COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COUNCIL COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT - - - Room 400, City Hall Philadelphia, Pennsylvania Thursday, May 28, 1998 1:45 p.m. - - - Bill No. 970485 - An ordinance amending Section 19-201 of The Philadelphia Code entitled "City Depositories," by prohibiting certain electronic fund transfer fees or surcharges. PRESENT: COUNCILMAN MICHAEL A. NUTTER, Chairman COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN COUNCILWOMAN HAPPY FERNANDEZ COUNCILWOMAN DONNA REED MILLER COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD MARIANO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I N D E X *Ben Hayllar, Director of Finance . . . . . . 5 City of Philadelphia **Thomas Queenan, Treasurer . . . . . . . . . 7 City of Philadelphia 8 Emma Chappell, Founder, Chairman, CEO. . . . . 18 United Bank of Philadelphia 9 Marta Aviles . . . . . . . . . . . . . . . . . 63 Eastern Philadelphia Organizing Project Gordon Whitman, Senior Organizer . . . . . . . 64 Eastern Philadelphia Organizing Project Lance Haver, Educational Director. . . . . . . 70 Consumers Education and Protective Association Jonathon Stein General Counsel . . . . . . . . 75 Community Legal Service Bruce McElrath, Chairman . . . . . . . . . . . 84 Disability Rights Advocacy Group - - - ***Carl Frank, Disability Rights Advocacy Group ***Greater Philadelphia Chamber of Commerce ***First Union National Bank - - - * - Additional testimony attached. ** - No testimony given; appeared before committee to answer questions. *** - Did not appear before committee; testimony is attached. 3 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Good afternoon, ladies and gentlemen. This is a meeting of the Committee on Commerce and Economic Development to hear testimony on Bill No. 970485. I'm Councilman Nutter, chair of the committee. To my left is Councilwoman Fernandez, the vice chair of the committee. To our left is Councilwoman Blackwell. To my right is Councilman DiCicco and Councilwoman Donna Reed Miller. This is a quorum of the committee. I'd like to read the title of the bill 13 and begin receiving testimony. Bill No. 970485, an ordinance amending Section 19-201 of The Philadelphia Code entitled "City Depositories," by prohibiting certain electronic fund transfer fees or surcharges. What I'd like to do is make a quick opening statement and then have our first witness up. I think they may have other individuals with them to testify. We plan to take testimony on this bill 23 in our public hearing and then subsequently have a public meeting. There are various pieces of testimony being circulated, the first being that 4 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 from the Finance Director. I think there is testimony from a couple of banks that may not be here today but want their testimony submitted into the record, and we will take care of that as well. We did, through my office, try to reach out to as many potentially affected parties by this legislation which was introduced on June 12, 1997, introduced by myself and cosponsored by 10 other members of City Council. 11 The normal public notice and 12 advertising was provided as well as a letter of 13 invitation to all City depository banks in the 14 City. Having said that and opened the table to my colleagues, if anyone would like to make an opening statement. Councilwoman Blackwell.
Thank you, Mr. Chairman. Mr. Chairman, I have to step out at this time, and should a vote occur before I return, I would like to be recorded as voting with the Chair on this bill, if the vote happens before I return.
Well, I can tell 5 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 you, the chair will be voting aye, so if you want to --
Let's first have the Finance Director, Mr. Hayllar, and I believe the City Treasurer, Mr. Queenan is with him, and any other parties that wish to testify on behalf of the City.
Thank you, Mr. Chairman. I'm Ben Hayllar, Director of Finance. With me is Thomas Queenan City Deputy Treasurer.
Mr. Hayllar, if would bring the microphone just a little closer.
Okay. Also, we are joined by (unintelligible) from the Finance Department. We make no defense of ATM or bank fees in general, but we would recommend this bill be defeated if it's brought to a vote because, simply, if passed, it would make it, we believe, impossible for the City to conduct its banking 6 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 business. The City has, by policy and financial prudence, always done its banking business with banks located in or very near the City of Philadelphia. Basically, we look for banks that employ Philadelphians. In addition, we are required by the volume and the sophistication of our banking business to use larger banks. Only a larger bank can afford to develop the systems that are required by the City of Philadelphia to conduct its payroll, pension depository, and receipts business. In our view of --
Okay. In our review of banks of the State of Pennsylvania, we have found only three that would not be prohibited, or potentially prohibited, from being a depository under the terms of this bill. 7 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Those banks include Republic, The Bank of Lancaster, and the Beaver Valley Bank in the far western part of the State. The Philadelphia banks, large and small, that we've been able to contact all charge surcharges or fees of some sort. Taking the bill literally, we believe that it would then prohibit us from doing business with any Philadelphia, eastern Pennsylvania bank, or virtually any bank large enough to handle our business. In my testimony, I list many of the sophisticated and expensive systems we require in order to issue payrolls, pension, and vendor checks. Let me point out that we issue more than a million checks a year. We also take in and record up to 400,000 payments each month. It is important that the City be able to access this money almost as quickly as we are able to get it into the bank. The further a depository is from us and the more manual its systems, the long it takes for us to have availability of our funds. This costs us money in the fact that we would not be able to invest that money as quickly as we receive that money. 8 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I list a number of the issues that concern us, not the least of which is the State law requires that any bank doing business with us collateralize our funds with treasury or municipal securities. CoreStates, our current major depository, keeps in the Federal Reserve $40 million in treasury and municipal securities to collateralize our accounts. Any bank that substitutes for them or replaces them would have to put up that amount of securities. We don't believe many banks have the size to make that kind of a commitment. I also point out the direct deposit, auto-stop-payment's, anti-fraud systems are all required by us because of the volume of our business. We do not believe that anything but a very large institution would be able to provide that kind of service to us. In short, our concern is not with fees; we find them annoying as you do. Our concern is that the bill would prohibit us from doing business with a local bank or a bank capable of doing business with us. And our principal concern must be handling the receipts that come in, making 9 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 payroll, and making pension payments. If the bill is passed as we read it, we don't think we would be able to handle that. Thank you.
Thank you. Mr. Queenan, do you have any additional testimony or. . .
My name is Thomas Queenan. I'm Treasurer of the City of Philadelphia. No, I do not have any further testimony to provide other than that I might be able to answer any questions you may have regarding this bill.
Okay, thank you. Mr. Hayllar, let me go back to your comments for the record. And you did submit to my office yesterday your written testimony. I know all members of the committee have the testimony. Councilman Cohen, do you have Mr. Hayllar's testimony?
Okay. Your 10 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 testimony, both written and the verbal presentation today, clearly draws a line between any views on ATM surcharges versus a more narrower position with regard to impact of said bill on the City and your ability as the Finance Director and Mr. Queenan as the City Treasurer in that world, in that subsequent world than to do business.
I wouldn't call that a narrow view. Making payroll is of some importance to us.
No, I don't mean this -- no. You've got the big issue, you've got a narrower issue. I'm not defining how narrow it is. It's just a subset of a larger issue.
