Capping ATM Fees–A Good Idea?

This blog post by Timothy Terrell originally appeared on May 15, 2010 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


Three Democratic senators are considering capping ATM fees at 50 cents. The writer notes that a likely result would be a smaller number of ATMs, which is entirely likely.

The proposal is not new–similar efforts have been made in the past. Gene Callahan shredded one proposal of about ten years ago. The current proposal “estimates that it only costs banks somewhere in the neighborhood of 36 cents to carry out an ATM transaction – far less than what consumers typically pay.” This 36 cents may be the marginal cost. But banks also incur other, fixed costs of operating an ATM location–such as installation, insurance, maintenance of the machine, and periodic upgrades. Banks won’t be willing to install new ATMs if they find that they can only use marginal cost pricing.

In any case, efforts to find a price by looking at cost alone is neglecting the other half of the supply-demand framework. Demand reflects the value to the buyer. What value do people place on ATM access? Suppose my alternative to the ATM is expending my time, gas, and irritation driving around looking for another source of cash, which we’ll sum up as a $7 cost. A bank that charges me only $3.00 is doing me a $4 favor.

One of the most amazing statements in the article was this one, by a Ms. Jean Ann Fox of the Consumer Federation of America: “Banks shouldn’t be able to turn accessing your own money into a profit center.” But people use banks in order to keep their money safe until such time as they decide to use it–and in order to take advantage of easy payment methods such as debit cards or checks. At one time, banks offered very inconvenient access–a depositor either wrote a check, or made an in-person visit to one of a small number of physical locations in order to get cash out at a teller window. As banks found that they could profit by providing customers with more convenient access, they found innovative ways to do just that. In addition, ATMs increased competition among banks, discouraging the exclusive territories that once characterized banking. In a way, an anti-ATM law is like the anti-bank branching laws that encouraged bank monopolization.

Are consumers really better served by driving around longer, searching for an ATM–an ATM that is more likely to have a queue behind it? Are they better served by stopping into a store to buy something trivial in order to get “cash back” at the register? Banks apparently think that people will be willing to pay a little extra for convenience. If people aren’t allowed to pay more for the convenience, banks won’t provide it.