Why are out-of-network ATM fees so high?

Bank customer uses ATM machine.

TEXT OF INTERVIEW

Jeremy Hobson: So, you know when you go to an ATM that's not owned by your bank, you have to pay a fee? And then you have to pay another fee to your bank for the privilege?

Well, LA Times Consumer Columnist David Lazarus has been giving that whole system some thought and he joins us now. Good morning.

DAVID LAZARUS: Good morning.

HOBSON: So what gives?

Lazarus: What gives is the banks are basically double-dipping: they're charging you an average $3 when you take your card out-of-network, but then your home bank will also hit you with a roughly $2 charge, which they call a "convenience fee." B of A charges $2, Chase charges $2, Wells Fargo charges $2.50.

HOBSON: David, how long as this been going on?

LAZARUS: Well it's more of a recent phenomenon, to be honest. When the banks first rolled out ATMs in the 1970s, there was no charge whatsoever for going out-of-network. They wanted people to feel comfortable with this technology, because of course it saves the banks oodles of cash. It wasn't until about 2000 or 2003 or so that we started seeing an average $2 charge being introduced; now it's $3 charges and some banks are charging $4.

HOBSON: Four bucks. And let me ask you this question, which I'm sure the answer will be difficult to hear: what does it actually cost them to have me go to a bank that's not in my network?

LAZARUS: Bupkas, my friend. You talk to consumer advocates and they say it maybe costs a penny or two to process these transactions, because the economies of scale are so huge -- millions of transactions every day. So as with processing debit card transacations or credit card transactions, there are so many ATM withdrawals that it really only costs maybe a penny. All the rest is pure gravy.

HOBSON: Now David, Congress passed that big credit card act back in February that was supposed to crack down on fees. Did it do anything about this situation?

LAZARUS: No, not with the ATMs because the banks can argue -- correctly -- that you are not forced to pay these fees. All you've got to do is stay in network with your home bank and you can skirt these fees. Well that's true; on the other hand, at $5 or so to get your money -- that's price-gouging. Pure and simple. Since the Federal Reserve has cracked down on debit card transaction fees, requiring that they now be reasonable and proportional to the banks' costs, I wonder why the same thinking can't apply to ATM withdrawals.

HOBSON: Well I guess we'll have to keep wondering. And by the way, you will be on Marketplace Money this weekend answering listener questions. But thanks so much for joining us here on the Morning Report.

LAZARUS: Thank you.

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