Automatically Taxed Money: ATM Fees Continue to Rise

Executive Summary

In the spring of 1996, nearly two decades after ATMs were introduced to the banking public as a cost-cutting idea, the rules changed. The corporations owning the PLUS and Cirrus electronic banking networks gave their member banks permission to charge consumers for ATM transactions. Since then, ATM out-of-network fees and surcharges have steadily climbed. This is the fourth report by the Coalition for Consumer Rights to examine ATM fees. It finds that there is not just an increase in the number of banks surcharging non-customers and charging out-of-network fees, the actual fee levels are going up.

Fees Up in Chicago:

• •The average surcharge to non-customers rose 18¢ (to $1.48) since February 1999, up 14% in under a year.

• •There are no surcharge-free machines left among major among banks contacted in the Chicago area.

• •The average bank's out-of-network fee rose 38¢ (to $1.03) since last February, a rise of 60% in under a year.
• •While half of the ten banks surveyed had no out-of-network fees one year ago, just three have no fee today.

Fees Up Outside of Chicago:

• •The average surcharge to non-account holders rose 15¢ (to $1.26) since February 1999 - up 12%.

• •For banks outside of Chicago, the average out-of-network fee to account holders rose by 21¢ (to 96¢) since February 1999. That's a jump of 28%.

No Economy of Scale:

• •Surcharges to non-customers from banks with bigger networks are 36¢ more (at $1.46), or 33% higher than surcharges from smaller networks, contrary to market theory.
• •Out-of-network fees charged to account-holders from banks with bigger networks are 21¢ more (at 83¢), or 25% higher than from smaller networks.
• •The five largest banking networks charge $1.50 to $2.00 for out-of-network fees.

Banks have justified these fees by changing their rhetoric, along with the rules. Although ATMs save banks a bundle, they are sold to consumers -- who must now dig into their pockets to use them -- as conveniences. ATM fees are, in fact, a hefty private tax we pay to access our own money.

In addition to reviewing the rise in the ATM fees, this report separates fact from fiction in the debate over surcharges and demonstrates how ATM-owning banks are paid twice for the same transaction, leading to double charges against customer accounts.

ATM Use

Automatic Teller Machines have become ubiquitous. They crop up everywhere from pharmacies, hospitals and airports to shopping centers, hotels and river boats. In short, anywhere that people spend money, there's an ATM nearby to help them do it.

The number of ATMs has more than doubled since 1996. The number of bank-owned machines across the nation reached 125,000 last year, up from 105,000 in 1996.⁽¹⁾ Non-bank ATMs have brought the total to at least 227,000, according to the American Bankers Association.⁽²⁾ Some of these are privately owned; others are 'off-premises' bank-owned machines.

Why the proliferation? The annual report published by Mentis Corp, Banking Systems and Technology: ATMs and Self-Service Technology.⁽³⁾ gives a clue. It says that banks have doubled their number of off-premise cash dispensers since 1995 for three reasons. These are: capturing market identity, providing customer convenience, and profiting from surcharges.

The profit motive should come as no surprise to anyone who has made an ATM transaction since 1996, when surcharges were first allowed. There is big money to be made on ATM surcharges. And banks are making it. In 1998, banks reported their seventh consecutive year of record profits, with income from fees rising at more than three times the rate of the increase in profits overall. ATM fees make a substantial contribution to these profits⁽⁴⁾

It's no secret why. In 1992, Americans completed 7.2 billion ATM transactions. By 1996, the year surcharges were added to ATM transactions, that number had risen to10.7 billion. Since then, the number of banks surcharging - and the level of surcharges - has steadily increased, far outstripping inflation. Surcharges have grown from nothing to $1.50, $2, and even $2.50 - with transactions reaching $3.00 to $5.00 each when 'foreign' fees are added in.

Our yearly survey of ATM fees bears this out - both inside and outside of Chicago, as the next several charts demonstrate.

Chicago Bank ATM Surcharges ⁽⁵⁾

Findings:

• •Average surcharge to non-customers went up 18¢ since February 1999, an increase of 14% in under a year and an absurd 522% increase over three years.

• •There are no surcharge-free machines left among banks contacted in the Chicago area.
• •The two banks with lower surcharges than average ($1.00, $1.25) are in the smaller half of banking networks at number six and number ten.
• •The bank with highest surcharge ($2.00) is in the larger half of networks at number four.

