Automated Teller Machines: Banks Reported That Use of Surcharge Fees Has
Increased (Testimony, 06/11/97, GAO/T-GGD-97-123).

GAO discussed the results of its study on the use of surcharge fees for
automated teller machines (ATMs), focusing on the: (1) number of banks
that operate ATMs; and (2) number of these banks that surcharge
non-account holders and the amounts of surcharges that are assessed.

GAO noted that: (1) 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; (2) there are fees associated with using ATMs; (3) one type
of fee is the surcharge fee that ATM owners may charge ATM users who do
not have accounts with them; (4) in assessing these fees, ATM owners
generally charge users' banks, which pay the fees and then charge them
directly to the users' accounts; (5) 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; (6) as of February 1, 1997, about three-fourths of all banks
in the United States operated ATMs; (7) 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; (8) about one-third of the banks that
operated ATMs reported that they imposed surcharges on non-account
holders who used their machines; (9) 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;
(10) actual surcharge fees tend to occur in 50-cent increments, e.g.,
$1.00, $1.50, $2.00; (11) 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; and (12) 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.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-97-123
     TITLE:  Automated Teller Machines: Banks Reported That Use of 
             Surcharge Fees Has Increased
      DATE:  06/11/97
   SUBJECT:  Electronic funds transfer
             Fees
             Insured commercial banks
             Savings and loan associations
             Computer networks

             
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Cover
================================================================ COVER


Before the Senate Banking Committee

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

AUTOMATED TELLER 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

GAO/GGD-97-123T


(233536)


Abbreviations
=============================================================== ABBREV

  ATM -
  GAO -
  GGD -

AUTOMATED TELLER MACHINES:  BANKS
REPORTED THAT USE OF SURCHARGE
FEES HAS INCREASED
====================================================== Chapter SUMMARY

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). 


AUTOMATED TELLER MACHINES:  BANKS
REPORTED THAT USE OF SURCHARGE
FEES HAS INCREASED
==================================================== Chapter STATEMENT

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 ï¿½10 percent. 

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. 


--------------------
\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). 


   MOST BANKS REPORTED OPERATING
   ATMS
-------------------------------------------------- Chapter STATEMENT:1

From our analysis of the survey responses, we estimate that, as of
February 1, 1997, about 75 percent (ï¿½14 percent sampling error) of
banks in the United States operated ATMs.  Of the estimated 8,600
(ï¿½1,700) banks that reported operating ATMs as of February 1, about
8,000 (ï¿½1,800) 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 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 (ï¿½ 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. 


   BANKS REPORTED USE OF SURCHARGE
   FEES HAS INCREASED
-------------------------------------------------- Chapter STATEMENT:2

About one-third--2,900 (ï¿½1,400) of 8,600--of the banks that operated
ATMs reported that they imposed surcharges on non-account holders who
used their machines.\2 As of February 1, 1997, 57 percent of large
banks reported surcharging, an increase from the 20 percent that were
doing so in 1995.  Thirty-two percent (ï¿½16 percent) of the smaller
banks were surcharging in 1997, while 20 percent (ï¿½14 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 (ï¿½6,500) to about 64,400
(ï¿½16,700).  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 (ï¿½$0.08) to $0.62 (ï¿½$0.10) in 1997. 
The average reported surcharge fee for those ATMs with surcharges was
$1.14 (ï¿½ $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. 


--------------------
\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. 


------------------------------------------------ Chapter STATEMENT:2.1

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


PERCENTAGES OF ALL ATMS IN
OPERATION REPORTED BY LARGE,
MEDIUM, AND SMALLER BANKS, 1997
=========================================================== Appendix I



   (See figure in printed
   edition.)

Source:  GAO analysis of survey results. 


ATM SURCHARGE FEES
========================================================== Appendix II

   Figure II.1:  Average ATM
   Surcharge Fees Reported by
   Large, Medium, and Smaller
   Banks, 1995 and 1997

   (See figure in printed
   edition.)

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
ï¿½10 percent, all of the differences within the three size groups were
statistically significant. 

Source:  GAO analysis of survey results. 

   Figure II.2:  ATM Surcharges
   Reported by Banks, 1995 and
   1997

   (See figure in printed
   edition.)

Source:  GAO analysis of survey results. 


*** End of document. ***