oversight

Automated Teller Machines: Banks Reported That Use of Surcharge Fees Has Increased

Published by the Government Accountability Office on 1997-05-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, Committee on
                Banking, Housing, and Urban Affairs,
                U.S. Senate


May 1997
                AUTOMATED TELLER
                MACHINES
                Banks Reported That
                Use of Surcharge Fees
                Has Increased




GAO/GGD-97-90
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      General Government Division

      B-275468

      May 16, 1997

      The Honorable Alfonse M. D’Amato
      Chairman, Committee on Banking,
        Housing, and Urban Affairs
      United States Senate

      Dear Mr. Chairman:

      This report responds to your request that we gather information on
      fee-charging practices of banks and thrifts (hereafter referred to as banks)
      with regard to automated teller machines (ATM) used by individuals who
      do not hold accounts at the institutions owning the ATMs. Banks and other
      ATM owners may charge a fee to non-account holders who use the owners’
      ATMs; this fee is called a surcharge or access fee. According to
      congressional testimony by senior industry officials, between 1990 and
      April 1996, 15 states passed laws or issued regulatory rulings prohibiting
      ATM networks from banning ATM surcharges. With other states considering
      similar actions, the two primary national networks changed their policy in
      April 1996 from prohibiting surcharges to allowing their ATM operator
      members nationwide to assess surcharges.

      You were interested in obtaining statistical information on banks’ current
      practice of surcharging. As agreed with your office, the objectives of this
      report are to summarize our survey data on the (1) number of banks that
      operate ATMs, and (2) number of these banks that surcharge non-account
      holders and the amounts of the surcharges assessed.

      To answer the objectives, we conducted a statistically representative
      survey of 246 randomly selected banks throughout the United States. All
      the estimates presented in this report are based on responses to this
      survey, which had a response rate of 87 percent. The sample size and
      composition were determined by the need to obtain a high response rate,
      as well as by time constraints. To obtain as much information as possible
      about ATMs and surcharges, we sampled large banks at a higher rate than
      other banks, because large banks, on average, operate more ATMs.
      Consequently, the estimates for large banks are more precise, i.e., the
      estimates have smaller sampling errors. While we also report the less
      precise estimates with their sampling errors, we do not make comparisons
      that are not supported by the survey results.

      As agreed with your office, we did not include credit unions or nonbank
      ATM operators in our survey. Through interviews, we did gather




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                   comparable information from four large nonbank ATM operators. We also
                   did not attempt to determine the effect surcharge fees have on the
                   deployment of new ATMs. Finally, this study was not intended to address
                   whether ATM operators are adequately disclosing information on ATM fees
                   to customers.


                   On the basis of our survey, we estimate that, as of February 1, 1997, about
Results in Brief   three-fourths of all banks in the United States operated ATMs. Of the
                   estimated 8,600 banks that operated ATMs as of February 1, an estimated
                   8,000 had ATMs as of December 31, 1995.1 In addition, we estimate that, as
                   of February 1, 1997, banks operated about 119,000 ATMs, an increase from
                   the 89,000 ATMs they operated at the end of 1995. Over this period, the
                   reported increases in ATM deployment occurred at both on-premise (i.e., at
                   banking facilities) and off-premise locations (i.e., at locations not at a
                   banking facility).

                   About one-third of the banks that operated ATMs reported that they
                   imposed surcharges on non-account holders who used their machines.
                   More of the large banks than smaller banks reported surcharging and a
                   greater percentage of the large banks reported that they began surcharging
                   during the past year. Our survey showed that, from the end of 1995 to
                   February 1, 1997, there was an estimated 320-percent increase in the
                   number of ATMs that had surcharge fees, from about 15,400 to about
                   64,400. For the ATMs with surcharges, the most typical fee was $1.00. The
                   maximum surcharge fee reported in our survey was $3.00.