Okay. You made, though, in your statement -- at the end, you left the record with the impression that you might even have some personal opposition to surcharging as a practice. Did I get that impression from a comment that you made? 11 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
I think everyone would prefer to get whatever service they want for free or for little charge as possible. And I think, as any consumer, when you go to a bank machine, and some machines charge $2, you find that annoying, and I enjoin with just about everybody in that view. The fact is, virtually every bank that we could locate does charge some kind of a fee. My bank does not charge a fee for ATM machines registered with that bank.
So in all cases, I try to use that bank so I don't get charged a fee -- at least if it's feasible.
That seems to be the common practice for all of the banks. They don't charge you for using their own machines; they charge you for using others or if you -- although some of the banks do charge you for using someone else's. 12 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
That's correct. And if you are out of the region of your bank, in other city, you will be hit with a charge.
Councilwoman Fernandez, on that point, wanted to ask a question.
Could you clarify? When you say you couldn't do business with any of these banks, yet the bank you deal with and I think the bank I deal with, if I am using that bank or any of their branches, I am not charged fees. So why do you say all of them charge fees when --
If they don't charge it for own customers, which is the way that I'm reading this.
The way I read the 13 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 legislation was that if you charge a fee or a surcharge -- not even in Philadelphia, but anywhere -- then you would not be in compliance with the legislation. My bank does not charge me a fee because I have my deposit at that bank. However, if somebody who is a customer of another bank uses my bank's ATM machine, they would pay fee.
Why don't we ask the constructor of this bill. I read this to deal with if you are a customer of that bank -- i.e., you have your account there -- you shouldn't be charged any fees. I don't read this as applying to any customers of any bank who want to go use an ATM. Could you clarify that?
Sure, I can go back through that. 14 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 But I would like to ask Mr. Hayllar first, does your bank charge you if you use someone else's ATM?
Okay. Let me respond to Councilwoman Fernandez's question. It is commonly known that most banks do not charge their own customers for using their own ATMs, and there's pretty much no need to try to do anything about that because that's not a problem. They do, though, charge for the use of another bank's ATM, and if you go to another ATM, that bank that owns that machine or deployed that machine, they charge you also. The legislation is trying to address the issue of if you are a customer of a City depository bank and use another ATM owned by a City depository bank, you would not be charged by the City depository bank that owns the machine, and you would not be charged by your own bank for what is now characterized as a "foreign" bank transaction.
The problem is, in 15 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 the vernacular -- I mean, you basically get hit twice. People who own the machine, they can impose a fee, and your own bank imposes a fee for not using their machine. The theory is that everyone seems to want their customers to only use machines, and you pay a penalty when you go outside of that network; although the network was created so that everyone could participate in the network, and you'd have kind of a seamless way of getting access to your money no matter where you are.
My belief is that my essential point still stands that under those conditions, the City would find it very difficult, if not impossible, to find bank capable of handling our business.
Well, your point would be absolutely correct if there were no 20 middle position. I mean you have -- and I commend you for it -- skipped around the prospect of the banks just changing their policies. If they change their policy, everyone would still be able to participate, you'd be able to deposit your funds anywhere you want. 16 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And I think the record at least has to reflect that there is a remedy short of the potential collapse of financial services in this city as we know it. Isn't that correct?
The middle ground is that if the banks change their policy, they're then in compliance, you can then deposit funds in those banks, right?
If they would. But their lack of attendance here today, save the president of one smaller bank, suggests that they're not doing that. And I have not, by the way, seen their testimony, so perhaps that's a. . .
We could go ahead and get you a copy. I mean, they are opposed.
But their presence or lack thereof doesn't prevent us from having a discussion about if the banks fall in compliance, change their policy, you then don't have a problem, correct?
That's correct. 17 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Okay. So there is some other position other than they're either in or they're either out. And if they're out, we can't put our money anywhere.
I understand your position, and I'm sure you understand our position is that we don't want to play chicken with getting the payroll out.
I understand that too. No one wants to be irresponsible. I mean, people have to just think about what it is that they want to do, what's the value of the relationship with the City, and I guess how important it is either from a marketing standpoint, which is, as I understand it, the primary force behind this, or any level of good will of having a relationship with the City as to what they want to do with their banking policies. Okay. Councilwoman, was my explanation clear enough? (Councilmembers Nutter and Fernandez confer off the record.)
Any other 18 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 testimony? Any other questions from any members of the committee? Councilman Cohen? (No further questions at this time.)
Obviously not. Thank you very much. Miss Emma Chappell. (Emma Chappell comes forward.)
Good afternoon. Please identify yourself for the record and proceed with your testimony, even though we all know who you are.
Good afternoon, Mr. Chairman and members of the Commerce and Economic Development Committee of the City Council. ), who is the vice president in charge of communications and marketing. As you know, my name is Emma Chappell. I'm the Founder and Chairman and CEO of the United Bank of Philadelphia, a full-service commercial community bank, established in 1992, with the support of the minority community we were founded to serve. I do want to apologize for not having a 19 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 copy of my presentation today to you, Mr. Chairman, but I will see to it that we get the copies directly to you later this afternoon for your distribution to your committee. I also want to thank you for allowing me this opportunity to address this very important issue to our bank. As the only minority-controlled commercial community development bank in the greater Philadelphia region, we have grown from a dream, with 0 assets, into a $114 million asset bank, with 6 branches and a network of 25 ATMs located in community satellites where they are desperately needed. Our remarkable growth against nearly impossible odds has not been without difficulty. Harsh competition from the mega banks, frequent and intensive examination and inspection by regulatory agencies compound the problems of a community bank. Added to this is the fact that the majority of our clientele not served by the big banks maintains very low account balances, which result in high transactional costs for providing 20 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 critically important services. Obviously, it is difficult maintaining profitability within an industry that is burdened with complex and numerous laws, regulations, and policies. My purpose today is to share with you some of our concerns about Bill No. 970485 and why United Bank absolutely needs ATM fees to serve our community. For the record, United Bank is categorically and unequivocally opposed to the proposed bill for the following reasons: First, contrary to popular perception, ATMs are not highly profitable. According to the Federal Reserve Bank boards, the bank board's functional cost analysis for the period 1990 to 1995, on average, expenses exceeded revenues by thousands of dollars per machine per year. Losses averaged about $7,200 per machine yearly. Secondly, installation and maintenance costs for ATMs vary according to location and type of machine. These costs include: purchase, installation and maintenance of ATMs, space rental, signage, security, insurance, cash 21 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 replenishment and associated security, deposit pickups and processing, computer network time, and other communications costs. Thirdly, ATMs or not a substitute for teller transactions; rather, they are a complement to teller transactions. The purpose for the installation of ATMs is to increase customer convenience. However, because of competitive pressures and increase in consumer demand, ATMs are not less expensive or a teller substitute. In other words, while an individual ATM transaction may cost less than a teller transaction, ATM users make more transactions, thus significantly increasing the overall costs. Fourth, United Bank's mission is to foster community development by providing quality personalized commercial banking services to businesses and individuals in the greater Philadelphia region, with special sensitivities to blacks, Hispanics, Asians, and women. Just like the mega banks who are abandoning our neighborhoods, it is clearly essential that we make a profit. 22 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Fifth, as the only minority-controlled full-service commercial community bank in the greater Philadelphia region -- and, I might add, in the state of Pennsylvania -- our mission is unique and essential.
