Controlling ATM Fees: Competition Versus Political Fiat

Thom Lambert —  7 May 2010

Taking a page from Rahm Emanuel’s never let a serious crisis go to waste playbook, our esteemed senators are loading the pending financial reform legislation, ostensibly aimed at preventing future financial meltdowns, with all sorts of wish-list items that have nothing to do with financial crises.

Iowa Senator Tom Harkin, for example, has introduced an amendment that would require ATM operators to limit their fees to the cost of providing the service. According to Harkin, a high estimate of that cost is about 36 cents per transaction. (He insists his estimate is “on the high side” because it’s based on 1997 data adjusted for inflation, and “[i]t assumes that any improvement in technology has not brought down costs, which obviously they have [sic].”)

ATM fees of 36 cents or less — can you imagine?! What a boon for consumers! Thank you so very much, wise and benevolent senators! Whatever would we do without your protection?

Well, I suppose those of us who really dislike ATM fees could deposit our money in one of the many banks that refund such fees to depositors. Here’s a dated (December 2008), non-exhaustive list of 49 banks that refund all ATM fees. Banks, you see, can’t just force folks to hand over their money the way our esteemed senators can. They actually have to compete for deposits. And they do so by offering various price/service combinations they think will attract depositors. This bank, for example, is trying to attract consumers who really hate ATM fees. So is this one. This one, by contrast, is emphasizing the vastness of its ATM network.

Which raises a question: If the government forces banks to lower ATM fees “to the cost of providing the service,” as Senator Harkin’s bill mandates, what incentive do banks and other ATM providers have to set up new ATMs? The prospect of “breaking even” doesn’t usually inspire a tremendous amount of capital investment.

Maybe Senator Harkin and his cronies should go hang out in Amsterdam on a weekend night. I recently waited about 20 minutes to access the lone working “geldautomaat” near the popular Leidseplein area. When I finally got to the ATM, I was pleased to see that I didn’t have to pay a fee — the Dutch government has banned ATM fees — but I would gladly have paid a couple of bucks (or Euros) to avoid that wait.

When it comes to controlling ATM fees, I, for one, would opt for competition rather than political control.

Thom Lambert


I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.