Good morning Chairman D'Amato and Senators.
My name is Thomas M. Caron. I am the President of the Easton Cooperative Bank in Easton Massachusetts, which has two office locations. I am testifying today on behalf of my own $43 million institution and the 128 community bank 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 our opposition to ATM surcharges. I am pleased to be here this morning to restate our position and to discuss the surcharge free alliance which Community Bank League members, such as myself, have formed, to proactively protect our customers from ATM surcharges.
I would like to briefly describe the unique Massachusetts banking scenario to you. The Massachusetts banking environment is made up of approximately 560 financial institutions, including more than 480 community banks and credit unions with less than $250 million in assets.
The ATM network structure in Massachusetts has developed over the last twenty years with large banks typically installing most of the off premise convenience ATMs. Until the recent Comptroller of the Currency ATM ruling, each of these off premise ATMs have been authorized through a formal branch application process. These applications have almost never received opposition because all parties have been allowed equal access to the ATM. Smaller banks and credit unions either installed through the wall ATMs at bank branch locations or just issued cards because they were not able to establish independent ATM locations for economic reasons. In fact, community banks 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. Card issuers 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 included a component for profit
It may be that in Massachusetts, one of our key membership states, we can see the potential impact of ATM surcharges more clearly than in other areas of the country. The reason for this is that the two largest ATM owners, Fleet and Bank Boston, own more than 65% of the ATMs in operation. This is a problem because ATM surcharging is not an attempt to reimburse owners of ATMs for the use of their machines. 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 banks, all they have to do is increase the interchange fee, which we would note has not been increased since its establishment in the early 1980s.
While revenue enhancement appears to be the primary motive for ATM surcharges, it is our belief that there is a secondary reason. Specifically, by imposing surcharges, ATM owners are hoping to persuade the customers of other banks to move their accounts to the ATM owner's bank to avoid the fee they are charging.
The effect of surcharging will be to kill off small bank competition because customers have grown accustomed to and depend on the convenience of ATM machines. Rather than pay the increased fee, most customers will simply change banks, resulting in the large scale transfer of small community bank deposit bases to the large banks. This, in turn, will result in the destruction of community banks and will result in less competition in the banking industry. The most obvious impact of that will be to increase fees charged to all consumers.
States where the ATM ownership is more evenly distributed may believe that they do not face the risk of losing their community banks to the large banks. That is a false sense of security. As electronic banking grows, the risk increases as more and more consumers come to depend on this form of access. Large institutions have the economic clout that other ATM owners do not, to negotiate exclusive arrangements for debit card use with major supermarket chains, gasoline distributors, discount stores, and other retailers. Only by assuring fair and equal competitive access to ATMs and other electronic access locations can we assure the survivability of a healthy and competitive banking industry.
Opponents of a federal ban respond to our concern about concentrated ownership of ATMs, that if there is a problem in a particular area/ such as in Massachusetts, an anti-trust action can be brought to correct any inequities. This argument, while accurate in some respects, cannot be supported. It is true that if a problem based on concentrated ownership arose, an anti-trust action could be brought However, by the time an action could be brought, the damage would already have taken place. A damaged community bank system cannot be so easily repaired.
While we fully support Senator D'Amato's legislative efforts, specifically S.885, we recognize that the legislative process can take some time, with no guarantees of a particular outcome. With that in mind we set out to establish some sort of ATM network or alliance, which would ban together ATM owners, willing to commit to no surcharges. This measure affords our member banks and their customers some protection against ATM surcharges, while legislation is pending.
On April 1, 1996 the ATM networks (Cirrus/ NYCE, Plus) revoked their ban on surcharges. Shortly thereafter, the Community Bank League of New England began an extensive evaluation of the many options available to its member banks to offer an alternative to ATM owners who would impose a surcharge.
Our original efforts focused on establishing our own network. This alternative presented several significant problems. In order to establish a network, a formal governance structure would have to be established, there would be significant up-front costs; and formal legal agreements would need to be created. In addition, our counsel advised that there could be very serious anti-trust implications to the establishment of a surcharge-free network.
After several months of evaluation and discussions, our members decided to model a program similar to one developed in the state of Kentucky, which had been adopted to address shared concerns. Specifically, an advertising agency, with no connection to the Community Bank League, designed a marketing program which contained three components: (1) a public relations campaign; (2) an ATM surcharge-free booklet; and (3) an advertising program, including a world wide web site of surcharge free locations. All financial institutions owning ATMs in New England, regardless of form or charter, were invited to participate in this marketing program. As of its first printing, 117 institutions with over 300 ATMs were listed in the ATM Surcharge Free Booklet
A public relation campaign was conducted by our marketing consultant. Press releases were sent to media outlets throughout New England to announce that a number of community banks throughout New England do not surcharge ATM transactions. In addition, press releases were made available in a generic format to those institutions interested in providing them to local media outlets.
The basis of the surcharge-free campaign was and continues to be, the publishing of a booklet, that lists the names of banks that do not surcharge and their ATM locations. These booklets have been made available to any institution located in New England. It should be noted that while those institutions that do not own ATM machines are not listed in the booklet, any card issuer is able to purchase the booklets for distribution to their customers.
The advertising agency developed generic advertising that could be used by participating institutions. There is, however, no requirement that participants use this advertising and in fact, they are free to advertise this program in any way they choose. A logo has been created indicating the ATM owners participation in the ATM Surcharge-Free Alliance. Participants are encouraged to display this logo prominently and in an unobstructed manner. The final component of the advertising campaign was the creation of a world wide web site, http://www.surcharge-free-atms.com which list the surcharge free ATM locations of participants. The site has been receiving over 1,500 hits per month.
Is the alliance sufficient to address our concerns about ATM surcharges. Unequivocally no. We would be misleading you if we said otherwise. First, ATMs connected to our alliance tend to be in suburban areas; there are only two locations in the city of Boston. The reason for this is that the two largest banks own an overwhelming majority of ATMs located in the city. Without a federal surcharge ban, a significant number of our customers who work in the urban areas, such as in Boston, could be subject to a surcharge or in the alternative, be motivated to move their accounts.
Second, the alliance is voluntary in nature and as such, does not afford community banks and their customers any permanent protection. We believe that the threat of federal legislation, is keeping the plans of several ATM owners to impose surcharges on hold. Based on federal preemption policies, a federal ban is essential rather than a state imposed surcharge ban. Here in Massachusetts, the two largest ATM systems are owned by national banks, as such if state legislation were preempted, a state ban would not have the intended effect
Lastly, our alliance has not been put to the test of having a large institutional owner of ATM machines impose surcharges. Despite our best intentions, we may find that our efforts do not adequately solve the problems posed by ATM surcharges.
In closing, the ATM Surcharge Free Alliance was chosen by community banks because it offers a viable, albeit temporary solution to the issue of surcharging, it puts community banks in a positive light, offers community banks an opportunity to increase their transaction income, avoids the very real potential for anti-trust law suits, and most importantly, has a proven track record.
Thank you for your attention. We appreciate this opportunity to speak
with you. I would be pleased to respond to your questions.
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