oversight

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

Published by the Government Accountability Office on 1997-06-11.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Senate Banking Committee




For Release on Delivery
Expected at
10:00 a.m., EDT
                          AUTOMATED TELLER
on Wednesday
June 11, 1997             MACHINES

                          Banks Reported That Use of
                          Surcharge Fees Has
                          Increased
                          Statement of Thomas J. McCool
                          Associate Director, Financial Institutions and Markets
                          Issues
                          General Government Division




GAO/T-GGD-97-123
Summary

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

              GAO’s testimony, based on its recently issued report,1 discusses
              information on the practice of surcharging by banks and thrifts with
              regard to automated teller machines (ATMs) used by individuals who do
              not hold accounts at the institutions owning the ATMs. Banks have access
              to ATM networks that link their respective ATM and computer systems so
              that depositors from any member of the network can access their
              respective accounts through any network bank’s ATM. There are fees
              associated with using ATMs. One type of fee is the surcharge fee that ATM
              owners may charge ATM users who do not have accounts with them. In
              assessing these fees, ATM owners generally charge users’ banks, which pay
              the fees and then charge them directly to the users’ accounts.

              GAO conducted a projectable survey of 246 randomly selected banks
              throughout the United States to determine the number of banks that
              operate ATMs, the number of these banks that surcharge non-account
              holders, and the amounts of surcharges that are assessed.

              GAO  estimated that, as of February 1, 1997, about three-fourths of all banks
              in the United States operated ATMs. As of that date banks operated about
              119,000 ATMs, an increase of 34 percent over the 89,000 ATMs operated at
              the end of 1995.

              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.

              Actual surcharge fees tend to occur in 50-cent increments—e.g., $1.00,
              $1.50, $2.00. GAO estimated that the average surcharge fee for all ATMs
              operated by banks, including those with no surcharge fees, had more than
              tripled since the end of 1995, from $0.17 to $0.62 in 1997. The average
              reported surcharge fee for those ATMs with surcharges was $1.14 in 1997;
              the most commonly reported actual surcharge fee was $1.00.




              1
               Automated Teller Machines: Banks Reported That Use of Surcharge Fees Has Increased
              (GAO/GGD-97-90, May 16, 1997).



              Page 1                                                                      GAO/T-GGD-97-123
Statement

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

              Mr. Chairman and Members of the Committee:

              We are pleased to be here today to discuss the results of our study on the
              use of surcharge fees for automated teller machines (ATMs).1 As you
              requested, we gathered information on fee-charging practices of banks and
              thrifts with regard to ATMs used by individuals who do not hold accounts at
              the institutions owning the ATMs. Such a fee is called a surcharge or access
              fee. We estimate that in the 13-month period from December 31, 1995, to
              February 1, 1997, there was a 320-percent increase in the number of ATMs
              that had surcharge fees. In addition, the average surcharge fee calculated
              for all ATMs operated by banks and thrifts more than tripled over this same
              time period.

              You asked us to summarize the information in our study relating to (1) the
              number of banks that operate ATMs, and (2) the number of these banks that
              surcharge non-account holders and the amounts of surcharges that are
              assessed. Our study did not attempt to determine the effect surcharge fees
              have on the deployment of new ATMs. Further, it was not intended to
              address whether ATM operators are adequately disclosing information on
              ATM fees to customers.


              To address these objectives, we conducted a survey of 246 randomly
              selected banks throughout the United States. We sent a questionnaire to
              the selected banks to obtain information on ATMs they operated and
              surcharge fees assessed non-account holders using these ATMs as of
              December 31, 1995, and February 1, 1997. We selected those dates to
              obtain data before and after the two primary national ATM networks
              changed their policy in April 1996 from prohibiting surcharges to allowing
              their members to assess surcharges. The response rate for our survey was
              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 were more
              precise—i.e., the estimates have smaller sampling errors. We reported all
              sampling errors greater than ±10 percent.




              1
               The detailed results are presented in Automated Teller Machines: Banks Reported That Use of
              Surcharge Fees Has Increased (GAO/GGD-97-90, May 1997).



              Page 2                                                                         GAO/T-GGD-97-123
                      Statement
                      Automated Teller Machines: Banks
                      Reported That Use of Surcharge Fees Has
                      Increased




                      Studies done by financial industry groups report that ATMs can perform
                      many of the tasks bank tellers perform. For example, consumers use ATMs
                      to make cash withdrawals from personal checking, savings, and other
                      deposit accounts, as well to make deposits and to move money between
                      accounts and ATMs are typically available 24 hours a day.

