NCPA - National Center for Policy Analysis

Politicians Cash In On ATMs

July 14, 1997

What sets banks' automatic teller machines apart from the normal laws of market competition and economics? Nothing, economists say. But the fact that banks charge fees for their use has angered some consumers, and some politicians are crusading against it.

Sen. Alfonse D'Amato (R-NY), up for reelection next year, wants to prohibit ATMs owned by one financial institution from charging fees when customers of other financial institutions want to use them.

  • Some 54 percent of all ATMs charge such fees, according to a General Accounting Office report.
  • The fees can range from $1 per transaction to $2.50 or more -- admittedly a source of annoyance to customers of those banks which impose the charges.
  • Since the machines are expensive, each ATM needs at least 3,000 non-fee transactions a month to break even -- but only 500 transactions per month if fees are charged.
  • The consulting firm McKinsey & Co. estimates that ATMs have added $1.5 billion in costs to financial institutions but resulted in savings of only $200 million.

The Federal Reserve Board found that expenses have exceeded the income they have generated by an average of more than $10,000 per machine each year from 1991 to 1995.

Analysts say the fees permit banks to place ATMs in locations where they previously hadn't been profitable -- convenience stores, supermarkets, airports, sports stadium and elsewhere.

Critics of the ban-the-fee campaign say that activists will only wind up denying themselves and others a convenient, time-saving option.

Source: John Charles Bradbury (George Mason University), "Ban Fees, and You Banish ATMs," Wall Street Journal, July 14, 1997.


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