Automated teller machines are supposed to just spit out cold hard cash, but in this seaside city today, some ATM users were given a political message instead: Thanks to a recent vote by the city council, the ATMs are providing cash only to the bank's account holders.
A dumbstruck Mike Patton stared at his gold card, then at the screen. "What the . . . ?" he asked when he was refused his cash. When told by a reporter what was happening, Patton, a civil engineer already late for a meeting, said, "This is almost un-American."
Two of the nation's largest banks reprogrammed their machines here overnight to stop their ATMs from providing cash to non-customers--their way of fighting a local law that took effect today, prohibiting banks from charging non-customers extra fees for using the banks' money machines.
The very public brawl is over the fees charged to customers who use ATMs other than their own bank's--typically about $1.50 per transaction. That is on top of fees--about $2 per transaction--that banks charge their own customers who use another institution's ATM.
There are about 200,000 ATMs nationwide, and they are almost daily fixtures in Americans' lives. Banks and consumer groups around the country will watch closely how the actions--and counteractions--in California play out. Market surveys show that consumers hate ATM fees, especially the double charges they must pay to use a machine not owned by their bank, more than just about any other feature of modern banking.
To hear each side tell it, the fight over ATM surcharges is about more than a few dollars at the local cash machine. It's about rightful jurisdiction, consumer protection, a fair shake for the little guy and the ultimate cost of that most cherished American commodity: convenience.
"We hope this is something that really takes off," said Michael Feinstein, one of two Green Party, Santa Monica city council members who proposed and won approval for the anti-ATM fee ordinance here. "Our phones have been ringing off the hook from other municipalities that want to take on the power of the banks."
But the banks are not buying it.
"Is it fair for a business to ask consumers to pay for products and services? Yes," Kathleen Brown, former California state treasurer and now Bank of America Corp.'s head of private banking for the western United States, told reporters. "There ain't no free lunch."
In recent weeks, the city council of Santa Monica and the voters in San Francisco approved ordinances that forbid banks to charge non-customers ATM surcharges. Critics of the ATM fees hope that the recent California measures will spark a wildfire of protest against such charges around the nation. Cities such as Los Angeles, New York and San Diego are considering municipal bans on ATM fees. Also, the Defense Department recently proposed banning ATM fees on military bases.
Officials in Virginia and the District said they know consumers are concerned about the surcharges, but that no legislation restricting the fees is planned, as of today.
Measures to ban ATM surcharges have been beaten back in Congress and a dozen states in the last few years. Only Iowa and Connecticut outlaw cash machine surcharges. But now the fight is being waged at the municipal level, and ultimately the issues will go before the courts.
Consumer advocates view the ATM fees as a ripoff, and they say that while the average ATM transaction might cost the banks some money--about a quarter--they are gouging consumers who just want to get their own money.
The ATM surcharges especially affect consumers who make more frequent, smaller cash withdrawals, as they pay more as a percentage of the money taken out.
The banks, however, beg to differ.
As of today, Bank of America and Wells Fargo & Co. will no longer provide ATM service to non-customers at any of their 33 machines in Santa Monica.
In addition to today's action in Santa Monica, Bank of America said it will not provide ATM service to non-customers in San Francisco if the anti-fee ordinance takes effect there. Wells Fargo might do the same. The two banks operate 362 cash machines in San Francisco.
The San Francisco ban will begin in December.
"Bank of America built the nation's largest ATM network for people who choose to do business with us, and we think it's reasonable to charge non-customers for the optional convenience of this service," said Gene Taylor, president of Bank of America's western region.
The San Francisco and Santa Monica ordinances are being challenged in federal court by Bank of America, Wells Fargo and the California Bankers Association, which represents 280 member banks.
The banks are asking for a preliminary injunction against the measures, and a judge in Northern California has set a first hearing for Monday.
The banks will argue that municipalities do not have jurisdiction over banking practices--that it is a matter for state and federal regulators.
"The basic question is whether a city can say to a business you have to charge this much for a service or you cannot charge this much for a service," said Kathleen Shilkret, a spokeswoman for Wells Fargo in Southern California.
Both measures target what critics call the "double dipping" of ATM fees. For example, a Wells Fargo account holder who uses a Bank of America ATM is charged $1.50 by Bank of America for the service, then is charged another $2 for the transaction by Wells Fargo. So getting $20 in cash could cost a customer $3.50. The banks then share the money and give a percentage as an "interchange fee" to such ATM network providers as Cirrus, Plus or Explore. In 1996, many network providers dropped their prohibitions against such surcharges.
The ATM ordinances in San Francisco and Santa Monica only ban the $1.50 charge at the machine.
Today, the consumer program director of the California Public Interest Research Group, Jon Golinger, charged that the action by the two big banks was an attempt to scare other municipalities away from enacting their own ordinances.
San Francisco City Attorney Louise Renne said the banks' actions were an attempt to influence the judge before Monday's hearing.
Staff writers William Branigin, Kathleen Day and Vanessa Williams in Washington contributed to this report.