Canadian Politics from Canada's Centre

Monday, January 29, 2007

Layton on ATM Fees - nobody is holding a gun to your head

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NDP leader Jack Layton has been making headlines with his proposal to ban all "ATM fees" in Canada.

More specifically, he is talking about banning the charges you pay if you use another bank's ATM. Normally those fees are about 1.50 to the owner of the ATM you use and about the same to your bank. Why do the banks charge said fees.

1) Say the Royal Bank has a popular ATM location. ATM's are not "free" to operate, there is the receipt paper, someone has to load the cash, cleanup the machine. Why should the Royal Bank be subsidizing the customers of other banks?

2) When you use an ATM other than your own bank's there are interchange fees paid to the cash dispensing bank. While those fees may not be $1.50, they are for sure not 0.00. Why should your bank be paying those fees when you could use their own ATMs and save everyone the hassle.

One could never walk into a branch and get cash from from a branch of the competition - let alone for free. Why are ATMs any different.

If you don't like the selection of ATM's your bank offers, switch. Personally my bank gives me access to a network of over 6000 ATMs across Canada that I can use without paying a penny in fees. You chose to use the bank that you did. Don't expect their competition to allow you to use their ATMs.

Interac may be paid for, but the recurring costs still exist. ATM's cost around 50,000 each. The banks wouldn't install as many ATMs if they couldn't recoop their investment.

You have that choice. If you want to use that ATM, it's your money, it's your choice. Governments have no role in regulating free enterprise.


At 9:54 a.m., Canadian Politico Blogger Mike said:

"Governments have no role in regulating free enterprise."

Except that they do. Our banking system is a lot of things, but it isn't free. By law and regulation, the big 5 Canadian banks have a completely protected market, in which the make $19 Billion per year in profits from those fees and interest.

No ATM fees exist in Europe and the sky has not fallen and many banks in the US have eliminated them (because of competition).

Don't pretend we have a free market in banking, because we do not. It is the government that enables the protected environment for these banks to make their record profits. And it might be that now as part of the cost to the banks to maintain that privileged position, they need to have no ATM fees - meaning next year they make $17 billion instead of 20. My heart bleeds.

It is merely a change in the condition for maintaining their privilege. But it is not nor never was a free enterprise or a free market.

If you want a free market, well we can just open up the banking industry to competition for US and European banks and see what happens. Given the choice, what do you think the big 5 in Canada will do?

At 4:51 p.m., Canadian Politico Anonymous Anonymous said:

These politicians are implying that the government should intervene in the economy here. Ever since Milton Friedman wrote 'Capitalism and Freedom' (it's Milton Friedman Day today by the way!), just about all Western economists have agreed that governments ought to intervene in the economy sparingly and primarily where there is a need for such intervention to restore the healthy market competition that is generally a force for consumers' good.

In this case, the issue boils down to deciding whether the atm fees constitute price-fixing and thus require government intervention. To frame the issue as 'fair' or 'unfair' to consumers without thinking in terms of 'cartel' and 'price-fixing' vocabulary seems more like philosophical rhetoric than academic argumentation since it ignores the market force of competition and the assumption made by most Western economists that government intervention should be limited to correcting 'price-fixing'.

Which branch of government should make this decision? To my understanding, though it is in the powers of the politicized legislative branch to enact binding statutes that will prohibit such fees, it would make much more sense, in respecting the spirit of our system of government, for the politicians to leave this matter to the government anti-trust lawyers and the judiciary. They exist precisely for this reason! Also, these individuals are more competent in this tricky field and are not politically motivated.

Essentialy, what I'm saying is that the arguments for or against atm fees need not be considered by politicians or the general public, but rather should be (and are) considered by the bureaucrats and judges behind the scenes....

Those politicians who try to score political points with such 'fair'/'unfair' rhetoric in detriment to the authority of the other branches of power lose my respect.

At 7:06 p.m., Canadian Politico Blogger d said:

Governments have no role in regulating free enterprise.

Is this a joke? Who do you think prints the money that comes out of the bank machines? Who sets the prime rate? Gives the banks their charter?

If you are really interested in what happens when governments have lax banking regulation, look into the East Asian Currency Crisis of 97-98 or the Savings and Loans scandals of the 80's- the Great Depression is another good example.

Contrary to your argument- banks have saved millions of dollars by automating the jobs that tellers used to do. Everytime you go to a machine instead of the counter you are saving them $$$ in salary and benefits.

I don't think that ATM fees are a pressing issue, but if a government wanted to make it illegal for banks to charge you to withdraw your own money- I wouldn't complain or shed any tears over the banks' lost profits.

At 5:48 p.m., Canadian Politico Blogger lecentre said:

I agree with d above: atm fees are a non-issue. They're right up there on the legislation priority list with making diapers softer and ice cream yummier.

At 5:55 p.m., Canadian Politico Blogger Andrew said:

Let's rephrase here.

We are talking about the fee one pays to use a competitors atm, nothing more, nothing less.

Comparing something like ATM fees to the entire banking system is a joke. Government has no role in regulating something like this, nothing more, nothing less.

Yes, if I use MY BANK's ATM, I am saving them $$$ and hence I get lower fees (I use a credit union that doesn't charge me ANY service charges whatsoever for my day to day banking.) Someone DOES have to pay for the ATM, someone to refill it (and armored cars are not cheap) as well as the network which enables the transaction to take place.

Now, if you also consider the flip side. LOTS of Canadians own those bank stocks and they help pay for a lot of people's retirements. I don't think anyone agreed with the income tax regulations, why screw Canadians more....

At 12:55 p.m., Canadian Politico Anonymous Anonymous said:

"I agree with d above: atm fees are a non-issue."

I think this is a very "rich" view of the problem. I am not sure how much money you have, but for a lot of people, they cannot go to the ATM every two weeks and withdraw 300$ that will last them until the next "pitstop".

There are some people that have to withdraw 20 or 40$ at a time. Maybe they aren't as conscious as you are to go to the right branch. But if the system is built in such a way that 1- They get charged a big fee as compared to the money they are withdrawing and 2- the banks know that they can design the system to catch a lot of poor/not as savvy people, then yeah it should be addressed.

If you think about it, the more money you have, the less likely you are going to be charged fees at the bank. And I'm not even convinced that it's because you are making them more money!


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