In these times of unparalleled mega mergers, with branch after branch disappearing from our neighborhoods, we have seen and heard the anguished cries of abandoned consumers. During our own critical growth years, we scrambled hard to try and fill some of the enormous gaps left from the departure of the big banks. For example, we inaugurated a partnership with Rite Aid to provide ATM service at the neighborhood level. And only in late 1996 were we compelled to add a surcharge. Enforced price control on ATM services would reduce customer convenience, dramatically limit their choice of bank or location, and invariably impede accessibility to this vital service in the neighborhoods most in need. The federal government has mandated that federal benefits, including Social Security, veterans benefits, and welfare assistance, must be 23 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 delivered electronically to recipients in the Commonwealth of Pennsylvania and has begun implementing electronic benefits transfers (EBTs) for delivery of cash assistance and food stamp benefits to welfare recipients. Recipients will be issued a debit card, or are being issued a debit card, which will be used at ATMs to access benefits. If these new mandates are to succeed. Increased access to ATMs will be essential. Who is to purchase, manage, and provide ATMs? It should be explicitly noted that although mandated by federal and State government, there is no provision for funding these costly machines and services. If United Bank is to provide as well as expand access to costly, high transactional service to a community clearly in need, then a reasonable need for service is essential. If the proposed legislation is implemented, it will severely limit access to ATMs at a critical juncture whenever more individuals will need greatly increased access. If the City removes its deposits from community banks, the net result will be less dollars available to lend in 24 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 the communities that need it most. Finally, Mr. Chairman, if price control legislation on access fees are enacted, community banks with City depository status would be forced to abandon ATM services, with a devastating loss of accessibility to the communities most in need. I want to thank you, Mr. Chairman, for the opportunity to testify before this distinguished Council, and I shall be pleased to answer any questions that you may have.
Thank you very much. Thank you very much, Miss Chappell. Does the young lady next to you wish to testify, or is she just going to --
I understand. Well, we all need that. 25 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I also want to thank you for responding to the survey that was sent out sometime ago. United did respond.
You have 25 ATMs in 12 the City, and they're spread throughout the City 13 or -- 14
Well, as you know, we 18 have six branches -- two are in Center City but 19 four are in the different neighborhood of North 20 Philadelphia, Mount Airy, Frankford and West 21 Philadelphia. 22 But the ATMs have allowed us to, in a 23 sense, have a mini branch in the neighborhoods 24 where they do not have access to banking services. And what we've been able to do is COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 locate ATMs, for example, in police stations, in Rite Aid pharmacies -- as you know, they're very much into the community. We have one in a Marriott Hotel, which we're proud to say. But, essentially, we've been out in those neighborhoods that are basically underserved or unserved as it relates to financial services.
Did some of these neighborhoods potentially previously have branches? Those branches closed, and then the ATM was seen as some level of viable alternative?
For lack of banking services? MISS CHAPPELL: Exactly. In fact, we were thrilled to bid on putting ATMs in the police stations because one of the things that we've found is that in order for people -- in particular in poor neighborhoods -- to have access to their deposits. They had nowhere to go. But we felt at the police stations, it would be a safer environment where people could go in and draw their money out and feel that they were not going to have trouble. 27 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 So we are typically in neighborhoods where banks are closed up and, in a sense, abandoned the neighborhoods, and people have nowhere else to go but check-cashing agencies.
Well, at least, in those environments, we at least know all the people who have the guns.
At least in the police station, when you go to get your money, you at least know who the people are who have the guns in that situation.
Let me pose, I guess, one kind of banking question to you. And it's been raised in this regard primarily as an issue for the smaller banks that participate in ATM networks. We don't always, naturally, want to see United Bank as a smaller bank, but for the moment, in comparison to some of the others, it might be considered a smaller bank.
And this is 28 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 comments from a piece that was written in Standard and Poor. It was a review of financial and banking services just about a year and a half ago. And the concern was on the surcharges that there was potentially a harm to small banks and credit unions. One reason that it received careful attention at the recent Senate hearings was the impact of surcharge policies on small banks and credit unions. Because of their small card base, these institutions deploy few if any ATMs but, instead, rely on the ATMs of the shared network to which they belong. Interestingly, although ATM service is clearly a large cost, these institutions offer free or low-cost ATM access more often than larger institutions. Surcharging provides a new tool for larger banks to drive depositors from these smaller banks. Large banks can raise the costs of smaller banks by assessing surcharges. Eventually, cardholders of these smaller banks, tired of paying these additional costs of ATMs will move their accounts to the large banks. 29 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And I guess the theory is that if you have ATMs -- and we don't necessarily have to 4 get into names but, I mean, some banks in the City 5 have over 400 ATM machines -- the prospect of one 6 of your customers getting to one of your ATMs 7 versus someone else who has 400 machines across 8 the City is less likely. 9
And so, again, 11 under the current situation, the United Bank 12 customer possibly not quickly being able to find a 13 United Bank-owned ATM goes to a foreign bank ATM. 14 They get hit with a fee by the foreign bank, they 15 get hit with a fee by United, do you have any 16 concern that at some point in time, the United 17 customer realizes that if they jump to the larger 18 bank with the larger network of ATMs, 400 or so or 19 more, that they will eventually move from United 20 to the larger bank? 21
That is the reason why 30 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 we have expanded our ATM network -- in order to provide competitive edge so that we can compete with the larger banks and not necessarily lose our customers to them. But another thing that happens is that we do not charge our customers, either. And so while we're taking the time --
The reason why we pay on the foreign banks is because have to pay a fee to the foreign bank for processing. There are fees involved in all of the transactions.
And I don't know if that's brought out, but when someone goes to another bank and transacts their business or another ATM, we then have to pay a fee to receive our deposit. 31 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
So what happens is, in order for us to be competitive and to be -- since we only have six branches, and we're proud of that since we've only been open six years, it's still not -- we haven't covered the City, as the larger banks have. So in order for us to try to have a competitive edge, we have decided to do it by way of the ATM because we have found that a lot of our customers have direct deposits because they either work for the City, the State, or some government, and/or they work for health care, whatever the business is, if they direct-deposit, that's a one-time situation --
-- each pay period. Then they can draw their money out in any ATM throughout the City. And so that's why we formed an alliance with Rite Aid, which I said -- which 32 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 has opened up a number of stores in neighborhoods. And as a result, we're putting our ATM machines in through the Rite Aids, as many as we can afford.
And when a United Bank customer accesses that machine in the Rite Aid --
Exactly. So you're still not charging your customers to access --
I don't know, but I would venture to say that our costs are probably 60 percent of what we charge on each transaction.
All right. So that we have the roundest of numbers and don't complicate the math --
If the access fee is a dollar -- 33 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
-- then you're saying that the interchange fee is 60 cents.
It's not -- all the interchange fee is not -- it's not just the interchange fees. There's other fees that we take into account. As I said before, we have a network, we have to pay computer time, we have a number of fees that are taken into consideration for that.
On the foreign bank transaction, when the United customer goes to Bank X's ATM.
Does Bank X also have to pay an interchange fee for that? 34 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Unless they owned the ATMs and the computer time, yes. For example, when we bought into Mac, for example, there's just one bank that owned Mac. So then they were beginning to offer no 10 charge for ATM use.
