A Massachusetts Slugfest over ATM Surcharges
Keenan, Charles, American Banker
The people of Massachusetts, whose forebears dumped tea into Boston Harbor to protest taxation without representation, feel the same way about automated teller machine surcharges.
Massachusetts is one legislative step away from becoming the first state to outlaw extra cash-withdrawal fees that many ATM owners charge noncustomers.
The state Senate has passed a ban, but the bill has run into a snag in the House of Representatives.
Passage would represent a big defeat for the major Boston-based banks. Though neither BankBoston Corp. nor Fleet Financial Group currently imposes ATM fees on customers of other institutions, they intend to do so and have lobbied feverishly to sway public opinion.
BankBoston went so far as to send statement inserts to its million customers in the state, trying to convince them that surcharges would serve their interest by passing the cost of the service explicitly to noncustomers who use it.
Sen. Alfonse D'Amato, R-N.Y., the chairman of the U.S. Senate Banking Committee, who has been on an anti-surcharge crusade, could use the Massachusetts experience to stoke his argument.
The controversial surcharges-usually $1 to $2-have spread like wildfire since April 1996, when MasterCard International and Visa U.S.A. lifted bans against the fees that had been in the rules of their Cirrus and MasterCard networks.
The card networks had given up on enforcing their bans because more than a dozen state legislatures had acted to permit surcharges. ATM owners said the income from surcharges would encourage deployment of more machines at remote locations that otherwise could not be justified. Even though many consumers reacted negatively, transaction volumes nationwide went up.
Some smaller banks reacted by forming "surcharge-free" alliances, agreeing not to impose the fees on one another's customers. Some banks have actually begun giving their customers rebates for any surcharges they incur.
In heavily Democratic, liberal-leaning Massachusetts, the surcharge fight has taken on a high-minded tone, with advocates on both sides invoking principles worthy of the state's Puritan traditions.
"We think it's bad policy for the government to be in the business of price controls," said Thomas J. Hollister, executive vice president of consumer and small-business banking at $68 billion-asset BankBoston.
This is "a huge deployment issue for us and for other providers," he said. "If you can't charge, you'll have fewer machines and less consumer choice."
Mr. Hollister will even tug at heartstrings to make a point: "The story I like to tell is about the parent who, at three in the morning, runs out to get cough syrup for her sick child but doesn't have any pocket money. Is Massachusetts going to be the only state in the country that won't have a machine to get cash?"
Most consumers understand that banks are struggling in a competitive market, Mr. Hollister added. Among those who responded to BankBoston's mail appeal, 5% expressed "visceral, historic, anti-bank" sentiments, he said, while 95% appreciated the argument that surcharges are an economic benefit to them.
"Once customers get it, they say, 'Hell yes, you ought to charge them-I didn't realize I was subsidizing noncustomers,'" Mr. Hollister said.
Robert B. Hedges Jr., senior vice president at $84 billion-asset Fleet, contended that the surcharge issue is not a popularity contest or a public policy issue but "a marketplace issue." Like them or not, he said, surcharges are necessary for superregional banks that must invest heavily in technology.
Pro-surcharge bankers call them "convenience fees," arguing that customers are paying for the luxury of getting cash wherever they are. But those bankers face broad-based opposition from community bankers, credit union officials, politicians, and consumer advocacy groups.
"How often do you find the consumers and bankers lining up on the same side of an issue? …