                   Actual surcharge fees tend to occur in 50-cent increments, e.g., $1.00,
                   $1.50, $2.00. However, a commonly used measure of surcharge fees
                   throughout the industry is a simple average. We calculated the average
                   surcharge fee in two ways: for all ATMs, including those with no surcharge
                   fees, and for only those ATMs with surcharges. We estimated that the
                   average surcharge fee had more than tripled since the end of 1995, from
                   $0.17 to $0.62 in 1997 for all ATMs operated by banks, including those with
                   no surcharge fees. The average reported surcharge fee calculated for only
                   those ATMs with surcharges was $1.14 in 1997, not a significant increase
                   from $0.99 in 1995.



                   1
                    The estimates are unbiased, but the increase in the number of banks that operated ATMs is not
                   statistically significant at a 95 percent confidence level. In other words, on the basis of our sample, the
                   possibility that there was not an increase in the number of banks that operated ATMs is greater than
                   5 percent.



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             According to the four large nonbank ATM operators with whom we spoke,
             the number of ATMs they owned remained about the same in the past year.
             Three of the four nonbanks reported surcharging. The average fee for the
             three nonbanks that surcharged increased from $0.51 in December 1995 to
             $0.71 as of February 1, 1997.


             Studies done by financial industry groups such as the American Bankers
Background   Association and the Bankers Roundtable report that ATMs can perform
             many of the tasks bank tellers perform, and ATMs are typically available 24
             hours a day. The studies report that ATMs are most often used by
             consumers to make cash withdrawals from personal checking, savings,
             and other deposit accounts. Some ATMs also enable consumers to carry out
             financial transactions, such as obtaining product information, making loan
             payments, purchasing insurance and investment products, accessing lines
             of credit, and making payments on credit cards.

             Consumers can gain access to ATMs by obtaining an electronic fund
             transfer card from a bank. The card contains a magnetic stripe that is
             electronically encoded with a cardholder number. The financial institution
             is to maintain an individual record on each consumer issued a card. The
             record contains the encrypted personal identification number (PIN) needed
             to use the card. It also reflects the accounts that can be accessed with the
             card, usage limits, and the card’s expiration date.

             The ATM transaction begins when the consumer inserts the card into the
             ATM. Generally, the consumer enters the PIN; selects the transaction to be
             performed, such as a cash withdrawal from the consumer’s checking
             account; and enters the dollar amount of the transaction. The terminal
             sends this information to a processor that determines the institution that
             issued the card to the consumer. The processor’s host computer verifies
             the PIN for the cardholder and checks to see that the transaction and, in the
             case of a cash withdrawal, the dollar amount requested are within the
             usage limits established for that particular consumer and that funds are
             available. If the transaction conditions are met, the processor sends a
             message to the ATM terminal to complete the transaction (e.g., dispensing
             cash to the consumer). At the card-issuing institution, the transaction is
             posted to the consumer’s account and reflected in the monthly statement.

             Banks have access to ATM networks that link their ATMs and computer
             systems so that depositors from any member of the network can access
             their accounts through any network bank’s ATM. There are regional,



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                      national, and international networks. These networks enable ATM users to
                      obtain ATM services over a much wider geographic area than that covered
                      by their own banks’ offices or ATMs.

                      There are fees associated with using ATMs. The fees may or may not be
                      directly passed to the ATM user. Banks may charge their own account
                      holders for using their ATMs; however, a majority of the fees are associated
                      with consumers using ATMs operated by other banks in the network
                      system. There can be up to three different fees charged when non-account
                      holders use ATMs not operated by their own banks. A switching fee is
                      assessed by the ATM network to the user’s home bank to pay for processing
                      each of its network transactions and to defray other network operating
                      costs, such as advertising and network security. Banks may choose to
                      absorb this fee or pass it to the ATM user. An interchange fee may be
                      charged by ATM owners to a non-account holder’s home bank for handling
                      one of its transactions. If the home bank passes this fee to ATM users, the
                      Federal Reserve’s Regulation E requires the users’ home banks to inform
                      users—normally when they open an account—that the charges will appear
                      on their bank statements. Finally, a surcharge fee (or access fee) may be
                      charged by ATM owners to ATM users who do not have accounts with them.
                      For surcharge fees, ATM owners may charge users’ banks, and the banks in
                      turn pay the fees and then may charge them directly to the users’ accounts.
                      The national networks require that, if the fee is passed to the user, the
                      charge appear on the receipt at the cash machine and again on the user’s
                      bank statement.


