Chairman D'Amato, Senator Sarbanes and members of the committee, my name is Edmund
Mierzwinski and I am the Consumer Program Director for the U.S. Public Interest Research
Group. U.S. PIRG is the national lobbying office for the state PIRGs, which are non-profit and
non-partisan consumer and environmental watchdog groups with members around the country.
While we commend the committee for holding this hearing in response to the banks' latest scam -- charging consumers twice to use the ATM once -- we believe that the record is already clear on
this heinous, unfair fee. We urge the committee to move immediately to ban the ATM surcharge,
before it is too late. Too late for consumers who are paying fees that are too high and virtually
impossible to avoid; too late for the small banks and credit unions that face the problems caused
by surcharging and other anti-competitive tactics of the big banks.
We are here to summarize the results of our latest survey of ATM surcharging, released on April
1, 1998, the second anniversary of ATM surcharging. Since we last testified on ATM fees, in
June 1997, we have conducted two major studies of bank fees:
-- Our 31 July 1997 national survey, "Big Banks, Bigger Fees," documented the development of
a growing big bank fee gap. That study, of fees on checking and savings accounts, documented
that big bank fees are 15% higher than small bank fees. Using the PIRG bank fee index, a
consumer who cannot afford to meet rising minimum balance requirements could pay about $230
per year solely to maintain a checking account and use ATMs.
-- Our 1 April 1998 survey, "Big Banks, Bigger ATM Fees," reviews increases in ATM
surcharges and off-us fees. Our key findings and recommendations from that survey, along with
other important conclusions, are the following:
-- More banks are surcharging and surcharges are higher than one year ago. Compared to PIRG's
1997 report, overall surcharging by banks has increased 58%. An unprecedented 83% of big
banks now surcharge. Big banks, which have the vast majority of all machines, impose higher
surcharges, and surcharge at higher rates.
-- PIRG's findings are substantiated by the findings of both the most recent General Accounting
Office survey reported on today and the June 1998 Federal Reserve Annual Report to Congress
on bank fees, which, for the first time, includes a section on ATM surcharging and notes
significant increases in the percentage of banks surcharging.
-- As we predicted, the ATM marketplace is not working to offer consumers either competition
or choice. Consumers have few alternatives, other than paying surcharges. Key no-surcharge
networks are breaking down. In California, for example, Glendale Federal, a founder of a leading
No-Surcharge Alliance, recently began surcharging at $1.50 and other members appear to be
ready to drop out. This study also finds that disclosures of surcharges don't work either.
-- Where ATM networks are owned primarily by big banks, rather than cooperatively, big bank
anti-competitive contractual rules have prevented groups of small banks and credit unions from
forming "no-surcharge-zones," which would allow them to retain customer base by only
surcharging customers of banks that surcharge every non-customer, while not surcharging group
-- Despite overwhelming support by consumers for enactment of state anti-surcharging laws, no
laws have been passed in 1997-1998, although at least 25 states have considered the legislation.
In Massachusetts, although a bill passed the State Senate unanimously and has over half the
House members as co-sponsors, the political power of Fleet and BankBoston over the Speaker of
the House has prevented the bill being brought to the floor.
-- In Massachusetts, and in other states, including Pennsylvania, the bankers' lobbying threat that
the OCC would preempt any consumer law enacted -- even though no federal law regulates ATM
fees in any way -- has limited debate and had a chilling effect on the right of the several states to
protect their consumers from unfair anti-competitive bank fees.
-- In an extremely troubling additional finding of the Federal Reserve's Annual Report to
Congress, it also finds a statistically significant "sharp decline" in the number of banks offering
free checking accounts, from 9% to 3% of all banks. More consumers are paying more fees.
Worse, our analysis of early results from banks offering special electronic benefits transfer
(EBT) accounts to low income consumers indicate that those banks intend to fully maximize
revenue and gouge these low-income consumers, who may end up paying, as Chairman
D'Amato has previously predicted, "triple fees" to use ATMs.
-- The recent well-publicized consolidation of market power caused by the mergers of some of
the nation's largest banks, which are reaping the lions' share of excess profits from unfair ATM
surcharging, is the newest reason that you should immediately schedule a markup on this bill.
Finally, we are extremely disappointed that the Committee has, in fact, scheduled a markup later this month of S. 1405, a so-called regulatory reform bill, which includes numerous provisions designed to please banks, but includes no provisions designed to protect consumers from unfair bank practices. If there is one regulatory reform worth doing, it is banning heinous ATM surcharges. In addition to banning ATM surcharges, other pro-consumer measures that the committee might take up include your bill to limit the liability of consumers whose ATM debit cards are used fraudulently.