Right. First it was Mellon. If you remember when Girard got started in Philadelphia, the Big G -- I mean -- what was it called. I think it was called "George."
And they owned George. 35 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 And now Mac was then bought -- acquired by CoreStates.
And so as a result, for a long time, CoreStates didn't charge any fees, or they had that as a promo, that they did charge it. But a lot of times, what happens is, if you look at a relationship -- your bank account and a bank does an evaluation on each bank account, "an analysis," as we call it. If you keep low deposits in the bank, then you are costing us money because we still pay computer time to give you your statements every month and to allow you to write checks and things of that sort.
Right. 36 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
But what our bank is suffering from is the low balance/high transactions. So when you take into consideration the cost of if you go and draw your money out of another bank, we have to pay that bank for processing, so it's processing time. And then we have to pay computer time on our side.
My last question in this area -- I mean part of the -- from the consumer's standpoint, at least, part of the recent furor about all of this is that the surcharging in essence started just a couple years ago. Your statement earlier is naturally absolutely correct. The network did not start with surcharging.
And as a result of 37 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 couple anti-interest cases on this issue, because originally, the networks that ran these systems would not allow banks --
-- to surcharge. And a few banks took networks to court, or threatened to take networks to court on antitrust violation.
And out of the that, the ban on surcharges by the networks were lifted. Subsequently, it's no surprise that everyone has jumped in --
-- into the surcharge business, but it did not start out this way, and now, all of a sudden, we have this activity going on. It's just interesting that it could start out --
-- with a no-surcharge environment. 38 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
And then, somehow, all of a sudden, when the network is -- I mean, I think we'd all have to admit that it continues to grow, but it is a fairly substantial network today. Much of the infrastructure has already been put in place before the surcharging started.
Well, I wouldn't say that, I wouldn't agree with that because there's still the situation of accessibility. You still have to buy the machines, you have to locate them wherever you're going to locate them, you have to pay for a Brinks or a Brooks or someone to pick up the money and to stock the machine. You have to pay for insurance to make sure nobody steals the machine and pulls it away and whatever. You have to pay for your computer time. There's just a lot of costs involved that people don't know about that goes into that. So I think that while it appears that way, I remember when we used to -- when we originally became a member of bank Mac, we didn't have to pay for that; now we have to pay for the usage of the Mac name, even on our. 39 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 So everything, you know -- and I think a lot of it has to do with -- it's the case of supply and demand. And the more the demand increases and the more supply has to be made available, the more the costs go up.
All right. And so there were not nearly the number of machines in those communities as are now. And so the more machines that are made available, the more costly it is.
You mentioned ATM machines at Rite Aids and police stations and the Marriott. Could you say for each of those, what's the financial arrangement?
Who pays for what? I can't do it directly except on a Rite Aid 40 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 transaction. On the police and what-have-you, I have my chief operating officer work on it, and he wasn't in today, so that's why he's not here. But in the Rite Aid situation, we buy everything. We buy the machine, we take care of all the costs. And the only time that Rite Aid will benefit is if we reach a certain level of business in that particular ATM machine. Let's say the volume is so high and then the machine becomes profitable, then Rite Aid will get a certain percentage of the profit. But right now, Rite Aid has not received anything because we're still building the usage of the machine. You have to have dollars marketed. I could also say that for the ones that we had put in the police station. We did that through a relationship with the City of Philadelphia. And they have not received any money because it has not gotten to the volume yet. All of our ATM machines have put in if the for the last year or two. And I think it takes something like 3,000 transactions a month in order to break even. And then after it breaks 41 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 even, then you get the profit level.
Could you send to the Chair a copy of the agreement with the Police Department? I was not -- I had heard about it vaguely, but I wasn't really clear about what the deal was. I could see -- I think the idea of having them in police stations is --
-- a good one. As you say, the security and to have the police station used for something other than when you've been real bad is nice.
But I could see where Rite Aid and other stores, they could profit just by having someone come in the store. They hope they buy more.
That's right. They haven't gotten any money yet, though, either. In 42 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 their defense, I mean, they have not been on us for that. They know that we have not reached the critical mass that is necessary to allow the machine to pay for itself or to allow the bank to get any profit of it. Right now, it is simply a convenience. We know there are a lot of senior citizens and people who do not have cars and things of that sort in the neighborhood. So what we've been attempting to do is provide a service, as long as it's not too costly to the bank. And so until such time as it reaches that critical mass, either from the police station and otherwise, they are not getting any money out of it. But we were able to show them exactly what it costs us, and that's why the agreement was made to do that.
Also, could you share with us, what's the cost of use of this shared network? Like do you pay it by transaction or do you have like a set deal?
So it's for each -- 43 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
And I will send you all the breakdown on that so that you'll have a better understanding of what we pay.
Right. And, by the way, I should tell you that the fact that we are a small community bank, there is no differential on whether we pay less than a big bank or anything else. They say that we're big boys now. Once we open the doors of a bank, we're a bank. And so it's not that anybody cuts us any deals because we're a small community bank with low margin, but I will send that you data.
Well, I think it would also be important to note for the record -- I'm old enough to remember when people did go to the bank, you know, to make the deposits, with the person, the teller. I got to know the one at our bank very well. And then they later installed drive-ins and I got to know her real well. 44 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
But your bank probably has not benefitted, but the other banks who have been in business a long time have certainly benefitted financially from having fewer employees. If I -- I haven't seen any numbers, but I'm sure there's been a study of the per -- the ratio of tellers to customers in banks that have been in business for a long time. So I think, for the record, we should note that people using ATMs -- I know I haven't been in a bank for years except when they ate my card once.
You'd be amazed -- banks are still very busy. And I don't see it as a replacement for --
But, I'm saying, I don't think it affects you. But, I'm saying for the other banks --
Well, I think the savings come in with the on-line banking, which we 45 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 haven't gotten to yet. But in terms of the ATM machines, what we've seen is that there are more people who take money out, but they're not as prone to put money in, and to make the deposits because people still have some concern as to whether or not it's safe to put their money in a machine. They don't know who's behind the machine. I mean, will tell you that. And so, consequently, it's more so that they can draw the money out when they need it. And so they might take $10 out each day, five transactions for a week, which costs a lot of money to the bank. So that -- I mean, while it seems that the big banks are making a lot of money -- and I project that they will -- I don't think that it has happened yet, because there's still a lot of people who would rather have a one-on-one transaction with a person, especially when they have a lot of money or money to put in the bank in terms of cash. It's much better to do that than typically put it into a machine. We have not -- we have opened up all 46 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 our machines, but we don't get that many deposits. It's more withdrawals..
Withdrawals, right. The other question -- I know you're here today as a banker. But as a public official, we have try to balance the interests of the business community and the interests of the citizens and customers.
I would say that one of my fears would be, having watched the changes in the banking industry primarily as a customer --
I could see the day coming when we have very little competition among banks. Like I think one already controls -- is it 40 percent of the marketplace or will? So to have just one or two big banks and maybe a couple of little banks trying to struggle, and then they could decide, Well, you know, it's costing us so much, we're going to 47 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 start charging our own customers ATM fees. So that every time -- if I've been drawing out too much money, you're going to say, Well, you could draw out twice a month, but if you do it more than that, we're going to start charging you. And I'm going to start charging if you don't do this and you don't do that. So while I really need to learn a lot more before I could go with this bill, could you see any kind of way this city government could try to protect customers in our city from having the banks have such a monopoly that they could, again, start to charge customers for depositing and withdrawing their own money?
