Judge Blocks ATM Ban

By Jorge Casuso

A federal judge blocked enforcement of Santa Monica's trend-setting ban on ATM surcharges Monday, ruling that the city does not have the power to prohibit banks from charging non-customers an extra fee.

The preliminary injunction, granted by the Federal Court for the Northern District of California, allows banks in Santa Monica, as well as in San Francisco (where voters passed an identical measure) to continue collecting fees effective immediately. The fees, however, must be held in escrow, pending final resolution of the case.

U.S. District Judge Vaughn Walker ruled that the bans cannot be applied to "national banks," such as Wells Fargo and Bank of America, since they are preempted by federal law.

Santa Monica officials said they plan an appeal to the Ninth U.S. Circuit Court of Appeals.

"No one said it would be easy taking on big banking," said Deputy City Attorney Adam Radinsky, who argued the case for the city. "We respectfully disagree with the court's decision. We believe federal law gives cities the power to ban the ATM surcharge. We expect a long fight, and we're in this for the long haul."

"It's not going to stand in the long run," said Councilman Michael Feinstein, one of the sponsors of the measure. "So it's not surprising that a judge would argue as this one has."

The ruling comes five days after Santa Monica's ban went into effect, triggering 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.

Santa Monica's law, which prohibits banks from charging non-customers an extra fee for using their machines, fueled a nationwide movement. Local governments as far flung as Miami, New York, New Orleans and Los Angeles are exploring similar bans.

The suit, which challenged the bans as unconstitutional, was filed in federal court on Nov. 3, the day after San Francisco voters overwhelmingly approved their measure. The suit was filed by Wells Fargo and Bank of America, which control the lion's share of the state's bank ATMs, and the California Bankers Association, which represents more than 280 member banks.

The banks contended that city governments don't have the power to impose price restrictions on federally regulated financial institutions.

The Santa Monica City Attorney countered that the 1978 Electronic Funds Transfer Act gives cities powers to protect consumers in the area of ATMs.

The judge on Monday disagreed with the city, saying that while the EFTA allows cities to regulate the safety, location, lighting and disclosure of fees, it cannot set the amount of the fees, which average about $1.50 per transaction.

After a 90-minute hearing, the judge read his decision to a packed courtroom. He ruled that the National Bank Act preempts local governments from regulating bank fees and that the ban would cause significant harm to the banks.

Proponents of the ban say Santa Monica's measure has fueled a movement that will be difficult to reverse.

"The bank customers are fed up with bank greed," said Councilman Kevin McKeown, who co-sponsored the measure. "This is coming back, and it's coming back again and again."

"Our measure has started educating the country," Feinstein said. "The pressure is growing. It's going to be very hard for the banks to turn back the clock." <