In order to join an ATM network, a bank agrees to pay an interchange fee when its customers use an ATM owned by another bank in the system. Surcharges are a second, and unnecessary, fee for the same transaction. Consumers pay a surcharge each time they use an ATM operated by a bank other than their own. Surcharges are withdrawn directly from the consumer's account at the time of the transaction. Surcharges are levied at nearly every ATM in the country.
Surcharges enable big banks to place their smaller rivals at a competitive disadvantage.
In most regions, a handful of large banks own the majority of ATMs. For example, just two banks own 75 percent of the ATMs in San Francisco. By imposing surcharges, these banks create an incentive for customers of small banks and credit unions to move their account to one of the dominant banks in order to avoid the surcharge. In fact, the higher the surcharge, the greater the incentive for consumers to move their account. This amounts to an inverted form of price competition.