Well, in my previous life, I was an advocate for the community too, so I can relate to your question. As a banker, they would kill me, my colleagues would kill me. But let me just say this. If I were to really look at it, and to be honest with you, if there's one way I think that even the bankers have to admit it would work, is if they reach a level where it gets beyond just simply business and it becomes gouging, then there 48 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 would be a halt to how much they can charge. But I think a whole evaluation has to go into that. In other words, what I'm saying is perhaps there could be a cap, but it needs to be a cap that is analyzed very thoroughly as to how much can be charged for this service.
Yes, mm-hmm. I don't think you will get to the point that banks will want to do them freely because it costs them money, it costs them money to provide the service. And those who are saying that they're doing them freely -- I mean are allowing people who are non-customers to come in, it's because they have some extenuating circumstance. Like I know -- and it takes an educated consumer to know where they can go and get money out without paying for it. For example, if you look at Wawa, they have a wonderful plan. You can go in and take your money out of the ATM machines and not pay a fee. However, nine times out of ten, before you got out of Wawa, you've upset at least half of the money that you went in there to 49 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 get out to use for yourself. So, I mean, here again, it's like supermarkets used to use lost leaders. While it sounds great when you read it, but you need to think about what's really happening. And even when it comes to banks and they say, Oh, we have free this, free that, the consumer needs to be taught to read the fine print. How free is it? Nothing is free. And as long as we're going to use computer time, when you think about the technology, I was all the way over in London just recently and put my ATM in a machine and drew money out. I mean, this is fantastic. And technology is getting more costly. And with the year 2000 problems that we have, I mean this, is a whole new arena where it's going cost the banks a large amount of money just to be able to comply and be ready for the year 2000. I mean, a lot of us don't know what's going to happen and where our ATM machines are going to be of at the turn the century. You know, are the ATM ready for the zeroes, let alone everything else we're doing. 50 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
There's just a lot of things for us to look into. You know, I would like to see that if City Council looks at these kinds of laws and proposes these kinds of changes that we have someone who serves as advisor to you so that you can really have the facts. And based on the fact, then you can recommend whatever it that needs to be done to benefit the people of this city.
But do you think it would be fair for the City to say, We will not deposit our money in banks who charge their own customers to deposit or withdraw money?
I don't really know. I'd have to -- I haven't studied that. I'd have to look into it.
'Cause, in a sense, that would be preserving at least the status quo.
I don't know; I have no 24 way of knowing because I don't know what's involved in those transactions. 51 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 I can tell you that I have customers that keep low balances and they're either in the bank or using the ATM machines five, six, seven, eight times a week. And that is costing me time, computer time. And so on one end, we have to have all the computer technology in place; on the other side, it costs you money. We have to buy the network time. So those are things that somebody really needs to do an analysis on before I propose that to you.
Will the guests at your proposed hotel be required to pay a fee at the ATM machine in the lobby?
Absolutely. I'm truly working on the creation of a minority-owned hotel, and I'm really excited about it. And we want to have an ATM machine in this there, just like they we do at the Marriott.
And I also want to say 52 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 that we've been able to keep our costs down as low as we could and because we try to provide service and make money accessible to people, but we are a profit-making institution and we owe it to our shareholders to be profit-making, profit- oriented. And we have 3,000 community shareholders, so we want to make sure they have benefits as much as anybody else.
One last either comment or question. Did I hear you, Miss Chappell, in response to Councilwoman Fernandez, at least allow yourself to kind of think out of the general banking box to enable us to initiate a discussion around -- you used the term "gouging," some might say you can use that term or you can say "higher-than-appropriate." I mean those are not necessarily definable terms. I guess, like some other things, you know it when you see it or when you feel it. Are you saying that it might be possible here in the City to at least have some rational, non-hysterical discussion about this from a standpoint. If the banking community was 53 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 able to come to some level of agreement about either a cap or a max or certain agreements among the banks themselves about what they may or may not surcharge each other's customers that we might be able to do something in this area that obviously allows you to cover your costs, and at the same time, not have a cost that is so high that is somewhat offensive to customers, especially in the double-hit situation.
Well, I do believe that. I believe that there could be a study done if concert with the bankers. I think the bankers in Philadelphia are very forthcoming -- at least that's been my experience. I think they'd be all too happy to sit down with Members of Council or whomever you deem appropriate, with your staff and our staffs and do a cost benefit analysis and see if we can't do a better job at preparing and discussing and planning for the right thing happening in a community. I think -- I mean, I err on the side that we need to talk to each other. You need to understand our problems, and we need to understand 54 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 your concerns. I think in the end, we all want to do the best for the people in this city, I generally believe that. I've been in banking over 30 years. And I have to tell you that all of the bankers I've met and worked with through the years have been very interested in what happens and how the public looks at the services they provide. And so it's only when the problem is created, when we're not talking to each other, and there's no consideration for -- and now that I'm the other side, where I'm heading up a bank, I began to look at what really goes into the decisions that are made to price a product at whatever we price it at.
And so I would recommend to say yes to -- first of all, I would say yes to your question. And second of all, I think it would be a great idea if this committee of Council would bring some bankers to the table and the Bankers Association and the Chamber of Commerce and all who have an interest to begin to dialog about this issue. 55 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Right. Well, again, as you may recall from my opening statement, they were all invited, and I have tried to provide that level of dialogue. Notwithstanding whatever anyone might read in the newspaper or see on TV or hear on the radio, I'm really not that bad of a guy. I'm a rather reasonable person to try to deal with. This bill was introduced in June of 1997. Now, out of banks sent back and 12 responded to a survey instrument, about six or 13 seven pages. There was advertising notice of this 14 hearing. Everyone was sent a personalized 15 invitation signed by myself. 16 Again, I can't speak to why people are 17 not here, but I think your point is well taken. 18 You really can't get anything done if people don't 19 want to talk, so I don't know people don't want to 20 engage in a dialogue. 21
Well, I would say they don't want to get into a public fight. I think what they want to do -- I think if your staff, meaning Council's staff, and some of the staff bank of the staff began to meet and talk about it 56 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 then do the public hearings, but at least let us share from the administrative side what is involved in putting an ATM machine in a location.
Let me ask you one last technical question on the system. When a person goes to an ATM and they're not making a withdrawal but making a deposit, is there an interchange fee for that? Is there a switch fee for accessing the system in that fashion?
I understand. Are there surcharges for those transactions as well, or is it only in the withdrawal?
Well, to the best of my 57 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 knowledge -- I'll have to research that for you. But to the best of my knowledge, every time you use an ATM, there's a cost involved.
Well, I understand there's a cost. But does the little screen come up that says that you're going to have to pay a dollar when you make a deposit?
So there is a charge when you access the system and make a deposit?
I think so, yes. 58 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Well, again, being a person that only has only one side of the transaction going, I'm --
I'm almost never putting money in the bank; I'm trying to take it out.