Statewide Bank ATM Surcharges

Findings:

• •Statewide, the average surcharge to non-account holders rose 15¢ since February1999 - a 12% hike in under a year, a ridiculous 641% over the last three.
• •Only one bank of the 18 in this section allows surcharge-free ATM transactions to non-account holders.

Swimming in Profits

Not only have ATM surcharges become the norm, banks have found other avenues for increased profits. Some banks have initiated fees for transacting business with a teller, euphemistically referring to these events as 'assisted transactions'. Federal legislation has opened up the insurance market to banks.

Unfortunately for bank customers, rising ATM fees and swelling bank revenues have not translated into a decrease in the cost of other services. Instead, lines at bank windows have grown longer as tellers have been laid off.

Added Fees, Advertising

ATMs themselves provide other profit opportunities. Some banks assess charges - even to their own customers -- for services such as ATM mini-statements. Some banks have even begun advertising on their ATM screens with videos, or printing coupons on their receipts, adding another layer of profit to their revenue stream.

"Wells Fargo recently made a big media splash with the launch of an advertising program on 340 of its ATMs in the San Francisco area. Amazon.com and AT&T have signed on for the program, which combines animated on-screen advertising with printed receipts. Wells Fargo also will promote its own bank products and ski lift tickets that are sold at the machines. Steve Pidgeon, assistant vice president of ATM services for Indianapolis-based Union Federal Savings Bank, was a bit bothered by press reports that Wells Fargo was the first bank to use animated ads and lease screen space to advertisers. His institution, with 42 branches in central Indiana, has been doing ATM advertising for four years. Union Federal began with coupons, then added high-resolution screen graphics." ⁽⁶⁾

Sales

There are plans in the works to sell stamps above the postal rate, sell theater tickets and provide sports scores at ATMs - all services geared to increase revenues.⁽⁷⁾ Ironically, these new services may increase waiting time at ATMs, questioning the bank industry's insistence that ATMs provide a convenience well worth the surcharge.

These trends - fewer tellers, more fees, higher fees and more profit-making services -- are indisputable. ATMs have become profit centers for banks. The new rhetoric about convenience may become nearly as irrelevant as the old sales pitch about cost-cutting. As one ATM executive, whose advertiser portfolio includes AOL, MCI and Pillsbury told an industry journal:

The company offers banks a percentage of advertising revenues so the ATM "becomes a real profit center for them," said Brent Lyner, EFT's vice president of sales. "It's a win-win situation for everybody. The banks prosper from it, the advertisers do well, bank clients benefit and, of course, we make a living." ⁽⁸⁾

Foreign Fees

Yet another example of rising costs are out-of-network, or foreign fees. These are charged to bank customers (by their own bank) for using an ATM that does not belong to their banking network. These are documented in the following charts.

Chicago Bank Out-of-Network Fees

Findings:

• •Average of bank out-of-network (foreign) fees rose 38¢ since February 1999, a 60% jump in under a year.
• •Chicago banks went from 50% with no out-of-network fee to only 30% with no fee.
• •Larger banking networks slap higher penalties on customers for out-of-network transactions. The top five charge $1.50 to $2.00.

Statewide Bank Out-of-Network Fees

Findings:

• •For banks outside of Chicago, the average foreign (out-of-network) fee to account holders rose by 21¢ since February 1999 - a jump of 28%.

The New Math: It Doesn't Add Up

In reading interviews about ATM fees with some of America's prominent bankers, it's hard to believe they ever passed elementary mathematics. There are three major equations in the ATM debate. One is about ATM cost to banks. The second is about covering the cost of ATM transactions. The third is the cost to customers.

Question 1. Do ATMs cost banks money?

Answer 1: ATMs save banks money - often 90% of the cost of a transaction.

Interviews with indignant bankers suggest that ATMs are an expense to banks that own ATMs. They use this expense to justify surcharges. In fact, each teller transaction costs a bank about $2.50, while each ATM transaction costs a bank 25¢ - 10% of the cost of a teller visit.⁽⁹⁾

Question 2: If surcharges are banned, how will banks cover the cost of operating ATMs?

Answer 2: Banks will still profit from interexchange fees that cover the cost of ATMs.

Right now, banks are paid an interexchange fee when a non-customer uses their ATM. The home bank pays this fee to the ATM owner from the out-of-network fee assessed for the transaction. And they probably pay it quite happily, since it saves them a bundle in teller costs. This interexchange fee does more than cover the cost of the ATM transaction. It includes a profit. If surcharges are banned, it will not affect out-of-network fees or interexchange fees. ATM owners will still turn a profit on every foreign ATM transaction, and home banks will still turn a profit on every out-of-network fee. The only difference is - ATM users won't get charged twice.