                      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,
                      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 bank’s 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, most of the fees are associated with
                      consumers using ATMs operated by other banks in the network system. 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. An
                      interchange fee may be charged by ATM owners to a non-account holder’s
                      home bank for handling one of its transactions. Finally, a surcharge fee
                      may be charged by ATM owners to ATM users who do not have accounts
                      with them. In practice, ATM owners may surcharge the users’ banks, and
                      the banks in turn pay the fees and then may charge them directly to the
                      users’ accounts. In our study, we gathered information on surcharge fees
                      only.


                      From our analysis of the survey responses, we estimate that, as of
Most Banks Reported   February 1, 1997, about 75 percent (±14 percent sampling error) of banks
Operating ATMs        in the United States operated ATMs. Of the estimated 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. In addition, we estimate that, as of
                      February 1, 1997, banks operated about 119,000 ATMs, a statistically
                      significant increase from the estimated 89,000 ATMs they operated at the
                      end of 1995.

                      Although large banks—those with assets over $10 billion—accounted for
                      about 1 percent of the total number of banks that reported operating ATMs,
                      they operated 37 percent of the total number of ATMs in the United States.
                      The percentages of ATMs operated by large, medium, and smaller banks are



                      Page 3                                                     GAO/T-GGD-97-123
                        Statement
                        Automated Teller Machines: Banks
                        Reported That Use of Surcharge Fees Has
                        Increased




                        indicated in appendix I. For banks that operate ATMs, the large banks
                        reported a median of 346 ATMs in operation, compared with 2 for the
                        smaller banks. About 98 percent of the large banks had 26 or more ATMs in
                        operation.

                        Our survey results show that for smaller banks—those having assets of
                        less than $1 billion—75 percent (± 15 percent) had at least one ATM as of
                        February 1, 1997. Banking officials’ responses indicated that between the
                        end of 1995 and February 1, 1997, more smaller banks began operating
                        ATMs at both on- and off-premise locations, rather than at only on-premise
                        locations. Off-premise locations include entertainment and transportation
                        facilities and retail outlets. We found that about 95 percent of the large
                        banks continued to operate ATMs both on- and off-premises.


                        About one-third—2,900 (±1,400) of 8,600—of the banks that operated ATMs
Banks Reported Use      reported that they imposed surcharges on non-account holders who used
of Surcharge Fees Has   their machines.2 As of February 1, 1997, 57 percent of large banks reported
Increased               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 with 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 with
                        surcharge fees—from about 15,400 (±6,500) to about 64,400 (±16,700). This
                        increase included newly deployed or acquired ATMs as well as old ATMs that
                        previously did not have a surcharge fee. Banks indicated that both
                        on-premise and off-premise ATM surcharging had increased since 1995.

                        Actual surcharge fees tend to occur in 50-cent increments—e.g., $1.00,
                        $1.50, $2.00. The most typical surcharge reported to us was $1.00.
                        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
                        for all ATMs operated by banks, including those with no surcharge fees, had
                        more than tripled since the end of 1995, from $0.17 (±$0.08) to $0.62
                        (±$0.10) in 1997. The average reported surcharge fee for those ATMs with

                        2
                         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.



                        Page 4                                                                           GAO/T-GGD-97-123
Statement
Automated Teller Machines: Banks
Reported That Use of Surcharge Fees Has
Increased




surcharges was $1.14 (± $0.06) in 1997. Appendix II provides the average
surcharge fees by bank size, and shows that the number of ATMs that have
surcharge fees of $1.00 or more has increased since 1995.


This concludes my prepared statement. I will be happy to respond to any
questions you or other members of the Committee may have.




Page 5                                                    GAO/T-GGD-97-123
Appendix I

Percentages of All ATMs in Operation
Reported by Large, Medium, and Smaller
Banks, 1997

                                                        Smaller (<$1 billion in assets) -
                                                        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.




              Page 6                                                            GAO/T-GGD-97-123
Appendix II

ATM Surcharge Fees


Figure II.1: 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.




                                      Page 7                                                                        GAO/T-GGD-97-123
                                       Appendix II
                                       ATM Surcharge Fees




Figure II.2: 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.




(233536)                               Page 8                                                                     GAO/T-GGD-97-123
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