ATMs in Iowa

Northwestern Financial Review, Sep 18, 1999 by Bengtson, Tom

Bankers who like the idea of assessing surcharges on ATM transactions should take special notice of the latest development in the lawsuit Bank One filed against the State of Iowa. A federal appeals court ruled that states cannot regulate ATMs operated by national banks. We report the details on page 16.

Specifically, the ruling means Bank One can operate machines in Iowa, even though it is not based there. It can also carry advertising on the machines and it can assess fees against non-customers who use the machines. The state of Iowa may choose to further litigate the case, but as it stands now, national banks have a distinct advantage over state banks in the operation of automated teller machines. The Iowa Bankers Association surely will fight for the right of state banks to operate ATMs in the same fashion as national banks.

More broadly, the court ruling is a real blow for states. Iowa and Connecticut currently are the only states that prohibit ATM operators from charging fees for the use of their machines. If the Iowa ruling stands you can kiss those laws goodbye, Such a development might be good for some banks, but it might hurt others if their customers are dependent upon machines owned by banks other than the one where they do business.

IN MOST STATES, where surcharging already is legal, the ruling should cool down the hot and heavy efforts by some state legislators to pass laws limiting or prohibiting ATM surcharges. The ruling makes it clear such laws would not apply to machines owned by national banks. In a state such as Minnesota, the vast majority of the machines are owned by national banks. It would be a pretty hollow move to pass a law prohibiting ATM surcharges that applies only to machines owned by state-chartered banks. In fact, it would hurt those small banks since it would deny them a source of revenue available to their big bank competitors. Such a law would only help the biggest banks, which certainly would not be the intent of most state lawmakers.

Bankers often argue that the assessment of fees for ATM transactions encourages the establishment of machines. It will be interesting to watch Iowa over the next couple of years to see whether the number of ATMs increases measurably if the court ruling stands and all banks win the right to assess surcharges. It also will be interesting to watch the reaction of Iowa consumers. Will they gripe about the new fees or will they recognize ATM transactions as a valuable service for which they are willing to pay? The answer will depend to some degree on the public relations acumen of the industry and the way changes in the state's EFT law are explained by bankers.