As the President and Chief Executive Officer of The Summit Federal Credit Union in Rochester,
New York, I commend the members of the Senate Banking, Housing and Urban Affairs
Committee for holding this hearing concerning the impact of Automated Teller Machine (ATM)
surcharging. It is an honor to be invited to provide the Committee with my comments on this
Officially established by an act of Congress in 1934, the federal credit union system was recognized as a way to make financial services available to people of small means and to promote thrift and extend credit. Congress established credit unions as a financial alternative to banks and to fill a precise public need--a niche that credit unions still fill for over 70 million Americans. Every credit union is, by statute and practice, a cooperative association organized "for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes." [12 USC 1752(1)] While more than 60 years have passed since the Federal Credit Union Act was signed into law, two fundamental principles regarding the operation of credit unions remain every bit as important today as they were when Congress first authorized the establishment of federal credit unions:
As owners of not-for-profit, cooperative financial institutions united by a common bond, all
credit union members have an equal say in the operation of their credit union--regardless of the
amount they have on account at the credit union. These singular rights extend all the way from
making basic operating decisions to electing the board of directors. Unlike banks and thrifts,
federal credit union directors, motivated by an altruistic desire to be of service to others, serve
without remuneration--a fact that epitomizes the true "volunteer spirit" permeating the credit
Credit unions play an important role in the financial lives of more than 70 million Americans
from all walks of life who have chosen the convenient and low-cost financial services provided
by credit unions. As the package of services offered by various types of financial institutions
becomes more homogenized, the emphasis shifts from the type of service offered to the quality
and cost of service provided. Historically, credit unions have been second to none in providing
their members with quality personalized service at the lowest possible cost. According to an
annual survey conducted by the American Banker newspaper, 1997 was the thirteenth
consecutive year in which credit unions have rated higher than all other financial institutions in
overall service quality and this trend shows no sign of change.
Credit unions are not banks. The nation's nearly 12,000 credit unions serve a different purpose
and, accordingly, have a fundamentally different structure. Credit unions are not-for-profit
cooperative institutions that serve the public good. They are owned by their members and
managed by a democratically elected, unpaid board of directors. Membership in a credit union is
not open to the general public; a credit union may serve only those individuals within its field of
membership (as approved by the National Credit Union Administration (NCUA)). Federal credit
unions have an independent federal regulator (NCUA) and an insurance fund (the National Credit
Union Share Insurance Fund (NCUSIF)) separate from the bank and thrift funds managed by the
Federal Deposit Insurance Corporation. Credit unions are prohibited from using their members'
funds to make foreign loans or to engage in speculative ventures: just two of the many benefits
enjoyed by the banking industry.
Ironically, banks are calling for greater regulation of credit unions while demanding fewer
regulations for themselves, so that they may enjoy more benefits of being a bank. Credit unions
are not banks and never have been.
Credit unions exist solely for the purpose of providing financial services to their members.
Banks exist primarily to provide a return on investment for stockholders; providing financial
services to their customers is the method banks use to generate the profit necessary to provide
that return on investments to stockholders, but it is not the raison d'être of the institution--as is
the case with credit unions.
The Summit Federal Credit Union (The Summit FCU) is a not-for-profit financial institution that
provides low-cost financial services to our owner/members. My position as the President/CEO
of this institution provides me with the ability to comment accurately on the impact of ATM
surcharging on consumers and smaller financial institutions.
It may be somewhat controversial to legislate pricing, but it is worse to allow a practice that hurts
consumers, especially those who can afford it the least. Assessing multiple charges at ATMs is
one such practice, which is generating huge windfalls for ATM owners at the expense of the
general public, who are merely trying to gain convenient access to their own money. ATM
surcharging has also put smaller financial institutions at a competitive disadvantage that will
worsen over time. This practice has been implemented with a monopolistic mind set and the
impact will be great upon all these smaller institutions.
From their inception, ATMs have been a big "win" for financial institutions in the area of cost
control. Even before the advent of surcharging, ATM owners were compensated for transactions
performed at their machines by those users who did not maintain an account at that particular
institution. Non-bank ATM owners have also been fairly compensated for every transaction
performed on their machines. Banks and credit unions owning ATMs benefited from a reduced
transaction cost compared to that of teller transactions for those transactions performed by their
own account holders.
Consumers were skeptical at the onset, but ATMs have been well promoted--and why not?
ATM owners benefited from a reduced transaction cost compared to that of teller transactions
performed by their own account holders. This is not to say that consumers have not benefited
from the convenience of ATMs, but they have also paid for this convenience--generally paying a
fee for using ATMs that were not owned by their institution.
