Good morning Chairman D'Amato and Senators. At the outset I would like to thank Senator
D'Amato and my own Senator, John Kerry for their ongoing efforts to enact a federal ban on
ATM surcharges through passage of "The Fair ATM Fees for Consumers Act".
My name is Wayne A. Cottle. I am the President of the Dean Co-operative Bank located in
Franklin, Massachusetts, which has four office locations. I am testifying today on behalf of my
own $90 million institution and the 137 members of the Community Bank League of New
England. Our members are located throughout the six New England states and have an average
asset size of $94 million.
The Community Bank League has been consistent in it's opposition to ATM surcharges. I am
pleased to be here this morning to restate our position and to discuss the studies we
commissioned to support our position that ATM surcharges should be banned. These efforts
were undertaken to specifically support our grassroots efforts for legislation to ban ATM
surcharges, which is currently pending before the Massachusetts Legislature. We are cautiously
optimistic that this legislation will be enacted before the session ends on July 31, since it was
passed unanimously in the Senate and awaits only House consideration.
Today in Massachusetts there are approximately 500 financial institutions, including more than
450 banks and credit unions with less than $250 million in assets.
ATM networks in Massachusetts have developed over the last twenty years with the large banks typically installing most of the off premise (i.e. non bank locations) ATMs. Until recently, each of these off premise ATMs was authorized through a formal branch application process. These applications almost never received opposition because all parties have been allowed equal access to the ATM. In the formative years of the networks, community banks and credit unions were encouraged by the larger
ATM owners not to install their own ATMs, but rather to issue cards which would help to
support the installation of ATMs during the early days of low ATM usage.
I remember well when the networks came knocking at the door of my institution with their
enthusiastic proposal to allow customers of my bank the ability to access funds from their
accounts at any time of the day, any day of the week from any ATM location. All I had to do
was put an ATM card in their hands and encourage them to use it.
As card issuers we have reimbursed the ATM owners for the use of their ATMs by paying an
access or interchange fee to the host ATM and the network switch. This access fee includes a
component for profit. Like many community institutions, my bank has chosen to absorb this fee
and does not pass it on to its customers.
As we have indicated in earlier testimony before this Committee, we believe because of the
market dominance of two ATM owners in Massachusetts that we in Massachusetts may be able
to see the potential impact of ATM surcharges more clearly than in other areas of the country.
Together, Fleet and BankBoston own approximately two-thirds of the ATMs in operation in the
Commonwealth. This duopoly of ownership has highlighted our concern about ATM
surcharges. The problem is that ATM surcharging is not an attempt to reimburse owners of
ATMs for the use of their machines; it is about predatory business practices If ATM owners
were losing money on the majority of their machines, they would not have been so quick to
install them in the first place. Further, if surcharging is really an issue of reimbursing ATM
owners for subsidizing the use of their machines by community bank customers, all they need do
is increase the interchange fee, which has not been increased since its establishment in the early
The Community Bank League undertook three separate studies to support our position on an
ATM surcharge ban. These studies included the creation of a map pinpointing the locations of
ATM machines; a survey of community bank customers showing their general attitudes about
ATM usage and surcharges; and an economic impact study showing the effects of surcharging
using our survey results for projection purposes.
Attached to my testimony is a reduced version of the map we developed. This map shows the locations of all ATMs in Massachusetts as of December 31, 1996. The locations are based on actual street addresses obtained from an official listing of the Massachusetts Division of Banks. The color red on the map reflects BankBoston locations; the color black, Fleet Bank locations; and the tan, ATM locations owned by the remaining 498 institutions in the state. Although not a surprise, the results were significant. BankBoston and Fleet own an overwhelming majority of locations especially in the urban areas. In fact, based on the data used for the map, together
BankBoston and Fleet own 82% of the ATM locations in the City of Boston and have positioned
ATMs in most of the other high traffic or high visibility location throughout the Commonwealth.
The Axiom Research Study
The Community Bank League commissioned Axiom Research Company, Cambridge, Massachusetts, to conduct a study of consumer attitudes relating to ATM usage, fees and surcharges. The pollsters ensured that consumers met the following three criterion: (1) they did not consider BankBoston or Fleet to be their primary bank(1)
(2) they had an ATM card; and (3)
they used it at least once a month. Five hundred and eight (508) community bank customers
during the week of March 5 - 12, 1998, participated in the study. The survey results are subject
to a sampling error of +/- 4.4 percentage points. A copy of the report is attached.
The Axiom Research poll is an indicator of how community bank customers are likely to react to
a new surcharge. The poll findings underscore community bankers' concerns about the serious
threat these additional fees pose to a competitive banking market. The results show that as many
as 500,000 community bank customers statewide would consider switching their accounts if
surcharges are imposed, resulting in a major imbalance in the state's highly competitive banking
market. Moreover, the poll indicates that not only will smaller banks lose a significant portion of
their customer base as a result of the change, those consumers who are most likely to switch
banks are the community banks' most prized and profitable customers.
Briefly, the poll's findings show:
* 94% of those surveyed support legislation banning ATM surcharges;
* 75% of those surveyed said that having access to another bank's ATM was an important factor in originally choosing their bank.
* More than half (57%) of the state's community bank customers are ATM users.
