BILL ANALYSIS
SENATE FINANCE, INVESTMENT AND INTERNATIONAL TRADE
Senator Ken Maddy, Chairman AB 3366
Knox
June 5, 1996
As Amended
Hearing: June 12, 1996 Fiscal: No
SUBJECT: Charges on Automated Teller Machines (ATMs)
DIGEST -- WHAT THE BILL DOES
EXISTING LAW generally does not regulate the charges
associated with the use of ATMs. However, when a person uses
a machine whose operator did not issue the ATM card used, the
law requires the ATM operator to disclose any osurchargeso
imposed for the use of the machine. The surcharge must be
disclosed prior to completion of any transaction.
THIS BILL, for financial transactions, expands the
disclosure requirements to all customers, irrespective of
whether the customer uses a machine operated by the company
which issued the ATM card. It further specifies that the
disclosure be made electronically. (Prior notice is not
sufficient.) The bill expands the disclosure statements to
apply to ofees," such as ouser,"oserviceo or otransactionso
fees. The bill also requires that the customer be provided
an opportunity to cancel the transaction without cost.
For point-of-sale transactions: the ATM operator must
disclose the total price of the transaction and transaction
fees. The consumer must have the opportunity to cancel the
transaction without incurring fees.
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The bill also requires that the operator disclose that
the customer's financial institution may charge an additional
fee.
FISCAL EFFECT:
Unknown, potential costs to state regulatory agencies for
developing and enforcing regulations associated with the ATM
disclosure requirements. These costs would generally be
financed from special funds.
COMMENTS:
A. Purpose of the bill
The bill rises from concerns about the growing prevalence
of banking service fees generally and specifically out of
developments at the two largest ATM networks. On April 1,
1996, the PLUS and Cirrus networks authorized machine
operators to impose surcharges. There are apparently no caps
on these fees, but fees are not expected to exceed $2.50 per
transaction. These charges are in addition to any charges
the ATM card-issuer may impose on its customer.
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B. ATMs provide services. Are they oprofit centerso?
ATM networks provide customers with 24 hour access to
cash and provide other banking or consumer services. The
machines are accessible in many locations throughout the
customeros region and throughout the world. This 24-hour
access and service presumably holds some value to the
customer. For financial institutions, the service is not
without costs for purchasing, installing and maintaining the
ATMs. How should the ATM service be priced: At the
customeros willingness to pay? At the actual, marginal cost
for providing the service?
Consumer advocates view the advent of ATM fees with some
concern about corporate profit-taking. Ralph Nader testified
to the US House Banking Committee that ATMs cost banks $2.9
million to operate nationwide in 1994, and generated fee
revenue of about $2.6 million, for an annual operating loss
of about $300,000. However, Nader estimated that the ATM
transactions reduced the need for tellers and osavedo banks
about $2.4 million in personnel expenses. When he netted the
ATM operating losses against his estimate of the bankos
personnel savings, he determined that obanks enjoyed
increased profits of more than $2.1 million as a result of
their customerso use of ATMs.o
C. What is the nature of the required disclosure? How will
it help consumers?
The bill requires ATM operators to disclose their charges
for use of ATMs each time the customer uses the ATM.
Presumably the intent is to provide consumers with enough
information so they can evaluate the costs of making a
transaction through a particular machine. This mandated
disclosure may be of limited help to consumers, however.
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For example, AB 3366 does not specify the nature of the
required disclosure. Under the bill, it would be sufficient
for the operator to state:
You will be charged for each transaction at this machine.
Please contact the machine operator for the full list of
transactions fees or surcharges.
This disclosure statement provides the customer with very
little information about whether to proceed with the
transaction.
Moreover, AB 3366 requires that the ATM operator disclose
fees each time the customer uses the machine. The
transaction fee, if there is any, may not be levied on each
transaction, however. Financial institutions may choose to
levy a monthly ATM charge, irrespective of the rate of ATM
usage. As such, the disclosure would merely serve to remind
the customer that he or she pays a monthly ATM service
charge.
D. Definition of oATMo
The bill references the current statutory definition for
an automated teller machine, which states in part:
oAutomated teller machineo means any electronic information
processing device located in California which accepts or
dispenses cash in connection with a credit, deposit or
convenience account. The term does not include
devices...which are used in connection with the acceptance or
dispensing of cash on a person-to-person basis, such as by a
store cashier.
