Federal Appeals Court Strikes Down City's ATM Fee Ban

By Jorge Casuso

Oct. 25 -- A federal appeals court Friday struck down Santa Monica's pioneering ban on ATM surcharges, upholding an earlier ruling that any local ordinances restricting banks from charging non-customers an extra fee violates federal law.

The ruling by the 9th U.S. Circuit Court of Appeals, which also overturns a similar ban approved by San Francisco voters, found that federal banking regulations adopted by Congress allow banks to charge fees for ATM usage.

The San Francisco-based appeals court noted that only the federal government can create such regulations, not city councils or local voters. The Santa Monica City Council and San Francisco voters both adopted similar laws three years ago, helping spur a national movement to ban banks from charging non-customers an additional fee, which averages about $1.50 per transaction.

``We find that the ordinances are pre-empted by federal law and regulations and thus invalid,'' Judge Joseph T. Sneed wrote in his ruling.

Santa Monica and San Francisco officials said they would consider whether to appeal to the U.S. Supreme Court or ask the court to reconsider its decision.

Mayor Michael Feinstein said that based on a briefing by Deputy City Attorney Adam Radinsky, who represented the city, the court failed to address the defense's arguments.

"The court did not address the legal arguments we've raised," said Feinstein, who co-sponsored the ordinance, which was approved in October 1999. "We've never been persuaded by them that just saying that makes it so."

"Unless you like having big banks' hands in both your pockets at once, coming and going, this court decision is a setback for consumers," said Councilman Kevin McKeown, the measure's other co-sponsor.

Leland Chan, an attorney for the California Bankers Association, which challenged the laws, applauded the decision, saying the measures countervailed free-market capitalism.

``Can you imagine voters telling Intel how much to charge for its chips?'' Chan said.

Friday's 3 to 0 decision upholds U.S. District Judge Vaughn Walker's ruling in July 2000 that any local laws restricting ATM surcharges violate the National Banking Act, as well as the Home Owners Loan Act, which govern both nationally chartered and federal savings banks.

Ruling in a restraining order shortly after the measures were passed, Walker shot down Santa Monica's contention that the 1978 Electronic Funds Transfer Act gives cities powers to protect consumers in the area of ATMs.

While the EFTA allows cities to regulate the safety, location, lighting and disclosure of fees, it cannot set the amount of the fees, the San Francisco federal judge ruled when he blocked the ordinances from being enforced at the request of Bank of America, Wells Fargo Bank and others.

Radinsky -- who called the surcharge "an outrageous and duplicative fee that is unfair to consumers" -- noted that Arkansas, Mississippi and Wyoming have rules limiting the amount of ATM fees banks may charge.

The Santa Monica and San Francisco laws challenged the rights of banks to charge non-customers an additional surcharge to use their ATM, but did not challenge the fees a bank charges its own customers to use another bank's ATM, which average around $2.

Friday's ruling came as no surprise, based on oral arguments in January, when the judges didn't seem to buy the cities' arguments defending the ordinances.

``What's the constitutional problem to charge what you want?'' Judge Sneed asked.

``You're prohibiting what federal law allows,'' Judge Stephen Trott added.

Santa Monica's law fueled a nationwide movement, with local governments as far flung as Miami, New York, San Diego and New Orleans exploring similar bans.

It also triggered a counter attack by California's two biggest banks -- Wells Fargo and Bank of America -- which stopped allowing non-customers to use the 33 ATMs they operate in the city. CalFed later joined the suit, which was filed in federal court on November 3, 1999, the day after San Francisco voters overwhelmingly approved their measure.

Before casting his vote for the ordinance, which was approved 4 to 3, Feinstein said: "If we do this in this city, I believe it will pass in other cities and across the country. The whole mindset of the country would change. Consumers, I believe, are being ripped off."