RESULTS OF PIRG's 1998 ATM SURCHARGING SURVEY
On April 1, 1996, the two largest ATM switching networks, VISA's Plus and Mastercard's Cirrus, followed the lead of several regional ATM networks and ended their prohibition against member banks surcharging non-accountholders using their ATMs. This cruel April Fool's joke allows banks to charge consumers twice to use the ATM only once. The surcharge is in addition to the "off-us" fee over 80% of banks already charge their accountholders to use another's ATM. In the spring of 1998, PIRG conducted its third ATM survey, following up on an April 1, 1997, one year anniversary and an October 1, 1996, "six months later" survey. (See the PIRG web page http://www.pirg.org/consumer for these surveys.)
"BIG BANKS, BIGGER FEES: PIRG's 1998 ATM SURCHARGE SURVEY"
Before April 1996, surcharging was only allowed in 15 states. It is now allowed in 48 states and
the District of Columbia. Surcharging rates have increased dramatically in just two years.
In March 1998, according to this PIRG report, 71% of 470 banks surveyed in 28 states and the
District of Columbia surcharged non-accountholders. The percentage is 58% higher than the 45%
found in PIRG's April 1997 report, "Twice As Many Charging You Twice."
The percentage of big banks imposing surcharges increased by 63%, from 51% to 83%,
compared to PIRG's 1997 survey. Big banks own the majority of ATMs, for example,
Nationsbank has over 6,000. [Out of the approximately 9,000 banks nationwide, the 300 largest
control nearly two-thirds of all deposits, according to the FDIC. We define those as "big" banks.]
From 1997 to 1998, small bank surcharging rates increased by 67%, from 39% to 65%,
compared to PIRG's 1997 survey.
PIRGs also surveyed 46 member-owned credit unions and found that only 13% imposed
surcharges in 1998.
AVERAGE SURCHARGES AND OFF-US FEES INCREASE
The average ATM surcharge increased to $1.23 in 1998, up from $1.15 in PIRG's 1997 survey.
Big banks imposed 1998 surcharges of $1.35 and small bank surcharges were $1.16. Credit
union surcharges averaged $1.04.
In 1998 the survey found 83% of banks imposed off-us fees averaging $1.18 on their customers
using other owners' ATMs. Ninety-three percent (93%) of big banks charged their own
accountholders off-us fees averaging $1.32 to use other ATMs. Seventy-nine percent (79%) of
small banks charged their own accountholders off-us fees averaging $1.12 to use other ATMs.
Seventy percent (70%) of credit unions charged their own accountholders off-us fees averaging
80 cents to use other banks' ATMs.
SURCHARGING BY BIG BANKS POSES COMPETITIVE THREAT
Surcharging rates by big banks, which own the most machines, pose a serious competitive threat
to smaller banks and credit unions, which usually offer a good low-priced alternative for
consumers. But if enough small bank customers switch accounts to big banks to avoid
surcharges, then the big banks, facing less competition, will raise the fees they charge their own
customers even more. Small banks and credit unions attack surcharges as not only anti-consumer, but anti-competitive. A March 1998 study by the Community Bank League of New
England found that surcharging "poses a major threat to community banks throughout"
Massachusetts. One-third of small bank consumers responded to surveyors that they would
consider switching to a big bank to avoid surcharges.
OFF-US FEES COMPENSATE ATM OWNERS, SURCHARGE NOT NEEDED
A portion of the off-us fee, known as the interchange fee, already is used to compensate the ATM
owner and the ATM network. Banks that don't charge "off-us" fees still pay interchange fees, but
choose to offset the costs, rather than charging their own customers. For example, the bank earns
income from interchange fees received for use of its own ATMs.
The surcharging ATM owner, then, receives the $1.23 average surcharge off-the-top, plus a
portion of the average $1.18 "off-us" fee. (Interchange fees vary depending on the network and
are paid by the consumer's bank. A typical interchange fee might provide 10 cents to the network
and 65 cents to the ATM-owner. See page 136, Hearing Record, Fair ATM Fees For Consumers
Act, S. 1800, S. Hrg, 104-740, 11 July 1996).
Increasingly, it must be noted, banks are aggressively replacing plain ATM cards with ATM
"debit" or "check" cards. Banks that have provided ATM cards for free anticipate being able to
charge fees for these enhanced cards, which allow merchant and telephone order use as well as
cash withdrawals and give the bank merchant fees as well as consumer fees. The cards pose
certain liability risks to consumers since they can be used without a secret PIN code. [See PIRG's
Fact Sheet "Debit Cards."]
