CUANJ Says Bill Blocking ATM Fees Takes Away SCCUs' Competitiveness

TRENTON, N.J. – Arguing that a proposed bill introduced by State Sen. Richard Codey (D-27) would prevent state-chartered credit unions from offering ATM services to their members, Credit Union Affiliates of New Jersey is readying to enlist the support of state-chartered credit unions and even banks if necessary, to defeat the measure. Codey’s bill, S-2165, introduced Dec. 12, 2002, prohibits state-chartered financial institutions from charging ATM fees. According to John Passuth, director of governmental affairs for CUANJ, since credit unions are not-for-profit institutions, the purpose of them charging ATM fees “is strictly for the maintenance of the machines and to cover operating costs. If you take away those fees, you are hindering the ability of credit unions to remain competitive and provide enhanced services to consumers.” More importantly, he said, the bill creates a dividing line between federal- and state-chartered credit unions. This comes at a time when CUANJ and the New Jersey Department of Banking & Insurance are looking to put the finishing touches on an updated New Jersey State Credit Union Act, which would give state-chartered institutions equal footing regarding issues such as field of membership flexibility and exemption from paying a state sales tax. “If the ATM bill goes through the legislative process and becomes law, it will hinder the decision of federally-chartered credit unions that are considering conversion since the state charter will not be as appealing,” says Passuth. It is an issue that state-chartered banks are fighting as well. According to Sam Damiano, president of the New Jersey League of Community Bankers, the bill is implying that `you are better off being a federally chartered institution. That, in effect, translates into removing virtually all governing rules and regulations from New Jersey and putting them in Washington, D.C. I would be a little concerned about that.” Sen. Codey probably had good intentions when introducing the bill, according to Passuth, and that this was not the first time Codey has introduced such legislation. The bill also comes after a wave of mounting criticisms against increasing ATM fees and the practice of “double dipping,” where consumers using an ATM of another financial institution pay a surcharge (what a bank charges other banks’ customers for using its ATMs) and a foreign fee (what banks charge their own customers for using another bank’s ATM). Total charges for these types of transactions can be as high as $4.50. The big issue in all of this is the surcharge fee, but Codey’s bill does not distinguish between surcharges, foreign fees and regular maintenance and administrative fees, says Passuth. In certain areas around the country, municipalities and citizens have joined together to ban surcharges, but mostly all efforts have been stalled by federal appeals courts. According to Susan Zawodniak, vice president of NYCE Corporation and executive director of NYCE Network, a leading ATM network provider in the Garden State with 6,684 terminals, legislation that bans ATM surcharge fees usually fail for competitive reasons. State bills would not apply to federally-chartered institutions, so there would be a uneven, competitive environment. “You put institutions prohibited from charging fees at a competitive disadvantage,” she says. She also says the bills fail because consumers still have choice and don’t have to use ATMs from other institutions. “Consumers have alternatives. They can go to their own bank or credit union ATM and not be charged, or do a point-of-sale transaction at a supermarket and get cash back,” says Zawodniak. “They have other ways of getting cash without getting a surcharge.” Ironically, Zawodniak says that banning of surcharge fees would actually benefit the NYCE Network. “If the surcharge fee would go away, it would actually benefit the network because more people would be conducting ATM transactions,” she says. For every ATM transaction, NYCE receives a switching or transport fee of between $.095 or $.035, based on volume. “Year’s ago, before surcharge fees, a consumer could use any bank’s ATM and network traffic was growing 5 percent per year. Our growth patterns were terrific,” says Zawodniak. “Once surcharging came into being – and the Northeast was one of the last regions in the country to implement these charges – network volume went to negative growth. We lost volume because people didn’t want to pay to access their own funds.” Though NYCE would benefit from a surcharge fee ban, it supports its constituents (banks and credit unions) who say that things should be left unregulated. Pasuth says that while financial institutions do not have to reinvest the surcharge fee back into other products and services, credit unions, since they are not-for-profits, always funnel this money back into providing enhanced services for members. “It’s not getting pocketed. It helps credit unions grow and offer better loans and rates without charging processing fees,” he says. The debate from financial institutions over ATM surcharge fees seems to be a mixed bag. While some credit unions and banks want to keep surcharges, others are banding together to eliminate them. NYCE, for example, participates in the SUM selective surcharge program, in which 440 financial institutions have set aside a certain ATMs (2,800 total across the country) that do not charge a surcharge fee. “We thought there was never going to be a surcharge-free ATM ever again, but the market responded with alliances,” said Zawodniak. The cost and installation of a typical ATM ranges from $15,000 to $50,000. It then costs an additional $12,000 to $15,000 a year to maintain it. Some of the monthly costs, according to Damiano, include a: $100 telecommunications line charge; $200 ATM network charge; and $600-$700 charge for armored car service. According to the U.S. Treasury Department’s Office of Thrift Supervision, the cost for an average ATM transaction is $0.27, including the amortization of the machine itself, the telecommunications cost and the salaries of people who oversee the system. Passuth is confident the bill will be stopped. At press time, he was expected to meet with Codey’s chief of staff. He is also obtaining support from the state’s 22 state-chartered credit unions and, if necessary, will seek support from state-chartered banks. “I have been in contact with a few of our members and 100% are behind the league’s approach. If the bill gets a chance to see some movement in the legislature, then I will be reaching out to other financial institutions. I am confident, however, that we can kill it without getting others involved,” says Passuth. [email protected]