Somebody has to go to that machine take out the deposit, make sure it's recorded properly. There's work that goes into that. 59 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Miss Chappell, first of all I'd like to thank you for bringing your bank into Frankford.
I know that it was need there. My question -- and when I was on the phone, the new kinder, gentler Councilman Nutter may have asked you this question. Say we have an establishment, not necessarily a Rite Aid or an establishment that -- I want to say a tavern. Okay, I'll say a tavern, and want to put a Mac machine in there. Finnegan's Wake has a MAC machine. Does your bank do that? How do you go about -- this is just a technical question I had. Now, how do you do that? If I came to you and I said I have a tavern, a big tavern, a restaurant-tavern and want to put a MAC machine in there, how does that work?
Do you do a lot of them? Or is this just something that's starting out?
What we do is try to do a market analysis as to whether or not there would be enough activity there to justify the machine. And if they want the machine and there is sufficient market there, then we will put it in. And we do them one-on-one or two-on-two.
And if you put it in our -- if the Councilman and I have this tavern and you put it in our tavern, who makes money? I mean, we make some money for letting you put it in our tavern, right?
Is it like $1 or 50 cents of the dollar? 61 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
You make a percentage of the profit. If it's a critical mass, I'd say it's -- I think its about 3,000 hits before it becomes a profit. It breaks even at 3,000. And then anything over those numbers of transactions for the month then is shared with the person, with the company or the business where the machine is located.
Now, let me ask you this hypothetical question. Our tavern is trendy and the right kind of people come to this tavern, and they're all your customers. So every time they use this MAC machine in our tavern --
The only way we win is if it encourages people who are not customers to 62 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 use do it open accounts. And we do it for that reason, too.
So my question is, it doesn't behoove you to have in a tavern where only -- or anywhere where it's just United Bank customers are. This isn't a trick question, I'm just figuring this all out.
Because we know we don't have branches all over the City. So in order for our customers to have access to their money, we will put them in certain places like that.
And plus it works with the tavern so that if the tavern has a deposit account at the bank, then the people can get their money out and spend it, and it's a win-win for 63 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 everybody.
Thank you for coming, thank you. Gordon Whitman and Marta Aviles, Eastern Philadelphia Organizing Project. (Gordon Whitman and Marta Aviles come forward.)
Good afternoon. Please identify yourselves for the record and you can begin your testimony.
Good afternoon. My name 64 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 is Marta Aviles, and this is Gordon Whitman, and we're with the Eastern Philadelphia Organizing Project. And I'd like to testify on behalf our organization. We represent about institutions, 7 schools, and adult community centers, and we're 8 serving about 20,000 people. 9 And we experience a lot of -- a lot of 10 our members have experienced a lot of frustration 11 with the bankings and the locations the ATMs. We 12 serve a lot of minority communities and elders, 13 and that is their main concern. 14 These people are not educated consumers 15 and they are not -- they are not -- here I go -- when they are charged, they don't realize that that little screen is telling them that because they are not members, they are being charged. So to me, it's like they're being forced to use this foreign institution. And at the end, they really don't understand why these charges are appearing on their statements.
My name's Gordon Whitman. I'm the senior organizer at the Eastern Philadelphia Organizing Project. 65 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 As Marta said, we're a membership organization of the institutions in four or five neighborhoods in eastern Philadelphia -- Port Richmond, Kensington, Hunting Park, and Olney. We work on multiple issues, and we do work on safety issues and on education issues. Our first kind of foray into the banking world and the issues around banking came out of the First Union-CoreStates merger. When the merger was announced, there was a lot of concern within our institutions and within those communities about what would happen. And we went out and surveyed a large number of people through our churches and through our schools. What came back from those surveys was that people are concerned about the lack of bank branches and about losing the bank branches that do exits, and they've seen a large number of bank branches disappear over the last decade, two decade. Second, the cost and the high cost of banking services. And then the impact that both of those thing things have on the neighborhood in terms of forcing people out of mainstream dealing 66 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 with banks and into check-cashing stores. We did a lot of research looking at -- which is, I think, a connected issue -- that home improvement lending and what happens when people get turned down from the bank for the home improvement loan, which happens. Our research, when we looked at First Union, was three-quarters of the time that people went to the mainstream bank for services, they got turned down. And then you go to either high-priced options like the Money Store or some of the other creditor lenders. Well, I think that our experience with the bank fees is that's it's a similar phenomenon, that as the options that people have shrink, you either pay the cost, whether it's 1 or $2 on top of taking out money, or you go to the check- cashers. And the impact on that is to take people out of the banking system, and especially with EBT and Social Security coming through electronically, the real challenge that we're in is how do we make sure that people have access to the banking industry, to banks without high fees 67 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 and lack of access to banks limiting that. When we did our research and when we began to meet and negotiate with First Union, ultimately, we reached an agreement with First Union. The one piece that we were not able to reach and we're, in fact, still negotiating was over their accounts. One of the things we learned is that their goal, by the year 2000, is to make 40 percent of their revenue off of fees because it's not interest-rate-sensitive so that they want to -- it's part of corporate strategy in First Union and in other banks to get an increasing percentage of their income from fees. And, obviously as this market consolidates and there's less choices, it's easier to charge more and more fees. The other thing that I thought, as Councilwoman Fernandez talked about people being charged by their own banks to use ATMs, it's very clear to us that part of the agenda in the future is to be charged to see tellers. So that currently the account that First Union has on the table as a low-balance account that would be open to low-income people in 68 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Philadelphia and is part of the negotiations with the state attorney general is an account that does not allow a customer to see a teller to withdraw. So that you can go see a teller to deposit money. Originally, they had offered an account that wouldn't let you see a teller to withdraw or deposit. They then negotiated with the State and with other groups pushing them and agreed to an account that would let people deposit money with a teller. But right now you're not allowed to take out money at a teller; you have to do that through an ATM machine.
I apologize for interrupting you. Under that circumstance -- and I was, quite honestly, not aware of that -- how is a person supposed to withdraw money? Do they either go to an ATM or write checks?
Well, they can't write checks. They're expected to go to an ATM.
Right, okay. 69 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
If they want cash, the way they have to get cash is by taking it out of the ATM machine. Now, a number of the banks don't have ATM machines. And, obviously -- and the other piece of that is if do go to a teller with that account, it's an $8 charge for that account. So what I think they are setting up to do is to be able to not only charge to use the ATM machines, but to charge to see tellers. And, from our perspective, what we saw happening is that basically people are being pushed out of the opportunity to use banks, and that the double fees they get charged when you take out money at somebody else's ATM machine or the high cost of basic banking accounts is part of limiting people's access so that you end up having to go to those check-cashing stores. And that is an organization that's been our interest, to make sure that access is there because we see it in part feeding back into the development of the neighborhood. If people don't have that relationship with the bank, then lending doesn't take place, and the other services that 70 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 keep a neighborhood solid don't happen.
Thank you, thank you very much for that testimony. And I think also just some new information to the record about what's going on in the banking community. Thank you very much.
Lance Haver and Jonathon Stein. (Lance Haver and Jonathan Stein come forward.)
Please identify yourself for the record. And I'm sure you've worked out between you who's going first.
