Santa Monica Is First California City to Ban ATM Surcharges

By Jorge Casuso

In a decision proponents hope will kick off a nationwide campaign, the City Council Tuesday night voted to make Santa Monica the first California city to ban extra charges levied on consumers who use another bank's Automated Teller Machine (ATM).

The 4 to 3 vote - captured by several Los Angeles television stations just in time for their 11 p.m. newscast -- thrust Santa Monica into the forefront of a battle being waged between banks and consumer advocates in the state capitol and in a dozen California cities.

"If we do this in this city, I believe it will pass in other cities and across the country," said Councilman Michael Feinstein, one of the sponsors of the ban. "The whole mindset of the country would change. Consumers, I believe, are being ripped off."

After a more than three hour debate between the competing interest groups that touched on everything from the history of banking and inflation to deregulation and floating interest rates, a majority of the council sided with proponents of the ban, who contend the surcharges throttle competition.

Proponents note that two banks - Wells Fargo and Bank of America - control 60 percent of the bank ATMs in California. By imposing a surcharge for non-customers, proponents contend, the big banks are trying to eliminate competition from smaller banks whose customers must pay the extra charges or hunt for their own banks' ATMs, which are often local and few. As a result, many join the big banks to avoid the surcharges.

"This is truly a measure that can fight the anti-competitive aspects, that will help the consumers," said Councilman Ken Genser. "It levels the playing filed between small banks and big banks."

But representatives of Santa Monica's two small community banks opposed the ban, noting that their ATM machines are supported by surcharges paid by non-customers.

"The cost of our new machines are borne by clients of the large banks," said James P. Giraldin, chief operating officer for First Federal of California. "This proposal specifically hurts the local banks.

"If you start regulating what I can charge, what I can do, they will beat us," said Giraldin, who says his bank makes an average annual profit of $2,035 after taxes for each of the bank's 19 machines. "You'll have all B of A and Welles Fargo. The community banks won't be able to compete."

James A. Clark, of the California Bankers Association argued that paying the surcharge was a choice exercised by few customers. Statistics show that 70 percent of ATM users rarely or never incur a surcharge, while 20 percent incur 60 percent of the surcharges, he said.

"They find the convenience worth paying for," said Clarke, the association's vice president for state government relations. "They do it over and over again."

"Convenience has a value," said Dan Eliot, First Federal's executive vice president of Community Banking. "These machines are being used, and isn't that the nationwide acid test?"

But champions of the ban argue that consumers don't have a choice but to pay the surcharge when they are travelling or can't get to their bank's ATMs. They contend that the reason for the surcharge is simply the bottom line.

"The rising costs of banking are outrageous," said Janine Benner, Los Angeles consumer advocate for the California Public Interest Research Group (CALPIRG). "ATMs don't have a salary and don't need medical insurance. It's time for the city to protect its residents and visitors."

Welles Fargo's only ATM that does not levy a surcharge, noted CALPIRG's Jon Golinger, is in the basement of the state capitol.

"If hey can do it for the politicians," said Golinger, "why can't they do it for the people of California? The surcharge is for the single purpose of getting people who are stuck and need the money. Banks know that."

A motion to amend the ordinance to include ATM machines not owned by banks failed. So did another motion to delay the vote until the California Attorney General weighs I on the issue.

"I'm concerned with the legal issues," said Councilman Paul Rosenstein. "This is not an issue I see as a high priority, front-burner issue. Politically, it may play well. But I don't feel that it is an issue affecting our community in very critical ways."

Opposing council members noted the dearth of consumers who showed up at the meeting, despite wide media coverage. Besides bankers and CALPRIG representatives, there were two labor leaders from Pueblo, Colorado who spoke and four local residents who routinely address nearly every issue on the council agenda.

"This is one of the strangest consumer protection hearings we've ever had," said Councilman Robert Holbrook. "We had no consumers here. Who are we legislating for, and whose battle are we going to fight? If Santa Monica consumers cared, you'd think they'd be here tonight."

Mayor Pam O'Connor agreed.

"It's a feel good issue but I don't think it's really going to get to the problem," O'Connor said. "We're fooling ourselves that by taking away this fee it won't show up elsewhere. Where are the consumers of Santa Monica? They're not here."

Councilman Kevin McKeown, who cosponsored the ban, said he was inundated with pleas from residents who saw him on television Monday night, adding that 960 signatures were gathered on a petition.

"Everywhere I went people said, 'You go guys. Stop these ATM fees. Go Santa Monica."