WASHINGTON — A few years ago, an ATM machine malfunctioned in the elite Washington, D.C. neighborhood of Georgetown. Americans lined up to collect $20 bills being handed out in place of $5 notes.
San Francisco voters did essentially the same thing by passing an initiative to ban ATM fees. Apparently the latest human “right” is no-fee convenience cash. Banks should install ATMs, but not charge noncustomers for using them.
Santa Monica, Calif., and the states of Connecticut and Iowa have approved similar measures. The U.S. Defense Department is considering prohibiting ATM fees on military installations.
The so-called U.S. Public Interest Research Group is leading the charge. It argues that the fees are excessive.
With the United States facing many serious cultural, economic, and social problems, ATM fees would not seem to be a top priority. After all, no one has to use an ATM. A few years ago no one could, since they didn’t exist.
But now there are more than 227,000 ATMs across the U.S., and thousands more around the world. People apparently believe the benefit of not having to drive across town to their bank, or patronize a currency changer overseas, is worth the cost. Why shouldn’t ATM owners be compensated for their trouble?
Perhaps free ATM service has joined the right to life and liberty as an entitlement. Along with the right to free cable TV and telephone service.
In fact, ATM owners have a basic right to set fees on their machines. Moreover, that right is the only way to convince them to install additional ATMs.
Absent fees, why should banks maintain machines used primarily by non-customers? And why should nonfinancial companies put machines in locations with few customers?
Fee critics erroneously assume that ATMs are cash cows. Customers increasingly visit machines rather than tellers to get cash, but they still go to their banks to make deposits. Explains analyst John Charles Bradbury: “Instead of substituting for and replacing tellers, ATMs have become a complementary service offered by banks.”
A McKinsey & Co. study estimated that the machines cost banks more than seven times as much as they had saved. A Federal Reserve study figured that banks lost an average of more than $10,400 a year per ATM. The total industry hit exceeds $1 billion.
Banks nevertheless offer ATMs to attract customers. However, banks, and especially nonfinancial institutions, which aren’t attempting to attract depositors, have little incentive to keep adding money-losing machines. Transaction fees help recoup their investment.
As Bradbury has observed: “In the past, when there were no charges for ATM use, there were far fewer ATMs. A low-cost ATM needs at least 3,000 transactions a month to break even. With a fee, that number is cut to 500.”
In fact, prior to 1996 the major networks, such as Cirrus and Plus, banned fees. They dropped the prohibition under pressure from member banks and the Department of Justice, which considered the ban to be anticompetitive.
This has spurred ATM expansion in the U.S., particularly in new types of locations, such as convenience stores, grocery stores, shopping malls and airports. The opportunity to get cash in such places is worth far more than even the highest fee.
Fee restrictions might not cause banks to yank out existing machines, though they can bar access to noncustomers, as did Bank of America and Wells Fargo in Santa Monica in response to that city’s ban. But banks–and non-financial companies, which now provide half of new ATMs, aren’t likely to offer a lot of new ones in remote locations.
If government does anything, it should simply require that ATMs list the fees charged.
Prohibitionists also contend that fees put small banks at a disadvantage because they can’t create large, free ATM networks for their depositors. But customers have plenty of other ways to get cash for free (including debit cards) and plenty of other reasons to choose small banks.
Anyway, smaller institutions have no claim to public aid because they are small. They certainly shouldn’t be able to use government to disable their competitors.
Free ATM service is not a basic human right, whether at home or abroad. Ban proponents are looking for a free lunch that doesn’t exist.
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