Thank you very much. My name is Lance Haver. Thank you very much for having us here this afternoon. I am the Educational Director of CEPA, the Consumers Education and Protective Association, a 32-year-old grass-roots consumer group founded by the late Max Wiener. I am here today to support Bill No. 71 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 970485, a bill that would prohibit banks that profit from being designated as City depository from charging an ATM fee. Bill 970485 expands Philadelphia's buying clout to protect not only the City's budget but the budgets of people who live, work, and visit the City. It is exactly what the City of Philadelphia should be doing for all of its citizens, using the City's leverage to help average people. While big businesses and the wealthy can negotiate deals with banks that limit or eliminate let me fees, the average consumers cannot. I know that if a Fortune 500 company called up First Union and said they would move their accounts to their bank if the bank cut its fees, the bank would do so. I also know that if a person with less that $1,000 in their account called First Union and told them unless they cut the fees, they would move their account, First Union would come up with some excuse as to why they couldn't do it. The truth is that average people on their own don't have the leverage they need to 72 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 force banks and other large corporations to treat people fairly. It is only when consumers are organized into groups, unions, or government that the average person has a chance to negotiate on equal footing with a bank as bad and as callous as First Union. And I'd like to point out to those people who are wondering, banks do charge you if you use their machine if you don't have enough money in the account. It is very clear that if you keep enough money in the account, all the ATM fees are free. But if you less than $1,000 in the account, many banks charge you even when you use an ATM that's owned by your own bank. So the ATM fees are there if you are a poor or working person. The recent wave of bank mergers and consolidations make this bill even more than important. First Union has purpose, with malice aforethought, set out to close over 100 branches and buy its competition out. Study after study has shown that when there is less competition, unless there is regulation, bank fees climb. Remember, First Union has already said 73 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 that they want to collect 40 percent of their profits from fees like the ATM fee. No doubt, as banks like First Union close branches, making people more dependent upon ATM fees, the more they will try and raise the ATM fees as high as they possibly can. Unless this bill is passed, consumers will be held hostage to the high fees. Don't fall for the banks' lies that they have to charge ATM fees. They don't have to charge, and they didn't used to. In fact, if you used your bank's ATM system before 1996, you didn't pay a charge, and no bank went bankrupt because the consumers could use the ATM for free. Even today, there are whole systems like EDS system that are found in 7-Eleven stores that don't charge for an ATM transaction. Banks didn't start charging for ATM transactions because they had to; they started because they could. The ATM fee isn't fair, it falls most heavily on people who can't get to the bank during their lunch hour, who don't have branches in their neighborhood, and don't feel safe keeping cash at home. 74 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Nor is the fee based on the actual cost to the bank. When ATMs were first introduced, the banks told us they were much less expensive than using a teller, and tellers are free. Almost every bank told the public that we were saving money by using an ATM. As we've learned to use ATM machines, banks learned that they could close more and more branches.
All that money they, quote/unquote, saved went into the pockets of a few wealthy shareholders. Now that so many of us have lost our branches, we have become dependent upon the ATMs, either through government action or because there's no local branch, the banks have decided to charge us. This bill protect consumers from predatory practices of the banks. It doesn't force any bank to do anything. It simply says that if a bank wants to benefit from Philadelphia's taxpayers, it has to agree not to rip us off. Make "The City That Loves You Back" make the banks give something back. Pass this bill. 75 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
I'm Jonathon Stein, General Counsel, Community Legal Service -- "CLS" as we're known. We see about 20,000 individuals each year. We also attempt to speak for the interests of about 400,000 people in the City who are low-income. And most recently, we have taken -- we took an active lead in opposing the merger of CoreStates and First Union. And we did that because that's not the normal thing CLS does day in and day out. We did that precisely because of the increased importance that banking and access to banks have on the lives of poor and working-poor people throughout the City. With electronic benefit transfer, a whole revolution is happening that is totally altering the lives of hundreds of thousands of people in our own city. Every welfare recipient -- that is a family on TANF -- formerly AFDC -- or general assistance to single individuals is now on electronic benefit transfer, EBT. They can only access their small welfare check, which is about 35 percent of the 76 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 poverty level. That check can only be accessed through an ATM machine that a local bank or other place has. And they access it, essentially an account that City Corps Bank outside of the City has, and they draw down money from a City Corps account through local ATM machine. But in addition to that, every person on Social Security in this city, every person on SSI, supplemental security income, which is the SSI benefit for low-income, elderly, blind, and disabled. Every person in that benefit -- and there are hundreds of thousands of people getting Social Security and SSI -- must be on direct deposit by the year 1999, which means they will have to access a bank account, often through an ATM machine, to simply draw down their Social Security or SSI check. What this becomes are windfalls for banks who get direct deposits. And it becomes basically unfair to charge people money to get their fixed, limited income that may be welfare or SSI or Social Security. And that's one of the main reasons why this bill should be passed because it gives basic 77 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 fairness to people who need to survive on those fixed checks and often through ATM machines. A few facts. I'd like to refer particularly to the staff survey that Councilman Nutter's staff has done for this hearing. We have to understand a little history here, that ATMs were established to save money. The fact that you have ATM machines is really because banks are saving money by, instead of having branches and human tellers, they're relying on automated machines to take their place. That's a bank savings, which none of the speakers before really made reference to. So when people talk about the costs of these machines, what they are forgetting to tell the City Council is that they are saving considerably more dollars in not having to have branches that are not human tellers. The fact that we have ATM fees is simply a fact right now of banks wanting to increase profits and the oligopoly that now exists with banks. If you look at the staff survey that was done for this bill, you'll see that three 78 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 banks in this City own 92 percent of all the ATM machines. That is, if you add up the ATM machines that PNC, First Union, CoreStates, and Mellon have, they own 92 percent of every ATM machine in the City, according to your own survey. And when you have a situation like that, they can dictate the fees, they can squeeze out, as Councilman Nutter's question to Miss Chappell referred to, they could force out small banks by increasing surcharges on getting money from another bank and having those people transfer their accounts to one of the Big Three by avoiding the surcharge. And that apparently is a strategy that banks are beginning to do in the nation.
So here they're competing but not reducing prices, but by increasing the threat of increasing surcharges, which then drive customers from smaller banks to them.
Mr. Stein, if I could interrupt you just for one second. Mr. Mariano needs to make announcement.
Thank you, Mr. 79 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 Chairman. Mr. Chairman, at this time, I'd like to request a leave of absence and leave my vote with you, voting yes for this bill to out of committee.