Question 3: Who wins if ATM surcharges are banned?

Answer 3: Everybody who uses ATMs.

Some people are hit harder by surcharges than others. They include:

• •Students whose home bank may not have machines near their schools.
• •Lower income people without ready access to transportation and who can only withdraw a little bit of money at a time.
• •Individuals whose working hours or location make it difficult to visit a bank during regular hours, or one of their bank-owned machines.

When they use a 'foreign' bank, they may pay both an out-of-network fee to their own bank and a surcharge. This can amount to $3 or more. On a $20 withdrawal, this can amount to a 15% banking tax on your own money. One withdrawal a week can amount to $156 a year in fees.

While critics tell people to change banks, some people are locked into a bank because of other constraints, such as minimum balances. Even people banking with the biggest networks can be out of luck when 'home' ATM lines are long or machines crash. This is because the biggest banking networks punish their customers with the biggest foreign fees (see the following charts) -- demonstrating that bank mergers have not been a bargain for anyone. In sum, surcharges are unnecessary. They penalize everyone, although some more than others.

Network Size and ATM Fees

Networks with 25 or fewer ATMs

Bank	Number of ATMs	Surcharge	Foreign Fee
1st Community Bank of Hillsboro	1	1.50	1.00
Edgar County Bank and Trust	3	1.50	1.00
Founders Bank	3	.75	.75
American United Bank and Trust	3	0	0
FirstBank of Chicago	3	1.25	1.25
Security Bank	4	1.00	1.00
Palos Bank and Trust	4	1.00	1.00
First State Bank	5	1.00	1.00
Alpha Community Bank	6	1.50	0
Bank of Waukegan	7	1.00	1.00
First Northwest Bank	10	1.00	1.00
Old National 2nd Bank of Aurora	10	1.25	1.25
First National Bank of Decatur	10	1.00	1.00
Commerce Bank	10	1.00	1.00
Mid-City	12	varies to 1.50	0
Busey Bank	14	1.50	.50
Cole Taylor	14	1.50	1.00
Hickory Point	16	1.00	0
Pinnacle Bank/Old Kent	20+	1.90	1.50
Peoples State Bank	20-25	1.00	1.00
Merchants National Bank	25	1.00	1.00
First National Bank of Joliet	25	1.50	1.00
Average Fees for Networks with 25 or fewer ATMs		1.10	.83

Network Size and ATM Fees

Networks with more than 25 ATMs

Bank	Number of ATMs	Surcharge	Foreign Fee
Marquette National	36	1.50	0
Bank Illinois	37	1.50	.50
Northern Trust	70	1.00	0
Citibank	76	1.50	1.00
AmCorp	84	1.50	1.00
LaSalle Northwest	100	1.50	1.50
American Chartered	120	1.00	0
LaSalle	122+	1.50	1.50
First American	140	1.50	1.50
Harris	140	2.00	2.00
Bank of America	172	1.50	1.50
St. Paul Federal	500+	1.50	1.50
Mercantile Bank	600	1.50	1.00
Bank One	9000	1.50	1.50
Average Fees for Networks with more than 25 ATMs		1.46	1.04

Findings:

• •Surcharges to non-customers from banks with bigger networks are 36¢ more, or 33% higher than from smaller networks.
• •Foreign, or out-of-network fees charged to account-holders from banks with bigger networks are 21¢ more, or 25% higher than from smaller networks.

Skirmishes in the ATM War

Since surcharges were instituted in 1996, proposals to ban or limit fees have been floated in Congress, state legislatures, city councils and as referendums.

An attempt at a national ban, sponsored by Senators Alphonse D'Amato and Carol Mosely Braun, was defeated in the Senate by a 3 to 1 margin. There is very big money riding against a federal ATM surcharge ban. Those opposing a surcharge ban ranged from giant financial interests like banks and credit card companies to machine producers. They included Diebold, EDS, MasterCard International, NCR, VISA USA, Bank One, Wells Fargo Bank, the United States Chamber of Commerce, National Retail Federation, National Grocers Association, National Association of Convenience Stores and the ATM Owners Association⁽¹⁰⁾

Surcharge opponents have had more success on a local level. A number of states have capped or banned ATM surcharges - some of which are now defending their actions in court. These include Arkansas, Mississippi, Wyoming, Iowa and Connecticut.