This definition limits the application of the billos
disclosure requirement. Specifically:
Not All Card-Operated Machines May Be Covered. It appears
that not all devices accessed by an ATM or credit card are
subject to the billos disclosure requirements. For
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example, the card readers at grocery stores do not dispense
cash directly, but are assisted by the check-out clerks.
Likewise, the popular oPay Pointo systems used at
restaurants, convenience stores and gas stations are
cashier-assisted. As such, AB 3366 may not cover these
devices. Is it the intent of the author to require these
other systems to subscribe to the same disclosure
requirements as applied to bank-operated ATMs?
The Disclosure Applies Only to ATMs Operated In-State. ATM
transactions by California customers who access
out-of-state or foreign ATMs would not be subject to the
billos disclosure requirements. Conversely, non-California
customers who access in-state ATMs would be covered by the
disclosure requirements.
E. Point-of-sale transactions
The bill imposes different disclosure requirements on
point-of-sale transactions (such as stamp purchases), but
provides no statutory definition. The bill defers the
definition to regulation.
Support and Opposition
Support: Consumers Union
Congress of California Seniors
Oppose: California Bankers Association
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Consultant: John P. Decker (916) 445-6306
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June 12, 1996 7:05 PM
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SENATE FINANCE, INVESTMENT AND INTERNATIONAL TRADE
Senator Ken Maddy, Chairman
SUPPLEMENTAL ANALYSIS OF AUTHORoS AMENDMENTS
AB 3366 (Knox)
RN 9620840
IN ITS CURRENT FORM, THE BILL expands ATM disclosure
statements.
THE AMENDMENTS re-write the entire bill. They prohibit
the operator of an ATM from imposing a charge for the use of
the ATM unless certain electronic disclosures are made. The
disclosure standards are different, depending on the type of
ATM transaction.
Not a Point of Sale. If the transaction does not apply to a
opoint of sale transaction,o disclosures must be made so
the customer either knows the surcharge before beginning a
transaction, or can cancel a transaction without incurring
a osurcharge.o
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Goods and Services. If the transaction is for a sale of a
good or service, the ATM must disclose the total price for
the good or service and any ofeeo charged solely for the
ATM use. The disclosure must be made so that the customer
knows the charges before beginning the transaction or can
cancel a transaction without incurring any oobligation.o
In addition, when a person uses an ATM card which was not
issued by the operator (i.e., when a person uses a B of A
Versateller card at a Wells Fargo ATM), the operator must
disclose that the customeros financial institution may charge
a fee.
COMMENTS:
A. Purpose of the amendments
The amendments are intended to address concerns raised
by the California Bankers Association.
B. oPoint of sale transactiono is not defined
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The amendments define two transactions which are subject
to disclosure. The circumstance in subsection (a) does not
apply to a opoint of sale transaction,o but does not define
the term. Is the disclosure requirement in subsection (a)
intended to apply to all transactions not considered oa sale
of a good or serviceo (i.e., subsection (b))? Or does it
just apply to cash withdrawals?
C. Using ATMs to buy a good or service. What is an
oobligationo?
ATMs provide a range of services other than cash
withdrawals. They provide financial services such as account
activity statements, balance statements, and cash advances.
Some sell traveleros checks and postage stamps. In the
future, they may sell theater tickets, lottery tickets, and
plane tickets.
The amendments require the ATM operator to disclose the
charge for these goods and services in two amounts: the cost
of the good or service and the ofeeo for the ATM use. For
example, suppose a customer goes to an ATM to buy ten first
class stamps. The bank will disclose the charge for the
stamps (say, $4.00) and the ATM charge (say, $1.00), for a
total charge of $5.00.
The amendments require the ATM operators to allow the
customer to cancel the transaction without incurring oany
obligation.o Is an oobligationo the same as a osurchargeo
or a ofeeo? If it is the same, the amendments should replace
oobligationo with osurchargeo or ofee.o Alternatively, if
the intent is to apply oobligationo only to the cost of the
good or service, then the bill would appear to allow a charge
for a canceled transaction listed in subsection (b).
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D. The disclosure statements can still be vague
The amendments still allow the bank operator to provide a
very general disclosure statement which may yield little
information to the consumer (see Comment C of the Committee
Analysis).
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Consultant: John P. Decker (916) 445-6306
June 12, 1996 7:05 PM