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California voters get crack at ATM fees, then it's the courts'

Updated:
SAN FRANCISCO (AP) -- A proposal to ban those $1 or $2 ATM
surcharges goes before voters for the first time next month in San
Francisco, setting the stage for a court battle.

There is little doubt the ban will pass, but it is certain to
face a legal challenge from the banking industry, which contends
that federally chartered banks are not subject to local and state
laws. No court in the nation has ruled specifically on an ATM fee
ban.

San Francisco's referendum is the latest sign of growing
consumer outrage over the cash-machine fees, which are usually
charged when customers withdraw money from a bank other the one
where they hold an account.

The surcharges averaged $1.20 in a 1998 study by the Federal
Reserve and have become almost universal across the country in the
last three years.

In Southern California, Santa Monica city officials have already
passed a ban on surcharges. It takes effect Nov. 12. A dozen other
California communities are considering bans, including Los Angeles
and San Diego, said Jon Golinger of the California Public Interest
Research Group, which has led the no-surcharge campaign.

Connecticut and Iowa have used existing laws to ban ATM
surcharges. And last week, the Pentagon said it would consider a
ban on ATM fees on U.S. military bases.

Congress has thus far rejected legislation that would eliminate
surcharges nationwide.

Banks say the charges are simply the price of 24-hour
convenience and help pay for their growing networks of ATMs. But
opponents say they fees are unjustifiable at a time of soaring bank
profits, teller layoffs and branch closings.

"Why do they have to charge? They never did it before," asked
Carney Campion, a San Francisco resident who tore up his ATM card a
few weeks ago in frustration.

Golinger sees the San Francisco referendum as a way to
accelerate efforts to get rid of the fees elsewhere. "This is a
bottom-up event," he said. "In the end, surcharges will be banned
just about everywhere."

According to a 1997 government report, the surcharges aren't
needed to cover the costs of ATM transactions. The report said the
average ATM transaction costs banks 27 cents, while transactions
with tellers cost up to $2.93 each.

Instead, the banks argue that the fees help pay to install more
ATMs, which are needed as cash-machine use increases and branches
close.

"It's a way of having non-customers share in the burden of
maintaining that network," said California Bankers Association
spokesman John Stafford.

The American Bankers Association warns that banning the fees
would force banks to bar ATM use by non-account holders and shut
down tens of thousands of the machines.

The chief legal argument against local surcharge bans is that
only the federal government can regulate the ATMs of national
banks, which operate 90 percent of the machines covered by San
Francisco's referendum.

Each side in the legal dispute can point to favorable language
in court decisions on related issues.

In Iowa, the 8th U.S. Circuit Court of Appeals last month said
federal law prohibits states from regulating national banks' ATMs.

But the 9th U.S. Circuit Court of Appeals, which covers
California and eight other Western states, reached the opposite
conclusion in 1990. In a ruling that predated ATM surcharges, the
court said Congress "has declined to restrict state regulation in
the ATM context."

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