Individual cities are jumping on the ban-wagon. On November 4 1999, San Francisco voters, by a two-thirds majority, approved Proposition F, the nation's first voter initiative to ban charges at ATMs. The victory came despite more than $500,000 spent by banks in opposition and a campaign crafted by the same marketers who invented "Harry and Louise" to sink President Clinton's proposed health-care reforms.

Likewise, the Santa Monica city council voted to ban the double charges. In response, major banks there took two steps. Wells Fargo and Bank of America cut off access to their machines, in violation of their ATM network agreements. Next, these banks sought and received an injunction, preventing the cities from implementing the new bans. As things stand, the cities have filed an appeal to allow them to enforce the ban while the issue is tied up in court.⁽¹¹⁾

Undeterred by the court battles, more than a dozen California cities, including Los Angeles and San Diego, have proposed similar measures, and lawmakers in cities such as New York City and New Orleans have also begun considering bans. ⁽¹²⁾

Although banks have warned that bans would shut down the ATM industry if implemented, Iowa and Connecticut provide interesting test cases. The rate of ATM deployment in those two states during the past three years has been slightly higher than the national average, according to a banking industry analysis cited by the California Public Interest Research Group, which led the Proposition F campaign in California.

Bob Brammer, of the Iowa attorney general's office, which is defending the state's law, says that, "Banks are not going out of business in Iowa." And Connecticut Atty. Gen. Richard Blumenthal, who is defending that state's ban said, "ATMs are fully available here, and in fact they have been proliferating in number even while the banks have not been charging the surcharges."⁽¹³⁾

Even the U.S. military has gotten into the act, recognize the fundamental injustice of ATM surcharges. They have proposed banning surcharges on military bases, to protect the financial interests of the members of our armed forces.

The legal battles over ATM surcharges are far from over, and center around the rights of state and local governments to regulate national banks. Federal legislation introduced by Rep. Bernie Saunders would guarantee local rights to regulate banks and impose surcharges. In the meantime, measures to prohibit governments from doing business with banks that surcharge are also in the works.

Public Opinion: An Anti-Surcharge Avalanche

ATM surcharges prompt consumer outrage in part because nobody likes to pay for the same thing twice. Paying an out-of-network fee (to cover an interexchange fee) plus a surcharge is akin to paying for groceries as you take them off the shelves, and then again at the check out.

A Bank Rate Monitor article documented these opinions:

• Nearly 93 percent of those polled said government intervention is necessary on the ATM issue because most, 98.8 percent, don't believe that a $1.50 surcharge is needed to cover a bank's costs.



• When it came to moving an account and other business to another financial institution to avoid surcharges, 91.5 percent said they would not hesitate. Almost the same amount, 85.4 percent, already drive out of their way to find a surcharge-free ATM.



• A significant number of ATM users, 28 percent, don't pay a surcharge. But almost half, 43.9 percent, are heavy ATM users -- whipping out the card at least 76 percent of the time. Surcharge fees paid were spread out with 9.8 percent paying more than $2. ⁽¹⁴⁾

None of this is surprising. Since the Coalition for Consumer Rights began questioning voters about surcharges in its Annual Survey, a vast majority of those polled have opposed the double fees and supported a ban. A November 1999 Gallup/CNN/USA Today poll confirms our findings nationally -- a clear majority of Americans believe that the federal government should pass a law to prohibit banks from surcharging.⁽¹⁵⁾ This perspective crosses all demographic boundaries. And it's unlikely to change. If banks continue to charge higher fees, hire fewer tellers and pay lower interest, consumers may grew more impatient with ATM surcharges. Some may even look for alternatives to their banking networks.

Dodging the Double Whammy

More and more often, consumers who use a 'foreign' ATM are hit with a double whammy. That is, both a surcharge and an out-of-network fee. Together, these can add up to $3 or $4 per transaction.

However, not all financial institutions charge to use their ATMs. Some -- notably credit unions - have made attempts to hold their surcharges down. A number of on-line financial institutions reimburse their account-holders for a set number of ATM surcharges a month. Finally, new banking networks are being forged. For example, one alliance, the CO-OP Network based in Pomona, California, recently merged with CU Access, a credit union ATM network, to increase the number of no-surcharge ATMs to 2,633 in 26 states.⁽¹⁶⁾

For Illinois residents interested in finding surcharge-free ATMs, they can consult the appendix in this report or various webpages including:

www.FreeATMs.com (The Illinois Bankers Association)

http://209.24.187.89/web/coop/search.html (Coop ATM)

www.atmsurcharges.com/chicago/

www.atmsurcharges.com/find.html

For consumers who must regularly bank at ATMs, CCR recommends that they:

• Try to bank at ATMs owned by their home bank to avoid surcharges and out-of-network fees.
• If you must bank at ATMs owned by other banks or private businesses, make less frequent transactions and withdraw larger amounts each time to cut down on surcharge and out-of-network fees assessed to your account.