AVERAGE SURCHARGE RATES INCREASING
While the most common surcharge found was again $1.00, it declined to 49% of all banks, from 59% in 1997. The second most common rate was the higher $1.50, charged by 40% of all banks, up from 31% in 1997. Surcharges ranged from 25 cents to $2.50.
REVENUE FROM ATM SURCHARGING
According to GAO, banks had 167 million off-us transactions in January 1997, which projects to
$2.5 billion in annual ATM surcharge revenue, at a 71% surcharging rate at $1.23. However, the
January 1997 figure represented an increase of 20% from the year before, so 1998 revenues could
exceed $3 billion.
BANK PROFITS UP AGAIN
In 1997, banks recorded their sixth straight year of record profits. According to the FDIC, full-year industry earnings totaled $59.2 billion, up $6.9 billion (13.1 percent) from 1996 results. Fee
income is growing and is part of reported higher non-interest income (up $2.3 billion, or 9.4
percent).(Commercial Banking Performance, Fourth Quarter 1997, Federal Deposit Insurance
BANK FEE STRATEGY
Revenue from ATM surcharges is a major part of the big banks' three-part strategy to boost fee
income. Big banks are:
(1) Increasing existing fees: PIRG's 1997 report, Big Banks, Bigger Fees," found a growing gap
between fees charged by big and small banks. The results are paralleled by the Federal Reserve,
which has found that multi-state (big) banks charge "significantly higher" fees than locally
owned banks. [Federal Reserve Board Annual Report To The Congress on Fees and Services of
Depository Institutions, June 1997.]
(2) Inventing new fees such as the ATM surcharge: human teller fees, deposit-item-returned
fees (charged consumers or businesses who deposit someone else's bounced checks) and fees
charged for calling computerized account computers are examples of other new fees, and,
(3) Making it harder for consumers to avoid fees. Making it harder to avoid fees includes, for example, changing "average" balance requirements on checking accounts to "minimum daily balance" requirements, as well as raising those minimums dramatically.
SURVEY FINDS MARKET ISN'T GOOD ENOUGH FOR BUYERS TO COMPARE PRICES
Banks argue that the marketplace should decide whether consumers want the "convenience"
offered by surcharging machines. The true choice for consumers should be between banks that
charge high fees and banks that do not. If surcharging contributes to the extinction of small, low-cost competitors, then big banks will be able to increase the high fees that they already impose on
their own customers. As the PIRG report on checking and savings account fees, "Big Banks,
Bigger Fees," pointed out in July 1997, the fee gap between big and small banks is 15%, despite
the economies of scale enjoyed by big banks.
Bank One, a large midwestern bank, already surcharges on its own customers at some of its non-branch machines, which are separately branded and marketed.
The marketplace the bankers talk about worked unacceptably poorly in this survey. Surveyors
who attempted to find out about ATMs were given the run-around both by bank telephone and
branch representatives, who said "I don't know, look at the machine" and by ATM machines,
which often had the wrong surcharge warning or no surcharge warning. Representatives were
also unable to tell consumers how many ATMs they owned.
Despite Plus and Cirrus rules requiring surcharging members to post a clear sign on ATMs, 20%
of surcharging ATMs had no sign disclosure, up from 15% in 1997. These consumers needed to
wait until they were halfway through the ATM transaction to get the ATM surcharge warning
they need to decide whether to continue. So, alternative proposals to merely require disclosures
will not work.
Twelve percent (12%) of bank representatives either didn't know whether their bank surcharged
or told surveyors a wrong surcharge that was too low. Some consumers who called banks asking
whether their machines surcharged were told "go look at the machine, we don't know."
The only clear sign found on any ATMs was the bright "No Surcharge" logo used by the
California anti-surcharge coalition. Banks that do surcharge use a wide variety of sloppy, small
signs placed in hard-to-see locations and hidden among the clutter of ATM logos and service
Unfortunately, Federal Reserve Board Regulation E, which governs ATM transactions, allows
surcharging banks to use either a sign or a screen disclosure. But many machines do not provide
the screen warning until after the consumer has inserted his or her card, entered a PIN, viewed an
advertising message, selected an account, and inserted an amount. By then, the consumer is
trapped into paying the fee. In our view, even if the Plus/Cirrus disclosure rules were mandatory
laws, they would be virtually unenforceable, yet another reason to ban surcharging.