                      From our statistical analysis of the survey responses, we estimate that, as
Most Banks Reported   of February 1, 1997, about 75 percent (± 14 percent sampling error) of
Operating ATMs        banks in the United States operated ATMs. Of the approximately 8,600 (±
                      1,700) banks that reported operating ATMs as of February 1, about 8,000 (±
                      1,800) had ATMs as of December 31, 1995.2 Our survey results show that for
                      smaller banks—those with assets of less than $1 billion—69 percent (± 16
                      percent) had at least one ATM in 1995, while 75 percent (± 15 percent) had
                      at least one ATM in 1997. The percentage of medium and large
                      banks—those with assets of $1 billion to $10 billion and those with assets
                      of over $10 billion, respectively—reporting at least one ATM remained
                      about 90 percent.




                      2
                       Throughout this report, December 1995 estimates are based on the responses of banks we surveyed in
                      February 1997.



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                                 Although large banks account for about 1 percent of the total number of
                                 banks that reported operating ATMs, they operate a larger percentage of the
                                 total number of ATMs in the United States. As of February 1, 1997, banks
                                 operated an estimated 119,000 ATMs in the United States, a statistically
                                 significant increase from the estimated 89,000 ATMs they operated at the
                                 end of 1995. According to our survey results, as of February 1, 1997, the
                                 large banks operated 37 percent of the total ATMs, and the smaller banks
                                 operated 32 percent, with medium banks making up the remainder. See
                                 figure 1.


Figure 1: Percentage of ATMs
Reported by Large, Medium, and                                                     Smaller (<$1 billion in assets) -
Smaller Banks, 1997                                                                8,141 banks




                                          • 32%
                                                                37% •              Large (>$10 billion in assets) - 77
                                                                                   banks




                                                  31%
                                                    •


                                                                                   Medium ($1-$10 billion in assets) -
                                                                                   413 banks


                                 Source: GAO analysis of survey results.




                                 For banks that operate ATMs, large banks reported a median of 346 ATMs in
                                 operation, compared to 2 for the smaller banks. Our analysis showed that
                                 about 98 percent of these large banks had 26 or more ATMs in operation. As
                                 indicated in figure 2, 60 percent (± 16 percent) of banks with ATMs had
                                 three or fewer. In our survey, we found that these ATM operators were all
                                 smaller banks.




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Figure 2: Percentage of Banks That
Reported Operating ATMs, by Number                                                         More than 10 ATMs
of ATMs, 1997



                                                  • 12%



                                            28%
                                              •
                                                                     60% •                 1-3 ATMs




                                                                                           4-10 ATMs



                                     Note: The estimates are subject to sampling errors of up to ± 16 percent.

                                     Source: GAO analysis of survey results.




                                     Banking officials’ responses indicated that between the end of 1995 and
                                     February 1, 1997, more of the smaller banks began operating ATMs at both
                                     on- and off-premise locations, rather than only at on-premise locations.
                                     The estimated percentage of smaller banks with both on- and off-premise
                                     ATMs was 31 percent (± 17 percent) in 1995 and 46 percent (± 19 percent)
                                     in 1997, while about 95 percent of the large banks continued to operate
                                     ATMs both on- and off-premises.


                                     Banks indicated that non-account holder transactions across all of their
                                     ATMs  were 132 million (± 38 million) during January 1996 and 167 million
                                     (± 64 million) during January 1997. The average number of these
                                     transactions per ATM was 1,624 (± 566) in January 1997, which was not a
                                     statistically significant decrease from the 1,774 (± 452) in January 1996.3
                                     Our analysis indicated that 37 percent (± 16 percent) of the banks
                                     experienced decreases in the number of non-account holder transactions


                                     3
                                      These averages were calculated from reported transaction volume and number of ATMs. Not all banks
                                     reported transaction volume.



