ATM Surcharge Bans – Santa Monica

On October 12, 1999 Santa Monica, California became the first city in the nation to ban ATM surcharges. The City Council voted 4-3 to pass the measure after more than three hours of debate. San Francisco soon followed suit, adopting its own surcharge ban.  On November 3, 1999, the cities of Santa Monica and San Francisco were sued by Wells Fargo, Bank of America, and the California Bankers Association. They argued that federal law preempts local surcharge bans and that national banks do not have to comply with state and local ATM regulations. Both the district court and the appeals court found in favor of the banks. The U.S. Supreme Court denied further appeal in May 2003.

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



Section 1. Findings and Purpose. The City Council of the City of Santa Monica hereby finds and declares that:

A.In recent years, financial institutions have begun imposing new and exorbitant fees on consumers. These fees have been increasing at more than double the rate of inflation.

B. Many of these fees are imposed for services which were routinely provided without charge only a few years ago.

C.One particularly onerous new fee is a surcharge that financial institutions impose upon non-account holders for using their Automated Teller Machines (ATMs). This fee is in addition to the fee that financial institutions already charge their account holders for using another institution’s ATM. Together, these two fees total an average of$2.57 per transaction, which equates to more than a 10% charge for withdrawing $20.00 of one’s own funds through an ATM.

D.These exorbitant surcharges are not necessary either to compensate financial institutions for use of their ATMs or to finance new ATM machines because the institutions are already compensated. Financial institutions already receive a payment (called an “interchange fee”)from the ATM user’s home bank for providing the service of the ATM. This cost, in turn, is passed on to the ATM user by his or her home bank in the form of a “foreign fee.” Since financial institutions are already being compensated for providing their ATMs to non-account holders, the recently enacted surcharges represent a form of pure profit that bears no relation to actual cost.

E. The imposition of double charges detrimentally impacts competition by giving large financial institutions an unfair advantage over small banks and credit unions, which tend to provide higher interest, lower fees, and more consumer-friendly service, particularly to the elderly and young people.

F. The surcharge is also anticompetitive and unfair since it removes any competition from the process of fee-setting. For more than twenty years, without the surcharge, financial institutions negotiated interchange fees and other fees with the ATM networks, and with each other. This form of negotiation served to keep fees reasonable, since all parties had an interest in keeping their own costs down. However, when the consumer bears the full brunt of a new fee, he or she has no leverage to negotiate with the financial institutions, and the result is unreasonable fees.

G. Federal and state laws do not remedy the deleterious effects of these surcharges. Local legislation is therefore essential to safeguard the general welfare in Santa Monica by protecting consumers from exorbitant and unfair fees and protecting smaller financial institutions from anticompetitive business practices.

Section 2. Section 4.32.040 is hereby added to the Santa Monica Municipal Code to read as follows:

Section 4.32.040 Automated Teller Machine Surcharges

(a) Definitions. The following words and phrases shall have the following meanings when used in this Section:

Access. To use any function on the ATM, including cash withdrawal and fund transfer.

Access Device. A card, code, or other means of access to a customer’s account, or any combination thereof.

Automated Teller Machine or ATM. Any electronic information processing device that accepts deposits or dispenses cash in connection with a credit, deposit, or convenience account. The term does not include devices used solely to facilitate check guarantees or check authorizations, or which are used in connection with the acceptance or dispensing of cash on a person-to-person basis, such as by a store cashier.

Financial Institution. Any bank, savings association, savings bank, credit union, or industrial loan company.

User. A natural person to whom an access device has been issued for personal, family, or household use.

(b) Prohibition an Certain Fees. A financial institution may not impose a fee of any kind on a user for accessing an ATM of that financial institution located in the City of Santa Monica with an access device not issued by that financial institution.

(c) Enforcement and Penalties.

(1) Civil Action. Any person injured by a violation of this ordinance may enforce its provisions by means of a civil action.

(A) Any financial institution that violates this ordinance shall be liable to the person injured for the actual damages as determined by a jury, or a court sitting without a iury. but in no case less than $250.

(B) Any financial institution that violates this ordinance shall also be liable for reasonable attorneys’ fees and court costs as determined by the court. In cases where the financial institution has engaged in a pattern of willful violations, the financial institution shall be liable for punitive damages not to exceed $5,000 per violation.

(2) Injunction

(A) Any financial institution that commits an act or engages in any pattern and practice in violation of this ordinance may be enjoined therefrom by any court of competent jurisdiction.

(B) Actions for injunction under this subsection may be brought by any person injured by a violation of this ordinance, by the City Attorney, by the District Attorney, or by any person or entity which will fairly and adeauately represent the interests of the protected class.

(3) Nonexclusive Remedies and Penalties. Nothing in this Section shall preclude any person from seeking any other remedies, penalties or procedures provided by law.

SECTION3. Any provision of the Santa Monica Municipal Code or its appendices inconsistent with the provisions of this Ordinance, to the extent of such inconsistencies and no further, is hereby repealed or modified to the extent necessary to effect the provisions of this Ordinance.

SECTION4. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The City Council hereby declares that it would have passed this Ordinance and each section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional.

SECTION 5. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The City Clerk shall cause the same to be published once in the official newspaper within 15 days after its adoption. This Ordinance shall become effective 30 days from its adoption.