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“White-label” ATMs

“White-label” ATMs: ‘taking away’ consumers’ cash as fast as they’re ‘giving it out’

By Sue Lott – Counsel, Public Interest Advocacy Centre

Have you had the experience recently of being in a strange town or city (or maybe even your own), needing cash and trying unsuccessfully to find an automatic teller machine (ATM) from your own bank? Out of desperation, you might have turned to a no name or “white-label” automatic teller machine, only to realise how much it just cost you to withdraw your own money!

This week, two national consumer advocacy groups called on consumers to boycott “white-label” ATMs (also called automatic bank machines or ABMs) found in growing numbers in retail outlets across Canada. The Public Interest Advocacy Centre (PIAC) and Option consommateurs have taken this action out of a growing sense of consumer frustration about the increasing level of fees that consumers are being forced to pay when they use these no name or “white-label” ATMs.

Consumers are now routinely subject to three levels of fees when they use the “white-label” ATMs that are independently operated by private businesses and found in retail stores, shopping malls, etc.: their regular bank account transaction fees plus the network access fee (also known as the INTERAC fee) plus convenience fees charged by the independent operators (and now by some banks). A customer could end up paying total fees of $5.50 or over 27% in fees on a $20 withdrawal!

The industry’s response to criticism of these fees is that Canadians don’t mind paying for the added convenience represented by the “white-label” ATMs. But statistics don’t support that contention. Findings from a recent survey PIAC conducted with EKOS Research Associates on Canadians’ attitudes towards financial services show that a decisive majority of Canadians do not want to pay an additional service fee to use a no-name automatic bank machine. Seventy percent of Canadians indicated that they would not be willing to pay an additional service charge to withdraw money from a no name ATM in return for the convenience of being able to access their money more easily.

However, people’s actual behaviour is quite different. Twenty-four percent of Canadians also reported using one of these machines in the last month, so these machines are clearly taking advantage of people’s immediate need for cash.

Where did the “white-label” ATMs come from?

In 1996 the federal Competition Tribunal made an order that opened up the ATM market to independent operators. Prior to this decision, only banks and other deposit taking financial institutions had been allowed to join the Interac Association and operate ATMs.

“White-label” or no name ATMs are mostly owned and operated by private companies, not financial institutions. Any business incorporated and operating in Canada is eligible for membership in the Interac Association, the non-profit corporation that runs the network which allows for the sharing of electronic financial services and the electronic access to bank accounts. The association also sets the convenience fee that is charged to users of “white-label” ATMs.

The Competition Tribunal’s mandate is to maintain and encourage fair competition in Canada. Thus the purpose behind the 1996 decision was to increase competition in the ATM market.

The question for the Competition Bureau is this: There are clearly more competitors in the market. If increased competition is supposed to result in lower prices, why have ATM fees only increased since your decision?

“White-label” ATMs are growing quickly

The growth of “white-label” ATMs is significant. The Canadian Banking Association points out that whereas five years ago, three quarters of ABMs were owned by banks, now less that half are bank-owned. Of the more than 35,000 ATMs in operation in Canada in 2001, over 18,000 of them were “white-label” ATMs compared to over 16,000 operated by financial institutions.

The “white-label” ATMs are increasingly found in locations with high customer traffic such as retail outlets, shopping malls and gas stations. Their growth is a direct result of the financial incentive for merchants to install these machines rather than bank-owned ATMs. The private ATM companies compensate them for installing the “white-label” ATM at a much higher rate than they receive from financial institution ATMs.

As a result, financial institutions are now in direct competition with the private ATMs. Banks are aggressively competing with independent operators to install ATMs in off-premise (retail) locations. In addition, some of the major banks have entered the no name ATM market and are now imposing that 3rd tier of fees, called convenience fees, on non-clients who use their ABMs at retail locations. This recent development has taken place without the knowledge of the consumer. The EKOS survey found that two out of three Canadians are unaware that banks now own no-name ATMs that charge more than the bank’s own machines.

Some financial institutions are even charging convenience fees for non-clients who use the financial institution’s own ATMs located at branches of that financial institution! Financial institutions have generally charged non-clients who use their ATMs, only the first and second tier fees: the regular bank account transaction fee plus the Interac fee, not the convenience fee.

All of these developments and variations in approach create huge confusion and frustration for customers. There is a growing sense that there is no control over the nature or extent of the fees associated with these ATMs.

Who regulates ATMs?

The problem is that no one really does. White-label ABMs are owned and operated by private companies. They are not under federal jurisdiction because they are not financial institutions. As a result, there is a role that provincial governments could and should be playing in terms of regulating the fees and activities of the privately operated “white-label” ATMs. PIAC urged the Ontario Government to include provisions relating to “white-label” ATMs in its new consumer protection legislation. So far, there is nothing in the legislation, which specifically addresses “white-label” ATMs.

Financial institution ATMs do fall under federal jurisdiction but the fees not regulated. The only regulations that the federal government imposes on federal financial institutions with respect to bank fees and charges are requirements concerning disclosure.

The Interac Association has the power to set the convenience fee charged to customers.

What can consumers do about them?

Doing something about “white-label” ATMs is important because we have grown increasingly dependent upon electronic banking services. According to Ministry of Finance figures, Canada has the highest number of ATMs per capita in the world. In 2001 Canadians conducted 2.2 billion debit card transactions from over 328,000 merchants, ranking Canada first in the world in ATM use. This has happened, not because consumers demanded it, but because financial institutions have gradually withdrawn from providing personal banking services, beginning with the reduction in bank branch hours, followed by branch closures throughout the country.

What can we, as consumers do about the proliferation of “white-label” ATMs? First of all, we can boycott “white-label” ATMs and tell merchants why we are not using them. We should also demand of merchants that they post clearly what kind of ATM is installed in their store and indicate all of the fees are associated with its use.

Using your own financial institution’s branch ATM is a way of reducing fees and/or trying to minimize the number of transactions you make during a month.

But beyond what we can do as consumers, we also need to direct our concerns politically. We should be asking our provincial and federally elected representatives why this significant and growing segment of the financial services sector has been ignored and left unregulated.

Finally, we as consumers can complain to the Competition Bureau. We should be asking why a decision that was supposed to increase competition and result in competitive prices, has produced more competitors, much higher prices, and very unhappy consumers.

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