                                     Page 6                              GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
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                        per ATM during the same period, while 63 percent (± 16 percent) had an
                        increase in their average per ATM non-account holder transactions. We did
                        not attempt to evaluate the impact of surcharge fees on the change in
                        transactions for these two time periods. To do so would have required us
                        to look at factors such as increases in available ATMs, seasonal changes,
                        changes in consumers’ shopping patterns, and other factors that may
                        influence consumers’ reactions to surcharges.

                        We could not address the ATM surcharging practices followed by nonbank
                        ATM operators because of the lack of complete data on nonbank operators
                        of ATMs. However, to obtain an indication of nonbank surcharging
                        practices, we obtained surcharge information from four nonbanks that
                        operated ATMs in retail locations. Industry officials told us that these four
                        nonbanks accounted for approximately 80 percent of nonbank ATM
                        operations.

                        According to the four large nonbank ATM operators with whom we spoke,
                        overall ownership at these large nonbanks increased from 8,527 ATMs to
                        8,564 between December 31, 1995, and February 1, 1997. Three of the four
                        nonbanks said that the number of ATMs they owned increased by less than
                        4 percent from December 31, 1995, to February 1, 1997. An official from
                        the other nonbank told us it had had a 15-percent decrease in the number
                        of ATMs it was operating. The official told us that the decrease was
                        attributed to a lost contract.


                        On the basis of our survey, we estimate that 2,900 (± 1,400) of 8,600 banks
Banks Reported Use      that operated ATMs as of February 1, 1997, imposed surcharges, while 1,600
of Surcharge Fees Has   (± 1,100) of these banks imposed surcharges in 1995. Currently, 57 percent
Increased               of large banks are surcharging, an increase from the 20 percent that were
                        doing so in 1995. Thirty-two percent (± 16 percent) of the smaller banks
                        were surcharging in 1997, while 20 percent (± 14 percent) of these banks
                        imposed a surcharge in 1995.

                        The reported number of ATMs that have surcharge fees has also increased
                        since 1995. Our survey showed that, from the end of 1995 to February 1,
                        1997, there was an almost 320-percent increase in the number of ATMs that
                        had surcharge fees—from about 15,400 (± 6,500) to about 64,400 (±
                        16,700).4 The increase included newly deployed or acquired ATMs, as well
                        as old ATMs that previously did not have a surcharge fee.

                        4
                         While about one-third of banks reported surcharge fees, these fees were charged for the use of about
                        54 percent of the ATMs in service as of February 1, 1997.



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                        Banks indicated that both on-premise and off-premise ATM surcharging has
                        increased since 1995. A higher percentage of the large banks (53 percent)
                        reported that they imposed surcharge fees for use of at least some of their
                        on-premise ATMs than did smaller banks (30 percent ± 17 percent). In
                        addition, 57 percent of the large banks reported that they imposed
                        surcharge fees for use of their off-premise ATMs, and 32 percent (±
                        18 percent) of the smaller banks surcharged for off-premise ATMs.


The Average Reported    According to our survey, the average ATM surcharge fee5 has more than
ATM Surcharge Fee Has   tripled since the end of 1995. The average surcharge fee reported by banks
Increased               was $0.62 (± $0.10) as of February 1, 1997, which was an increase from the
                        average fee of $0.17 (± $0.08) assessed in 1995. As shown in figure 3, the
                        average surcharge fee reported by the large banks was $0.71 (± $0.11) in
                        1997, while the fee assessed by the smaller banks was $0.48 (± $0.23). The
                        maximum ATM fee reported in our survey was $3.00. The average surcharge
                        fee reported by banks that imposed a surcharge fee was $1.14 (± $0.06) in
                        1997, while the average fee assessed in 1995 was $0.99 (± $0.12).6




                        5
                         We calculated every average surcharge fee on a per ATM basis. The average surcharge fee calculated
                        for all ATMs included ATMs with a surcharge fee of $0.00.
                        6
                         The average reported surcharge fee imposed by banks that surcharged was about $1.14 for both on-
                        and off-premise ATMs in 1997.



