Maybe Santa Monica and San Francisco were onto something when the two cities banned surcharges on the use of ATM machines by customers of other banks. A legal battle is brewing over the practice after a federal judge blocked the laws and suggested they don't qualify as consumer protection measures.

The surcharge-ban wagon apparently has gotten rolling because it seeks to pit consumers' access to their money against banks' annoying nickel and diming of services, from ATMs to checking accounts, which has been on the increase. "Banks are basically holding our money hostage," says one activist, appealing to this money-for-nothing attitude.

Of course, consumers are not held "hostage" at their own banks' machines, almost all of which (95 percent plus) do not charge their cardholders transaction fees. And the majority of ATM users use their own bank's machines. It is the banks that charge non-members fees that are causing the fuss.

Yet the focus on banks and their alleged misdeeds misses the bigger picture. Fact is, the surcharges on ATM withdrawals should be seen as among the more consumer-friendly financial developments in recent years.

The tremendous growth in ATM machines today there are an estimated 227,000 ATMs, up from about 123,000 in 1995 and the convenience this provides is tied directly to the ability of money-machine providers to charge users directly for the service. The clearest piece of evidence for this is what happened after the large ATM networks, Cirrus and PLUS, lifted their remaining bans on surcharges in April 1996. (Smaller regional networks had already done so, or shortly followed suit.)

Until that time, growth in money-machine deployment was expanding at a rate of 9.8 percent per year. But this was limited largely to bank venues and other high-use areas where machine owners (mostly banks) could be assured of recouping some (often not all) of their costs for maintaining ATMs through the large number of network interchange fees charged for each transaction.

The banks also collected the so-called foreign fees, with banks charging account-holders when they transacted business over other machines not owned by the bank.

Lifting the ban opened another source of revenue to pay for the machines basically a user fee and thus made it possible to deploy machines in areas too expensive for interchange and the other fees alone to support. Surcharges thus created an incentive for owners to deploy ATMs in convenient, but traditionally expensive, areas.

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