Surcharging rates were highest in the South, where the dominant multi-state institutions,
including Nationsbank and First Union, all surcharge, led by North Carolina (100%), Virginia
(100%), Tennessee (100%),and Arkansas (100%).
In Massachusetts, where a fierce legislative battle pitting MASSPIRG, the Governor and Attorney General against the states' biggest banks, Fleet and BankBoston, only 3% of banks in the survey impose a surcharge. Those small banks started surcharging before the legislative fight began, and are located primarily on Cape Cod and Martha's Vineyard.
STATE CAPITOL LONE WELLS FARGO HOLDOUT
All Wells Fargo ATMs in 6 states charge surcharges of $1.50. The sole exception continues to be
a machine in the California State Capitol, with a large red sticker proclaiming that "Wells Fargo
Will Not Charge A Fee For Cash Withdrawals Made At This ATM." The California legislature is
considering proposals to ban ATM surcharges.
ADMINISTRATIVE BANS CONTINUE
Two states, Connecticut and Iowa, have banned ATM surcharges by order of the Banking
Commissioner. In 1997, a Fleet-led legislative repeal attempt failed in Connecticut. Fleet's 1997
lawsuit against the state has not been decided. The Iowa Banking Commissioner has filed at least
one suit to enforce its law against a retailer that attempted to impose surcharges.
RECOMMENDATIONS TO LOWER CONSUMER BANK FEES:
(1) ENACT ATM SURCHARGING BAN: Passage of legislation to ban ATM surcharges will
lower the fees that consumers pay to use ATMs and will also send a clear message to the banks
that fee gouging must be stopped.
(2) URGE ANTI-TRUST REVIEW OF ATM NETWORK POLICIES: The anti-competitive
implications of ATM surcharging argue strongly for antitrust and anti-competitive review.
Testimony before this committee last June by small banks and credit unions points to the critical
need for such a review of the anti-competitive market power of the big banks. The committee
should examine the well-established finding of independent academics, consultants and
consumer groups, that big banks charge higher fees than small banks. Even the Federal Reserve
Board, in its 1998 fee report to Congress, continues to find that banks owned by out-of-state
institutions charge higher fees than locally owned banks. The committee should examine whether
big bank fee strategies are an assertion of anti-competitive monopoly power warranting anti-trust
(3) REIN IN OCC PREEMPTION: As you know, 2 states, Connecticut and Iowa, have banned
ATM surcharges by Banking Commissioner Order. U.S. PIRG is gravely concerned that, even
though no federal law conflicts with these bans, the OCC may move inappropriately, and at the
behest of the big banks, to preempt their applicability to national banks. Even though we would
prefer that your federal ATM surcharge ban be enacted, Chairman D'Amato, until that occurs,
we believe that the several states should retain their full rights and privileges under the
Constitution and our federal system to protect their consumers better than existing federal law.
Further, the political climate for enacting a federal ATM surcharge ban will improve if several
states act first. However, one reason no state legislature has yet acted favorably to ban ATM
surcharges is the chilling effect of the Comptroller's extant preemption policies, which are
outrageous. U.S. PIRG and other consumer groups believe that the Office of the Comptroller of
the Currency has already abused its preemptive authority on numerous occasions, so this charge
is not made lightly. [See PIRG's Financial Modernization testimony before this committee of 24
June 1998 for greater details.]
(4) HR 1306 OCC PREEMPTION DISCLOSURE REPORT INADEQUATE:
We have briefly reviewed the OCC's recent report on its preemption policies, required by
passage of HR 1306 into law. The report is an inadequate summary and the Congress should
strengthen its oversight of the agency's preemption stance. Further, it is difficult for members of
the public to obtain the agency's annual report. We find it hard to believe that the agency's
Annual Report, in which this mandated study is included, is not available on the agency's web
site, but is apparently incorporated into a fee-for-subscription-based "Quarterly Banking
I appreciate the opportunity to testify here today before the committee. Rising bank fees are
pricing some Americans out of federally insured banks and gouging others. The ATM surcharge,
when banks charge consumers twice to use the ATM once, represents a particularly unfair form
of price-gouging. U.S. PIRG strongly recommends immediate enactment of S. 885, legislation to
ban the ATM surcharge. We continue to recommend that the bill be clarified to apply to all
ATMs, not only those owned by "financial institutions."
ATM surcharges primarily benefit bigger banks, which are exerting monopoly power over
smaller banks and member-owned credit unions. The result is a skewed marketplace which
perversely rewards banks that charge higher fees. If surcharging is not banned, the inevitable
result is more and higher fees imposed on all customers, not only on non-customers.
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