the satellite terminal a consumer used.

The intention of the Iowa legislature was to permit the creation of a satellite terminal network providing services — on an equal, or non-discriminatory basis — throughout the state. Surcharging would violate that intention by creating a system where customer charges would vary from satellite terminal to satellite terminal. The cost of a transaction to a consumer in Red Oak might be substantially different than the cost of a transaction in Cedar Rapids. We feel the Iowa Legislature intended no such variance in charges.

As noted above, due to our view that surcharging is not permitted by Iowa Code Chapter 527 (1991) we do not reach your question regarding disclosure of surcharging on informational statements. Should you have questions regarding this response, please don’t hesitate to contact us for further discussion of these issues.

Dated this 22nd day of April, 1992.

Richard H. Buenneke
Banking Division