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Figure 3: Average ATM Surcharge
Fees Reported by Large, Medium, and   1.00    Average surcharge fee (in dollars)
Smaller Banks, 1995 and 1997
                                      0.90

                                      0.80
                                                                                               0.71
                                      0.70
                                                                             0.65

                                      0.60

                                      0.50            0.48


                                      0.40

                                      0.30
                                                                      0.23
                                      0.20                                              0.16
                                               0.12
                                      0.10

                                          0

                                                 Smaller                Medium            Large
                                                 Size of Banks



                                                             December 1995

                                                             February 1997



                                      Note 1: The average ATM surcharge fees were calculated for all ATMs, including those which
                                      have no surcharges.

                                      Note 2: Although some of the sampling errors were much greater than ± 10 percent, all of the
                                      differences within the three size groups were statistically significant.

                                      Source: GAO analysis of survey results.




                                      Our survey showed that the number of ATMs that have surcharge fees of
                                      $1.00 or more has increased since 1995. (See figure 4.) As indicated in
                                      table 1, this increase has occurred for large and medium banks.7




                                      7
                                       The increase for smaller banks was not significant at a 95 percent confidence level.



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Figure 4: ATM Surcharges Reported by
Banks, 1995 and 1997                   90      Percent of ATMs
                                               83
                                       80

                                       70

                                       60

                                       50               46

                                       40
                                                                                               33
                                       30

                                       20                                                                               16
                                                                                      13
                                       10
                                                                  3       3
                                                                                                               1                       1        1
                                           0

                                                $0.00               $0.00-$0.99        $1.00                       $1.01-$1.99             $2.00 or more
                                                Amount of surcharge



                                                         December 1995

                                                         February 1997



                                       Source: GAO analysis of survey results


Table 1: Percentage of ATMs With
Reported Surcharges, by Bank Size,                               Large banks’ ATMs Medium banks’ ATMs Smaller banks’ ATMs
1995 and 1997                          Surcharge                      1995        1997              1995            1997             1995           1997
                                                                                                           a                     a
                                       $0.00                             84%         40%             76%               41%             87%            57%a
                                       $0.01 - $0.99                     1            3               7                  5                 2               1
                                                                                                                             a
                                       $1.00                             14          31              12                38              10             31a
                                                                                       a
                                       $1.01 - $1.99                     1           25               1                14                  0               9
                                       $2.00 or more                     0            0               3                  2                 1               1
                                       Note: Sampling errors were not calculated for estimates of less than 10 percent. Totals may not
                                       add to 100 percent because of rounding.

                                       Sampling error exceeded ± 10 percent.
                                       a



                                       Source: GAO analysis of survey results.



                                       As of February 1, 1997, three out of the four large nonbanks said that they
                                       imposed surcharge fees. As reported by these nonbanks, the surcharge fee




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                     B-275468




                     had remained the same since the end of 1995 for two nonbanks that
                     surcharge, while one had doubled its fee. The average surcharge fee for
                     the ATMs operated by the four nonbanks increased from $0.12 in December
                     1995 to $0.32 as of February 1, 1997. The maximum surcharge fee reported
                     to us by these nonbanks was $1.00. The three nonbanks that surcharge
                     reported that the average surcharge fee was $0.71 as of February 1, 1997,
                     an increase from $0.51 at the end of 1995.


                     Our objectives were to provide summary data on the number of banks that
Objectives, Scope,   operate ATMs, the number of banks that levy surcharges against
and Methodology      non-account holders who use the banks’ ATMs, and the amounts of the
                     surcharges assessed. We also agreed to use statistical sampling techniques
                     to ensure that the information gathered on the use of surcharge fees would
                     represent practices in the banking industry as a whole. The sampling
                     procedures are discussed in detail in appendix II.

                     We sent a questionnaire (see appendix I) to a sample of banks to obtain
                     information on ATMs they operated on February 1, 1997, and December 31,
                     1995; surcharge fees assessed non-account holders using these ATMs for
                     these two dates; and ATM transaction volume data during January 1996 and
                     February 1997. We selected the December 1995 date to obtain data prior to
                     the national ATM networks’ lifting of the surcharge ban in April 1996, and
                     the February 1997 date to obtain data several months after the two
                     national ATM networks lifted their bans on surcharges.