* Nearly half (47%) of the community banking customers surveyed said that they use ATMs two or more times a week with over three-quarters (76%) doing so at least once a week;
* Nearly 80% of community bank ATM users use their cards at another bank's ATM to make withdrawals, and 21% make more than half of their regular ATM withdrawals from another bank's machine;
* 33% of community bank ATM users said they are likely to switch to a larger bank with more ATM machines rather than pay an additional surcharge;
The Howell Study - "The Impact of Automated Teller Machine Surcharges on the
The Community Bank League also commissioned a study conducted by former BankBoston
economist Dr. James Howell. Dr. Howell's study concludes that ATM surcharging will have a
"significant negative impact" on the state's economy, leading to further concentration in the
banking market, higher costs for consumers, and constraints on the ability of small business to
gain access to needed capital. A copy of Dr. Howell's report, together with his credentials, is
also attached to my testimony.
The report examines the primary effects that the failure to pass legislation banning ATM
surcharges would have on three principal sectors of the Massachusetts economy: financial
institutions, consumers, and local capital markets. This report is very timely since my state's two
largest banks - Fleet and BankBoston - are poised to begin surcharging for non-customer ATM
use later this year.
According to Dr. Howell's report:
"The failure to impose a ban on ATM surcharges will represent another step along the way to greater control and concentration by fewer and fewer financial institutions....For consumers, it will mean diminishing convenience and/or higher costs. For small, local and community banks, the pressure on profits caused by deposit shifts will mean less available capital. And to the extent that local banks are financially squeezed, it will constrain the orderly access of small businesses and local governments to competitively priced (and, in some cases, any) capital."
The plan to impose new surcharges comes against the backdrop of two dramatic changes in the
banking industry. First, more and more consolidation and acquisitions are resulting in fewer and
fewer financial institutions with a larger concentration of customers. Second, faced with
competition from broadening money and capital markets, all banks have been seeking ways to
increase non-interest income, namely fees.
In his report. Dr. Howell discusses both the primary and secondary impact of the failure to pass an ATM surcharge ban in Massachusetts. Unquestionably, there would be a direct impact. Added ATM surcharges would force consumers to pay more for their banking services at the ATM or lose the convenience of using a broad ATM network available in key locations. Consequently, a number of consumers would shift their bank accounts from smaller to larger banks with more ATM locations in order to avoid paying these surcharges. As noted in the recent study conducted by Axiom
Research, it was concluded that 28 percent of community bank customers would likely switch
banks to avoid additional ATM surcharges. This would not take place immediately, but over
time as consumers responded to the newly-introduced ATM pricing structure. There is an
important "two-fer" here for the big banks. The application of the ATM surcharge will not only
generate additional fee income for the larger banks from those consumers who retain their
existing bank accounts at community banks, they will acquire deposits from those consumers
who switch their accounts to avoid the ATM surcharge.
My institution might provide the perfect example of the consumers' response to surcharging as it
is located in a community 35 miles southwest of Boston which serves as host to the last two
stops for the commuter rail line into Boston. Customers of my institution initiate, on average,
18,000 ATM withdrawal transactions each month. Consistently, 70% of those withdrawals are
initiated at an ATM owned by another financial institution. With the advent of surcharging these
customers will be faced with one of three different choices to make: 1. They can choose to pay
the surcharge and continue to use conveniently located ATMs; 2. They can seek out a surcharge
free, more inconveniently located ATM to avoid paying the surcharge; or 3. They could shift
their deposit relationship to the banks with the more dominant ATM presence to both, enjoy
access to conveniently located ATMs and to avoid paying the surcharge. I submit that over time
there would be a substantial deposit migration away from my institution.
My bank and other community banks would have difficulty compensating for this loss, if it
would even be possible. As we lose these accounts and their deposits there would be a one-time adverse impact on profits that could add up to as much as $321.5 million in Massachusetts
according to Dr. Howell. Over time, the erosion of the deposit and profit base among many
community banks will have negative indirect consequences for small business and local
governments. Dr. Howell's rationale is set forth below.
Growing, small businesses in most of our communities have historically been a family affair.
And account deposits in community banks have traditionally provided the wherewithal to finance
loans for these businesses.
Over the past 10 to 15 years, the largest banks in their search for only the most profitable
pieces of business have increasingly lost their appetite for lending to small business. This has
been especially noticeable in many of the small to medium sized communities outside their
headquarters locations. These banks argue: "It takes the same amount of time and energy to
book a $100,000 business loan as it does to book a $10 million one!"
The same lending attitudes are increasingly affecting many aspects of municipal finance among
Massachusetts communities -- ranging from short-term borrowing requirements to the
preparation and sale of municipal bonds.
Thus what appears on the surface to be a simple economic issue namely , the introduction of a
modest ATM surcharge, it is poised to upset one of the most fundamental equilibrium conditions
in our state economic environment; that is, the financing of local business and community needs.
The Community Bank League of New England and its members have been vigorously
advocating for a legislatively imposed surcharge ban on both the state and federal level. Based
on the studies which have been completed and our discussions with legislators and community
bank customers, we remain convinced that a surcharge ban is in the best interests of community
banks, their customers and our local communities.
Thank you for your attention. We appreciate this opportunity to speak with you. I would be
pleased to respond to your questions.
1 Because of their market dominance, BankBoston and Fleet customers are unlikely to be adversely affected by surcharges in Massachusetts.
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