Coalition for Consumer Rights

ATM Glossary

Foreign Bank: A bank at which you do not have a bank account.

Foreign Fee: The fee assessed by your home bank for using a foreign bank's ATM. Also referred to as an 'Off-Us Fee' or 'Out-of-Network Fee'. These fees show up on your regular bank statements but are not indicated on the receipt issued by the foreign bank's ATM when you complete a transaction.

Home Bank: A bank at which you have a bank account and to which your deposits are credited.

Interexchange Fee: The fee paid by your home bank to a foreign bank when you use the foreign bank's ATM.

Off-Us Fee: See 'Foreign Fee'.

Out-of Network Fee: See 'Foreign Fee'.

Surcharge: The amount deducted from your bank account balance when you use a 'Foreign' ATM to conduct a transaction. This amount does show up on your ATM receipt, as well as your regular bank statement.

Appendix:

Publically Accessible Surcharge-Free ATMs in Chicago

(from: www.atmsurcharges.com/chicago/)

118 N. Clark, Cook County Building

125 S. Clark, ComEd Building

219 S. Dearborn, Dirksen Building

230 S. Dearborn, Kluczynski Building

77 W. Jackson, Metcalf Building

251 E. Huron, Northwestern Hospital, Feinberg Plaza

801 N. Clark, Cosmopolitan Bank and Trust Drive-up

160 W. Chicago, Moody Bible Institute Lobby

1030 N. Clark, Gold Coast Multiplex, 6^th Floor

100 W. North Ave, North Federal Savings Bank

1401 N. Claremont, Healthcare Associates Credit Union

6445 N. Western, St. Elizabeth Hospital

6454 N. Western, Devon Bank

3515 W. Irving Park, Devon Bank

4343 N. Elston, Labe Federal Bank

4801 W. Belmont, Community Savings Bank

4729 N. Milwaukee, Hoyne Savings Bank

O'Hare Airport, Terminal 1

4909 W. Division, First Bank of Oak Park

1500 S. California, Mt. Sinai Hospital

845 W. Taylor, UIC Science and Engineering Building

1007 W. Harrison, UIC Behavioral Science Building

1740 W. Taylor, UIC Hospital Lobby

900 S. Ashland, UIC Molecular Biology Research Building

11159 S. Kedzie, Regency Savings Bank

500 E. 51^st Street, Provident Hospital

Endnotes

1. "Banks on the Warpath: Ignoring ATM Saturation" ATM Magazine, 11/2/98

2. Karen Brandon, "Atm Outrage Grows into Atm Revolt", Chicago Tribune, 11/7/99

3. "Banks on the Warpath: Ignoring ATM Saturation" ATM Magazine, 11/2/98

4. Tribune, op. cit.

5. For this and all charts, fee information was gathered from phone conversations with bank personnel in late 1997, January and February 1998, February, 1999 and November 1999 and January 2000. Charts do not list all bank fees, including those associated with different types of accounts. Consumers should consider many policies before choosing a bank. Although attempts were made to verify transaction and surcharge fee information, they may change without notice. The Coalition for Consumer Rights is not responsible for inaccurate information provided by bank employees.

6. "ATM Advertising: More Bank for the Buck," ATM Magazine

7. Oziel, Clelia, "Sports scores coming to an ATM near you" Reuters on AOL, December 7, 1999

8. "ATM Advertising: More Bank for the Buck," op. cit.

9. Chatsky, Jean, "How to beat the high cost of ATMs" Money.com, November 30, 1999.

10. "Is the surcharge ban really dead?" www.Bankinfo.com, 1/4/99

11. "California Cities Appeal ATM Fee Ruling," AP on AOL, December 13, 1999

12. Karen Brandon, "Atm Outrage Grows into Atm Revolt", Chicago Tribune, 11/7/99

13. Ibid.

14. Samaad, Michelle, "Most people would move account to avoid ATM surcharges, survey shows," Bank Rate Monitor

15. ATM Fees, The Polling Report, December 6, 1999, p.3.

16. Michelle Samaad Bank Rate Monitor "It's getting hard to avoid ATMs but easier to avoid their ever-higher fees.