Wednesday, May 12, 2010

ATM Price Controls, A Bad Idea For Consumers

An amendment by Senator Harkin (D-Iowa) would cap ATM fees at 50 cents per transaction. This amendment would result in fewer choices for customers. It costs money to provide ATMs, and those costs have to be recovered in order to continue making the service available. ATM’s are costly – a full-service ATM may cost more than $50,000 per machine when it includes customer-friendly features like check imaging for deposits. Maintenance costs, particularly in remote areas, are considerable and include the cost of delivering cash and removing deposits, telecommunications costs, rental for space, and the costs related to security and compliance.

Most people never pay ATM fees, as they can use their own bank’s ATM for free. It is the customers that have no relationship with the bank or the nonbank ATM owner – yet want access to cash wherever they are in the world – that pay a small fee for this very valuable service. Without the fee, there would simply be far fewer ATMs in existence, since providing these machines as a free convenience only for customers would be too expensive for wide deployment. The result would be that the banks’ customers and, more importantly, all depositors everywhere, would have fewer options to obtain cash.

The importance of ATM fees is obvious when looking at the growth of ATMs after surcharging was allowed in 1996. With fees, the entire market opened up in order to provide convenient access to any depositor. Now, 68% of all ATMs are at off-branch locations, many provided by nonbanks. Clearly, customers wanted access to cash and were willing to pay for it. As a result, the number of ATMs has more than tripled to a total of 425,010, as many as ¼ of these provided by nonbanks. The market has matured at the current rates, and competition has intensified among bank and non-bank ATM owners, which has led to more services at reasonable prices.

The Harkin amendment would freeze expansion – hurting manufacturers of the machines and the employees that make them – and cause the closing of ATMs, many in rural areas. The Harkin amendment would also hurt many nonbank ATM providers as well, including small retail and convenience stores that lease space in their shops for these machines and rely on them to facilitate sales. Only those ATMs with the highest usage could generate enough revenue to be worth the expense of maintaining. Others would simply disappear.

Finally, it is important to note that consumers are in complete control of ATM fees. Currently, ATMs must advise consumers of any fee prior to the transaction, and consumers have the opportunity to discontinue the withdrawal if they wish do not wish to pay the fee. According to a national telephone survey of 1,000 consumers in August 2009, 56% said they paid no banks fees at all – including ATM fees. Another 14% said they paid $3 or less per month for any type of bank fees.

We should not turn back the clock. Price controls have failed in the past; price controls on ATMs would give consumers fewer choices, inhibit innovation, put a halt to future ATM production, and would shut down thousands of ATMs.

See our one-pager on ATM price controls by clicking here.

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