Mr. Chairman and members of the Committee, my name is Kurt Helwig. I am Executive Director of the Electronic Funds Transfer Association, the nation's leading inter-industry, non-profit, trade association dedicated to the advancement of electronic payment systems and commerce. I thank you for the opportunity to appear before you today to discuss the issue of ATM surcharge or access fees.
For 20 years, EFTA has provided objective information to its members, Congress, and the Executive Agencies on market implications of legislative and regulatory policies governing new payment initiatives. Notable achievements include:
* working with Treasury and the Federal Reserve Board in implementing the Electronic Funds Transfer Act, which guarantees protection for consumer electronic payment transactions.
* developing ATM access regulations for the Americans With Disabilities Act
* paving the way for national roll-out of Electronic Benefits Transfer Programs through Welfare Reform
Our recent work includes: providing information and guidance to the General Accounting Office regarding the surcharge study they presented this morning.
As an Association representing a diverse constituency, including financial institutions, EFT networks, bankcard associations retailers, information processors, State governments and Federal agencies, EFTA neither advocates nor opposes surcharging in an ATM environment.
We do however, oppose legislation that would interfere with consumer choice and market forces.
In order to leverage the experience and expertise of EFTA members, the EFTA Board of Directors recently commissioned a senior-level Surcharge Task Force to provide analysis of the implications of ATM surcharging and possible regulation thereof. The Task Force is comprised of many entities impacted by an access fee including consumers, financial and non-financial institution ATM deployers, manufacturers and ATM networks.
The Task Force is chaired by Henry Polmer, the General Counsel to EFTA who joins me this morning to present the findings of the Task Force.
Chairman D'Amato and Members of the Committee, My name is Henry Polmer. I am a partner at the law firm of Bell, Boyd & Lloyd and general counsel to the Electronic Funds Transfer Association, the nation's leading electronic payments industry trade group. I was formerly the Deputy General Counsel to the National Commission on Electronic Fund Transfers, which Congress formed in the mid-1970's to advise it on the need for legislation in the then-new world of EFT. Ever since that time I have been heavily engaged in studying EFT issues and providing legal guidance to the electronic payments industry. I hope my long association with business and legal issues in this area can provide a helpful perspective.
I appear here today as Chairman of the EFT Association's Task Force on ATM Surcharges. The Electronic Funds Transfer Association recently formed a multi-discipline, senior level task force to analyze the issues related to the current debates over legislation that would limit or ban ATM surcharges. The panel included representatives from banks, a consumer group, ATM manufacturers, ATM operators, an ATM network and other EFT industry representatives. The full Task Force met on three occasions and generated several working papers that are included as part of the Association's written testimony.
The members of the Task Force were by no means unanimous or enthusiastic proponents of ATM access fees. Some members are engaged in surcharging; others have been vocal opponents. The Task Force neither endorsed nor condemned surcharging. However, all the Task Force members agreed that government price control in the form of a surcharge ban is such a draconian measure that it must be opposed unless there is clear evidence that competition does not exist among ATM operators and that consumers have no realistic alternatives. The Task Force concluded that government should not interfere in ATM pricing because that market is highly competitive, prices are clearly disclosed, many consumer alternatives exist, and consumer decisions about the value of convenience versus price will determine the future level of ATM access fees.
The Task Force also took note that ATM operators incur significant
costs, that ATM interchange has hardly increased since ATM sharing
began fifteen years ago and that ATM service, reliability and
availability have increased enormously over that period of time. The
Task Force concluded that there is a great deal of misinformation
and a general lack of understanding regarding the facts surrounding the
issues of ATM access fees. Therefore, the Task Force and the EFT
Association offer the following answers to questions frequently raised
in hopes that a better informed discussion will convince legislators that
a ban on fees is not an appropriate response to perceived consumer
unhappiness with surcharges.
The EFT Association offers the following questions and answers:
* Is the Consumer Being Double Charged by Her Bank?
No. Using one's own bank's ATM is generally free. Banks typically charge a fee for using a "foreign" ATM because they incur additional costs such as network and interchange fees. The consumer's bank receives no part of the access fee charged at the foreign ATM.
* Is Surcharging a Banking Industry Conspiracy to Gouge Consumers?
