BILL ANALYSIS AB 3366 Page 1 ASSEMBLY THIRD READING AB 3366 (Knox) As Amended May 15, 1996 Majority vote BANKING AND FINANCE 13-0 SUMMARY: Requires point-of-transaction disclosure of most surcharges and fees charged for automated teller machine (ATM) transactions. Specifically, this bill: 1) Requires that operators of ATMs disclose, either electronically or by printed visible notice on the ATM, all surcharges or fees for service charged to the user, and gives the user an opportunity to cancel the transaction prior to the imposition of the surcharge or fee. 2) Provides that an operator of an ATM shall not be required to disclose any surcharge or fee that any third party financial institution charges its own customers for using a nonproprietary ATM. FISCAL EFFECT: None EXISTING LAW: 1) Requires an operator of an ATM who imposes a surcharge on users of the ATM who are not customers of that particular ATM operator to disclose the surcharge that the ATM operator charges to the user prior to completion of the transaction. 2) Does not prevent an operator of an ATM from imposing a surcharge on any user of that ATM regardless of whether or not that user is a customer of that ATM operator or not. BACKGROUND: Typically there are two types of ATM transaction fees which can be charged: an access or "front-end" fee which is charged by the owner or operator of the ATM on the user and an interchange or "back-end" fee which is charged by the issuer of the user's ATM card (i.e., the customer's own bank). Under internal operating rules established by the two largest national ATM network operators (i.e., VISA's Plus network and MasterCard's Cirrus System, Inc.) prior to April 1, 1996, banks could only charge the back-end interchange fee to their own customers who used ATM cards issued by that bank at another operators' ATM. On April 1, 1996 Plus and Cirrus changed their internal operating rules to now allow ATM operators to charge noncustomers the front-end access fee. The above-described rules also restrict the amount of this front-end fee to $2.50 per transaction and require that the ATM operator disclose the imposition of any front-end access fee to the user and give the user the ability to cancel the transaction before being charged. It is estimated that the overwhelming majority of ATMs in California are covered by these Plus and Cirrus regulations. AB 3366 Page 2 There is no law in California which regulates who can charge a fee for the use of an ATM or how much that fee can be. The disclosure provision in current California law applies only to the front-end access fee and is not as detailed in scope as the requirements of the private regulations concerning such things as how visible the disclosure is, if it is at eye level or not, and what manner the disclosure takes (i.e., if both a sticker and electronic disclosure is required). Finally, there is nothing in California law which requires banks to disclose, at the actual point of contact with the ATM, the amount of the back-end fee or other types of transaction fees (such as the fee for obtaining a "mini-statement" of past account activity), if any, that the bank charges to its own customers. Currently all such fees of this type are required to be disclosed in writing when the customer opens up his or her account with the bank or by mail notice when the bank begins charging such fees. Bank of America recently began to electronically disclose the fee that they charge their own customers when they choose to get a mini-statement of past account activity. However, nothing in law prevents Bank of America from ending such voluntary disclosure tomorrow. ARGUMENTS IN SUPPORT: This bill does not attempt to regulate the substance of bank ATM fees and only requires their disclosure at the point where the consumer can most benefit from such information, at the ATM itself. Bank ATM fees are rising and account for a substantial amount of money to customers which ought to be disclosed to customers. Even though front-end fee disclosure may be required by private association rules, and perhaps by federal regulations, such disclosure of front-end fees should be enacted into state statute to ensure that if the private regulations are discontinued or if the federal government chooses not to enforce any federal regulations, that California consumers are given the benefit of full disclosure of this important information. As to the disclosure of back-end fees, while it might not be feasible to require ATM operators to determine and disclose what other banks are charging their customers, it is not unreasonable to require an ATM operator to disclose all possible fees which it is charging its own customers, including front-end access fees, any back-end interchange fee and all other miscellaneous fees for other services such as mini-statements. ARGUMENTS IN OPPOSITION: Amendments taken in committee by the author have removed all opposition. Analysis prepared by: Blake Campbell / abf / 324-7317 FN 023811