                     We selected our sample from a universe of all banks that we identified
                     through data collected by the bank regulatory agencies. Our stratified
                     random sample was designed to provide unbiased point estimates of all
                     variables. However, the sample size of 246 banks was not large enough to
                     detect significant differences in some of the estimates for subgroups
                     within the sample, or to draw certain conclusions about comparisons
                     between 1995 to 1997. The sample size was dictated by time and resource
                     constraints because, in our judgment, the most significant threat to the
                     study’s validity was a low response rate. To minimize this threat, we
                     telephoned every bank in our sample to determine the appropriate
                     respondent at each bank before we mailed the questionnaires.

                     In this study, we did not address (1) whether surcharge fees affect
                     efficiency and competition within the financial services industry, (2) the
                     reasons for the deployment of ATMs, and (3) consumer protection and
                     disclosure issues. We did not attempt to evaluate the impact of the



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surcharge fees on the number of transactions completed at each of the
banks’ ATMs. To do so would have required us to look at numerous factors,
such as changes in the number of ATMs available to consumers, seasonal
factors, and changes in consumer behavior.

Further, this study does not fully address the ATM surcharging practices
followed by nonbank ATM operators, because of the lack of complete data
on these operators of ATMs. However, to obtain an indication of nonbank
practices in ATM surcharging, we obtained surcharge information from four
nonbanks that operate ATMs in retail locations. Industry officials told us
that these four nonbanks account for approximately 80 percent of
nonbank ATM operations.

We did our work between December 1996 and April 1997 in accordance
with generally accepted government auditing standards.


As agreed with your office, unless you announce the contents of this
report earlier, we plan no further distribution until 30 days after the date
of this letter. At that time, we will send copies of this report to the Ranking
Minority Member of your Committee, the Chairmen and Ranking Minority
Members of other interested congressional committees, individual
members, federal agencies, and the public on request.

This report was prepared under the direction of Susan S. Westin, Assistant
Director, Financial Institutions and Markets Issues. Other major
contributors are listed in appendix III. Please contact either Ms. Westin on
(202) 512-3655 or me on (202) 512-8678 if you have any questions about
this report.

Sincerely yours,




Thomas J. McCool
Associate Director
Financial Institutions
  and Markets Issues




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Page 13   GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Contents



Letter                                                                                              1


Appendix I                                                                                         16

Survey Instrument
Used to Collect Data
From a Sample of
Banks


Appendix II                                                                                        20

Objectives, Scope,
and Methodology
Appendix III                                                                                       24

Major Contributors to
This Report
Tables                  Table 1: Percentage of ATMs With Reported Surcharges, by Bank              10
                          Size, 1995 and 1997
                        Table II.1: Disposition of Bank Survey Sample                              21

Figures                 Figure 1: Percentage of ATMs Reported by Large, Medium, and                 5
                          Smaller Banks, 1997
                        Figure 2: Percentage of Banks That Reported Operating ATMs, by              6
                          Number of ATMs, 1997
                        Figure 3: Average ATM Surcharge Fees Reported by Large,                     9
                          Medium, and Smaller Banks, 1995 and 1997
                        Figure 4: ATM Surcharges Reported by Banks, 1995 and 1997                  10




                        Abbreviations

                        ATM       Automated teller machine
                        PIN       Personal identification number


                        Page 14                  GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Page 15   GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix I

Survey Instrument Used to Collect Data
From a Sample of Banks




               Page 16   GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix I
Survey Instrument Used to Collect Data
From a Sample of Banks




Page 17                         GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix I
Survey Instrument Used to Collect Data
From a Sample of Banks




Page 18                         GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix I
Survey Instrument Used to Collect Data
From a Sample of Banks




Page 19                         GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix II

Objectives, Scope, and Methodology


              Our objectives were to provide summary data on the number of banks that
              operate ATMs, the number of banks that levy surcharges against
              non-account holders who use the banks’ ATMs, and the amounts of the
              surcharges assessed. As agreed with your office, we focused our work on
              U.S. banks.

