The proposed ordinance, Int. 680, is sponsored by City Council Speaker Peter Vallone. When the measure was originally introduced last Spring, it had the support of 35 of 51 Council members. That level of support would be strong enough to override a veto from Mayor Rudolph Giuliani, who opposes banning the fees. A coalition of more than a dozen consumer, low-income, senior citizen, labor, and student groups has formed to support passage of the ordinance. By imposing surcharges on non-customers, the banks that own a dominant share of the ATMs in a given market can induce customers of smaller banks and credit unions to move their accounts to one of the dominant banks in order to avoid the fees.
Surcharges create an inverted form of price competition.
The higher the surcharge, the more likely consumers are to move their accounts to the dominant bank. Large banks contend the surcharge is a necessary fee for service, without which non-customers would be getting a free ride. But, in fact, banks are already compensated for non-customer ATM use. The bank that operates the ATM collects an interchange fee from the customer's own financial institution. This fee covers the cost of the transaction and often provides a profit to the ATM owner.