No. Each ATM owner independently decides whetherand what to charge. Many ATM deployers are not financial institutions. In fact, 42 % of off-premise ATMs are deployed by companies that are not financial institutions. In the Southwest 56 % of ATM surcharges were collected by nonfinancial institutions. A surcharge ban would affect the business cases of numerous third-party data processors and independent service organizations that have aggressively entered the ATM deployment business.
* If an ATM Transaction Costs Less than a Human Teller Transaction, Why Are Banks Surcharging?
Banks generally do not chharge their customers anything to use their ATMs even though ATM convenience has caused many customers to replace a single trip to a human teller with multiple ATM stops for smaller amounts. On the other hand, an ATM operator who is not a customer's bank saves absolutely nothing when a non-customer uses its ATM.
* How Much Has ATM Interchange Increased Over the Past 15 Years?
Interchange is the amount the account-holding bank pays the ATM operator when its depositor makes a withdrawal. Interchange, which averages about $0.37 per withdrawal transaction, has hardly changed since ATM sharing began in the early 1980's.
Interchange was intended to reimburse ATM-operating banks for the incremental cost of making their ATMs available to other banks' customers. It was not designed to provide a profitable return on capital investments.
* What Are the Costs of Operating ATMs?
The costs include buying or leasing the machines, maintaining them, renting space for off-premise machines, operating them including the cost of cash, telephone lines, modems, encryptors, computers, audit tapes and receipts, the cost of physical security including lighting, cameras, kiosks and in some cases phones or panic buttons, the costs of signage and advertising, monthly network costs (large ATM operators typically belong to many networks), costs of settlement, legal and regulatory costs, costs of resolving consumer problems and dealing with fraud) and finally the costs of upgrading ATMs to respond to consumer demand for more services and enhanced graphics.
The Consumers Bankers Association has compiled figures indicating that a new ATM costs between $7,000 and $50,000 depending on features, and monthly operating costs range from $1,000 to $1,500. ATMs located in a bank average about 6,000 transactions a month. Off-site ATMs average only about 3,000 transactions a month and many of them do far less. Based on average interchange, revenue per average ATM would be between $1,100 and $2,300 per month.
* If Costs Are So High Why Do Some ATM Operators Not Surcharge?
ATM services are being provided in free and competitive markets. ATMs may be both a separate business and part of a larger retail strategy. A supermarket operating ATMs without access fees may see an opportunity to attract shoppers. A bank that chooses not to surcharge may also have strategic business reasons. Each ATM operator makes its own decisions about fees, and consumers decide which ATMs to frequent.
* Has ATM Service improved Over the Years?
Absolutely. When ATMs were introduced in the 1970's, a customer had access only to his own bank's small network of on-premise "primitive" ATMs. Today shared networks give customers real time access to their bank accounts from nearly half a million machines at every conceivable location in almost every country in the world. ATMs operate faster and more reliably with clearer explanations in multiple languages (including Braille), in color with enhanced graphics. Today's sophisticated ATMs also offer an ever-increasing array of new services from stamp and ticket dispensing to check imaging, statements check cashing to the penny and deposits of a single check to multiple accounts. Surcharging supports these new and enhanced ATM services as well as the expanded use of the ATM card as a payment device at the point of sale.
* How Much Has ATM Deployment Grown Since Nationwide Surcharging Began?
A lot. United States ATM sales in 1996 increased by 40% over 1995 to bring total US ATMs to approximately 150,000. Banc One alone recently announced its intention to increase its ATM installations ten fold to 20,000 machines. New nonbank companies are also adding to the explosive growth of ATMs. Most of the new ATMs are going into retail and other convenient, nonbank locations. More than 50% of ATM growth in the past eighteen months has been at nonbank sites, and 50% of all off-site ATMs have been deployed in the last eighteen months. Also, ATMs that surcharge are for the first time making significant inroads in rural America. The economics of surcharging are helping to bring the convenience of automated cash dispensing to large areas of America that could never before be served.
* Isn't the ATM Operator's Fee a Wholesale Cost That Should Be Part of the Single Fee Charged by the Account-Holding Bank?