              To determine the extent of bank ATM operations, surcharging, and
              transaction volume, and to identify changes in these parameters across a
              time period, we collected data for various time periods between December
              31, 1995, and February 1, 1997. We selected these dates to obtain
              information prior to and after two national ATM networks (CIRRUS, PLUS)
              lifted their ban on surcharging. We conducted a mail questionnaire survey
              of a random sample of banks that was statistically representative of the
              universe of the entire banking industry.

              From the 11,553 active banks and thrifts with individual charters that we
              identified from a database of the September 1996 Federal Financial
              Institutions Examination Council’s Call Reports and Office of Thrift
              Supervision’s Thrift Financial Reports, we drew a random sample of 246
              banks, allocated across 11 strata defined by total asset size. We did not
              assess the quality of the database.

              We contacted each of the 246 institutions in our sample by telephone to
              determine whether it was currently an active bank eligible for our survey,
              and if so, whether it operated any ATMs as of February 1, 1997. For banks
              reporting no ATMs, this information constituted a complete response. For
              banks that indicated that they had at least one ATM, we then identified the
              most appropriate respondent and mailed that person a questionnaire
              requesting the number and type of ATMs operated, access or surcharge fees
              assessed non-account holders at each ATM, and the total number of
              non-account holder ATM transactions. We asked each bank to enumerate
              its ATMs and corresponding surcharges as of December 31, 1995, and
              February 1, 1997, and we further asked the banks to provide the
              non-account holder transaction volume data for the months of
              January 1996 and January 1997. We selected those dates to obtain ATM
              operation data for time periods before and after two national ATM
              networks (CIRRUS, PLUS) lifted their ban on surcharges. A copy of the
              questionnaire is included in appendix I.

              We mailed the questionnaires in mid-February 1997 and asked the banks to
              respond by fax. At the end of February and the beginning of March, we
              telephoned institutions that had not yet responded. While some of those



              Page 20                    GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
                                           Appendix II
                                           Objectives, Scope, and Methodology




                                           banks ultimately returned questionnaires by mail or fax, we also
                                           conducted telephone interviews to collect questionnaire data from others.
                                           When we closed the survey field period in late March of 1997, 209 of the
                                           240 eligible banks in our original sample (87 percent) had provided at least
                                           partial responses. Of the 209 usable responses, 30 were from banks
                                           without ATMs. The remaining 179 responses from banks with ATMs were
                                           weighted to represent the total estimated number of banks with ATM
                                           machines in each stratum. We did not verify information provided by the
                                           survey respondents. Table II.1 lists, by bank asset size, the strata we used
                                           to categorize the population of banks, as well as the disposition of the
                                           sample of banks that we drew for participation in our survey.


Table II.1: Disposition of Bank Survey Sample
                                                                                      Sample disposition
                                                                                                             No         Usable        Response
Bank size      Sample strata            Population      Sample          Ineligiblea     Refusals       response       response            rateb
Large banks    Over $10 billion                  85           84                  1               5            12                66         80%
Medium banks Over $8 billion, up to              22           12                  0               0              0               12        100
             $10 billion
               Over $6 billion, up to            33           14                  0               1              1               12         86
               $8 billion
               Over $4 billion, up to            64           18                  2               2              1               13         81
               $6 billion
               Over $2 billion, up to           132           22                  1               1              1               19         90
               $4 billion
               Over $1 billion, up to           224           19                  0               2              0               17         89
               $2 billion
Smaller banks Over $500 million,                414           17                  1               1              0               15         94
              up to $1 billion
               Over $300 million,               573           13                  1               0              2               10         83
               up to $500 million
               Over $150 million,              1,451          19                  0               0              0               19        100
               up to $300 million
               Over $90 million, up            1,797          11                  0               1              0               10         91
               to $150 million
               $90 million or less             6,758          17                  0               1              0               16         94
Total                                       11,553           246                  6             14             17               209         87%
                                           a
                                            Not a depository institution, no longer in business, merged, or otherwise closed.
                                           b
                                            Response rate calculated as the number of banks completing usable questionnaires divided by
                                           the number of eligible banks in the sample (original sample less ineligibles).