This "convenience fee" has already put smaller institutions at something of a competitive
disadvantage, because they cannot afford as many ATMs as larger ATM owners. To compensate,
many credit unions offer at least some "foreign" ATM transactions at no cost to our members.
At The Summit FCU, our members performed over 135,000 transactions in June 1998...and the
number grows every month. Appendix A shows that 112,718 of these transactions, or 83
percent, were performed at non-The Summit FCU ATMs. We incur a cost of nearly $45,000 per
month to compensate ATM owners for the use of their machines. Less than 25 percent of this
cost is passed on to the ATM user.
In our attempt to offer free ATM service, The Summit FCU's board of directors approved a
policy that allows unlimited free ATM access at our fifteen ATMs. However, eight of these are
contained within our sponsor companies and not accessible to most of our members. Therefore,
we developed a creative policy that allows our members five free transactions each month at any
non-The Summit FCU ATM that is convenient to them. Despite our willingness to design a
policy that gives members an opportunity to avoid ATM fees, widespread ATM surcharges will
result in the loss of free access to their money.
Our members will have a few alternatives:
The Summit FCU conducted a study last year on the income levels of our loan applicants and
found that the average member's income was $23,000. (Appendix B) The average weekly "take
home" pay of a person at this income level is $335.70 per week. Even so, we believe that many
of these consumers have become dependent upon ATMs and will pay a surcharge--not
recognizing that the annual cost of this fee to them could approach $150.00 to $200.00. Many
others will move to large banks to avoid ATM fees only to find minimum balance requirements
that exceed their means, and be subject to additional charges to maintain their checking accounts.
In the past, many large banks were not interested in the business of smaller depositors. These
consumers have been made profitable for them through the implementation of fee programs that
capitalize on their small balances. ATM surcharging takes this to the next step, as large banks
now can get $150.00 per year from consumers whether that consumer opens an account with
them or not. It may be great strategy--but it is anti-consumer. Access to a person's paycheck
should be considered to be a lifeline financial service. For twenty-plus years the public has been
encouraged to use ATMs to access their funds. Now that larger financial institutions have the
average consumer addicted to ATMs or have forced consumers to use them in lieu of scaled back
teller services, these institutions can raise surcharges almost at will.
While widespread ATM surcharges threaten the membership base of all credit unions because we
cannot afford as many ATMs on average as larger institutions, credit unions face interpretations
of the federal credit union act that severely limit our ability to add new members. Congress is
considering legislation to address this problem. Even if we chose to engage in the monopolistic
practices of others and tried to persuade non-members to join credit unions, we would not be able
to do so. There is really no free market. Further, whenever possible, our ATMs have been
deployed where they will best serve our members. We do not have enough resources to provide
such service without the support of the networks, and reasonably priced access to ATMs owned
The arguments that surcharging will now allow ATMs to be deployed in areas that are traditionally under served is about as attractive an option as check cashing shops or pawn shops that prey upon the residents of our poorest neighborhoods.
Over 81,000 ATM transactions are performed annually on our machines by non-members and
are not subject to double-charging--a situation that greatly benefits consumers in Rochester. The
Summit FCU and most other credit unions have not engaged in the practice of double charging
consumers because it is wrong. I am proud that The Summit FCU has an ATM in our
community's new stadium, "Frontier Field," (Appendix C) and despite the fact that 94 percent of
the transactions are by non-members, we do not surcharge on that ATM or any other of our
We believe that the "Fair ATM Fees for Consumer Act" (S. 885) must apply not only to financial
institutions but to all ATM owners. We hope that Congress will consider and act favorably on
If smaller financial institutions fall prey to surcharges, deeper questions will arise concerning
where consumers will go for credit and other low cost financial services. The thought of pricing
at ATMs controlled by only the largest financial institutions should scare all of us. It is far less
offensive for Congress to take action against this practice of double charging for ATM activity.
This an important step that must be taken by Congress to ensure the ability of consumers to
receive fairly priced financial services.
ATM Withdrawals by Members of The Summit FCU
Total Withdrawals at Non-The Summit ATMs.........112,718............83 %
ATM Withdrawals by Non-Members of The Summit FCU
(At The Summit FCU ATMs)
Average Income of Loan Applicants at The Summit FCU
What is this Person's Weekly "Take Home" Pay?
Gross Weekly Pay..................$442.31
Net Weekly Pay....................$335.70
"Frontier Field" Stadium ATM
The Summit FCU
The Summit FCU Withdrawals................97
Non-The Summit FCU.......................1,499
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