There is no effective way for the consumer's bank to make rational pricing decisions when it doesn't know the cost that each ATM operator charges. When each ATM operator posts its access charge at its machine, consumers are able to make personal choices about the balance between cost and convenience. Also, consumers are better able to understand that their own financial institutions play no part in setting these fees and receive nothing from them.
* Do Consumers Find ATM Fees Onerous?
A Pulse ATM Network study asked this question in 1993 and 1995. The percentage of users who thought charges were "way too high" or "too high" dropped from 44.7% in 1993 to 31.8% in 1995. Similarly, those who felt the charges for ATM use were "just right," "a bargain," or a "real bargain" increased from 53.4% in 1993 to 64.1% in 1995.
* Are There Ways For Consumers To Minimize Their ATM Fees?
Yes. Consumers are using their own banks' ATMs whenever possible; they have become aware of ATMs that do not charge access fees; they are making larger cash withdrawals less frequently; they are getting cash back at supermarkets; and they are using their ATM cards far more frequently for retail purchases instead of cash. In a 1995 Pulse ATM Network study, 77 % of consumers said they avoid certain ATMs because of surcharges. The same study showed that 17 % of surcharges are paid by only 3 % of the cardholders, and 60 % of the surcharges are paid by 18 % of the cardholders. Most consumers vote with their feet for lower cost alternatives. Another study by Carmody & Bloom in 1996 showed that two-thirds of consumers changed their ATM usage as a result of surcharges. Thirty percent of those people are getting cash at non-ATM locations. Bank Network News reports that POS debit card volume nationwide grew by nearly 48 % between 1995 and 1996, reaching over a billion transactions last year.
* Does Surcharging Hurt Smaller Banks?
There is no evidence that it does. For many years banks with few ATMs had a wonderful deal. In exchange for a small interchange fee that they generally passed on to their customers they were able to offer their depositors access to thousands of ATMs that other ATM operators were deploying at costs of millions of dollars. Now some smaller institutions worry that their depositors might switch to banks with large internal ATM networks to avoid surcharges. There is nothing to indicate this is happening. Moreover, many smaller banks are aggressively advertising the non-surcharging ATM "networks" they have formed.
Smaller banks have certain distinct advantages over larger ones including the level of personal service. If anything, the growth of super banks has given smaller banks the opportunity to add customers. Moreover, the Independent Bankers Association of America, which represents smaller banks, is opposed to legislation that would ban surcharges. In fact, the Independent Bankers Association of Texas has gone on record as saying that surcharging has made it possible for community banks to provide ATMs in otherwise unprofitable situations. within the banking community there are sharply differing views about surcharging, but there is overwhelming agreement that Congress should stay away from the business of setting fees.
* Are Consumers Receiving Adequate ATM Fee Disclosures?
Yes. ATM networks have always required ATM operators to disclose on a sign at the ATM and on the screen the amount of any surcharge and then require the customer to make a positive choice to continue. The federal EFT Act and Regulation E of the Federal Reserve also require ATM fee disclosures. The only relevant information that is not disclosed at the ATM because it is not feasible, is the amount that the customer's own bank will charge for that transaction. However, the federal EFT Act requires every bank to inform its customers of its ATM fees at the time each account is opened, and those fees are also broken out on the depositor's monthly statements. Because the depositor knows what her bank will charge her for a foreign transaction and the depositor is notified at the ATM of any surcharge, she can readily determine the full cost of any withdrawal.
* Will Rapid ATM Growth Bring Lower Fees Without Legislation?
Market forces will determine what happens. In free markets, competition drives up output and innovation, and it drives down prices.
The EFT Association Task Force recognized that there are substantial costs associated with providing ubiquitous ATM access and believes that consumers who want this level of convenience -- not government -- are the best ones to balance cost against convenience and decide whether the expanded convenience is worth the surcharge. Consumers in our busy society have repeatedly demonstrated that time and place have value. A consumer pays more for a soft drink in a convenience store than a supermarket, more in a restaurant and still more at a ballpark. Consumers have many alternatives to ATMs with surcharges. They can use their own banks' ATMs, human tellers, or other ATMs that do not surcharge. They can get cash back at supermarkets and use cash alternatives such as debit cards at the point of sale. Consumers will drive the market by the choices they make.
Government should not take away consumer choice by controlling prices through an ATM surcharge ban.
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