                                           Source: GAO sampling and survey results.




                                           Page 21                              GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix II
Objectives, Scope, and Methodology




The survey estimates printed in this report are projected to the entire
population of U.S. banks from which our sample was drawn. While we
sampled relatively more of the institutions with a large amount of assets
than institutions with a small amount of assets in order to develop precise
estimates of ATM-related activity, each completed questionnaire was
assigned a mathematical weight that made its contribution to the overall
results proportional to the number of banks of similar asset size in the
population. However, because we surveyed only a sample of banks, each
of the survey estimates in this report has a sampling error, which is a
measure of the precision with which the estimate approximates the true,
unknown population value. All of the sampling errors for our survey
estimates are no larger than plus or minus 10 percent at the 95 percent
confidence level, unless otherwise noted.

In addition to the reported sampling errors, the practical difficulties of
conducting any survey may introduce other types of “nonsampling” errors.
For example, differences in how a particular question is interpreted, in the
sources of information that are available to respondents, or in the types of
organizations that do not respond can introduce unwanted variability into
the survey results. While we did not verify the survey results, we included
steps in the data collection and data analysis stages to minimize
nonsampling errors. While designing the questionnaire, we solicited expert
opinion on the wording and structure of our questions, and we pretested
the survey instrument with several banks. Follow-up telephone calls were
made to nonrespondents, and inconsistent answers were identified during
questionnaire editing and followed up on. A number of keypunched
records were verified during data entry, and computer analyses were
performed to identify additional inconsistencies or other indications of
errors. All computer analyses were checked by an independent analyst.

We also attempted to determine whether banks that responded were
significantly different from the few that did not. Based on the information
we collected during our telephone precontacts with the banks, we
concluded that those banks that did not respond to the subsequent mail
survey (including those that refused) had a higher number of estimated
ATMs, on average, than did the banks that responded. While this suggests
that our survey results underrepresent banks with a large number of ATMs,
we feel that any potential bias is limited by the small number (31) of
nonrespondents involved.

While we collected ATM data before and after the national networks lifted
their ban on surcharges, it is not possible to attribute all of the change we



Page 22                        GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix II
Objectives, Scope, and Methodology




observed to that event. Any number of factors that we did not measure
could have influenced bank ATM deployment activity, surcharge policy, and
ATM use by non-account holders. We did not attempt to evaluate the impact
of the surcharge fees on the change in transactions. To do so would have
required us to look at numerous factors, such as changes in the number of
ATMs available to consumers, weather, and changes in consumer behavior
(including changes in purchasing patterns). We also did not address
whether surcharge fees affect efficiency and competition within the
financial services industry, the deployment of ATMs, and consumer
protection and disclosure issues.

Further, this study does not fully address the ATM surcharging practices
followed by nonbank ATM operators, because of the lack of reliable public
data on the universe of nonbank operators of ATMs. However, we
interviewed officials from several nonbank organizations that operated a
large number of ATMs (100 or more each) to get some idea of the
surcharging practices of nonbank ATM operators. We also reviewed the
results of several studies of bank and nonbank ATM operations conducted
by industry associations and private consulting firms.




Page 23                        GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
Appendix III

Major Contributors to This Report


                     Lamont J. Kincaid, Evaluator-in-Charge
General Government   Tamara E. Cross, Senior Evaluator
Division             Nancy M. Eibeck, Evaluator
                     James M. Fields, Senior Social Science Analyst
                     George H. Quinn, Jr., Social Science Analyst
                     Carl M. Ramirez, Senior Social Science Analyst
                     Darleen A. Wall, Evaluator
                     Edward S. Wroblewski, Senior Evaluator




(233511)             Page 24                   GAO/GGD-97-90 Automated Teller Machine Surcharge Fees
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