I think we're taking about a very anti-competitive situation where the presence of fees is itself a reflection of the oligopoly that you have in the City with three banks virtually running the banking system of the City of Philadelphia. The First Union, I should I say, just to give you some idea of just how -- what a grip First Union has. First Union owns almost 55 percent of all the bank deposits of the residents of the entire City of Philadelphia. And there's three banks, as I say, that own 92 percent of all the ATM machines. I think the banks are trying to tell this Council that somehow these ATM charges are 80 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 cost-based and that there are costs involved. If you look at the staff survey that was done for this bill, you'll see on Table 5, that even among these big banks, like PNC and First Union, some of them charge zero. And the same bank, like PNC, that's charging zero at 281 machines is charging $1 at 108 machines. So why, if they're saying it's cost-based, are these same banks deciding in some instances to charge zero; in others, to charge a $1, $1.50? I think they're doing it because they see that in many situations, there is no 14 competition and they can charge money. And the idea that this is cost-based is really a myth they're proposing to justify their current fee structures. As we said earlier, I think that the surcharging is particularly pernicious. And, Councilman Nutter, I think that the question you gave to Miss Chappell is really quiet telling. That article from Standard and Poor does speak directly to the fact that in this surcharging environment, the largest banks can access surcharges, increase them, and attract customers 81 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 who, to avoid the surcharges, will switch their account to that bank, and I think that's a real danger that we'll be facing. Well, in sum, I would say that given the fact that so many hundreds of thousands of people are being thrust on the banking system that ATM fees, which really didn't exist until very recently, really have no place in our city. Banks could do well without fees. They're saving millions and millions of dollars by not having branches. Their plans are to continue to close branches. That's the First Union game plan, we know, and maybe with others. And ATMs remain a cost-saving device. And if they're saving great cost, they should not be, then, treating it like a cash cow. They've essentially transformed a device that they're saving enormous amounts of money from into a cash cow, and they milk that cow every day, and they are gouging customers. And I your bill is an excellent remedy to this gouging that is currently going on. And we support it and hope it gets passed.
Thank you. Thank 82 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 you for your testimony, and I greatly appreciate it. Anything else you'd like to add?
I just want to go through another point. There was not complete clarity that even if you use your own ATM machine from your own bank, you do pay a fee if you don't keep large enough balance in the bank.
That is an testing point. And, quite honestly, even in the survey instrument, we did not get to that level of detail. I this think this low bank balance situation is an issue as well as the folks from Eastern Philadelphia Organizing Project, this other phenomenon about access to tellers or some kind of charge, I was not aware of that. I mean, that's, I think, even possibly a newer phenomenon. So there's sure to be all kinds of things going on.
The last point I'd just like to call your attention to. The EDS system charges no fees. And they make a profit. They're not a bank, they're simply a money -- an ATM system. They can operate and make a profit without charging anyone any fee. 83 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
The only final point, Councilman Nutter, just one last minute. Again, regarding welfare recipients. Two months ago, the banks in the City and the State have agreed for just one year not to charge a surcharge for a welfare recipient who draws down their pittance of welfare. And unless there is some protection in a City ordinance or from someplace else, beginning in a year from now, we may see well see banks charging someone who's living at 30 percent of the poverty level, charging that person a fee every time they try to draw down a few dollars from their welfare. So I think your bill is very timely. And we appreciate, you know, your own and Councilman DiCicco's and other's interests in this. This is a bill of vital importance, and I think you're doing a great service to the City in pressing this bill on.
Thank you, thank you very much. Bruce McElrath. (Bruce McElrath comes forward.) 84 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
My name is Bruce McElrath. I'm Chairman of Disability Rights Advocacy Group. Good afternoon, Chairman Nutter and members of the Committee of Commerce and Economic Development, financial institutional executive fellow citizens, and ATM users, my name is Bruce McElrath, and I am the Board Chairman of Disability Rights Advocacy Group, Incorporated. On behalf of myself, persons similarly situated, and the membership of this organization that use ATMs, I wish to express my sincere appreciation to Chairman Nutter and to all of the Councilpersons that signed on to support Bill 18 970485, amending section 19-201 of The Philadelphia Code entitled "City Depositories" by prohibiting circuit electronic funds transfer fees and surcharges. As a first-grader at the age of 5, I open my first bank account with PSFS Bank. Thirty-seven years later, I have maintained this account with PSFS Mellon. 85 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 As an avid ATM user, I am greatly affected by the outrageous surcharges and fees I encountered when using ATMs not owned by Mellon Bank. I ask you, why should I be penalized and charged a fee because the nearest ATM is owned by another bank? The account I am accessing only holds my funds. In my opinion, these discriminatory practices defy the law of public accommodation. It is my understanding that by 1999, persons who receive disability, Social Security, or Veteran Compensation checks will be forced to use direct deposit. This means that the elderly, the disabled, and retired veterans will be forced to use a bank or some financial institution. These people who are on fixed income, some who qualify as low-income, will now be charged to get their own money. During the year of 1989, the Disability Rights Advocacy Group's officials signed an historic agreement with banks in the Commonwealth of Pennsylvania. That was the first and set a trend across the nation for all automate teller machines to be accessible to and usable by persons 86 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 with disabilities. We, meaning persons whose abilities are challenged, never knew that equality would be so costly. Thus I, we strongly support Bill No. 6 970485 and ask that all sponsors stand firm on this proposed piece of legislation introduced by Chairman Nutter in order to enable its passage. This will conclude my testimony this afternoon. Thank you. And before I leave, Councilman, I would just like to say we hung your notice on our bulletin board in building. And as a result of that, one of my neighbors wrote testimony, and that's included with the packet that we turned in today.
It's a separate piece of paper by a Mr. Carl Frank. It's probably at the very bottom of the stack that I gave --
All right. We're going to enter that into the record as if it had been read.
Thank you. 87 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
Thank you very much. I appreciate your coming down this afternoon.
Thank you. Is there anyone else here to testify on Bill No. 970485, any other member of the public? (No response.)
Mr. Hayllar, could you re-approach the witness table, please? (Ben Hayllar comes forward.)
First, I wanted to go back to a comment that you had made, I think, pretty much at the tail-end of your testimony earlier today, where you said that given the environment and the circumstances, you did not necessarily want to play chicken with the banks when you're trying to get payroll out. Did you --
I did want to remind you, and I don't necessarily know if you 88 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 were the architect of the strategy, but in another matter, another member of the Administration took the position and asked Council to go along with a posture that has us not funding the First Judicial District and what I think I may have characterized at the time as a fairly serious game of chicken. It just seems to me that -- I mean, you're certainly entitled to your view, but there are times when the Administration does take that exact same posture when it does suit their purposes. And the irony, I guess, just kind of struck me. That is the posture that we are taking as it relates to that particular matter. That is nothing but a game of chicken, would you agree?
I didn't ask you to make the analogy. It is a game of chicken, isn't it?
It's based on the similarity of the two situations that the analogy is made. I don't think the two situations are analogous. 89 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586
It is my responsibility to tell Council that if this bill is passed and imposed, what the difficulty will be to the City. And the difficulties are, you know, quite profound -- which is not to say we are defending the banks, their lack of attendance here or the bank fees.
Yeah, I understand. Maybe we just have a difference of opinion about the various ironies of life. I mean, if we don't fund the courts, we'd probably have a pretty serious problem here in the City. And, again, the City Administration has taken the posture that we just won't fund them, we'll see what happens.
Well, as you know, the funds are available. It's an appropriate issue.
I understand. Yeah, we put them in another place, okay.
Do you wish to add anything else to the record on this matter?
I would ask you, 90 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 based on the open-mindedness at least of one of the bankers and the only person who chose to come and testify. On the issue of the prospect of a dialogue, discussion. Whether it's eliminating certain types of fees or whether it's the elimination of one of the two fees that are generated by the foreign bank transaction, or if there's potential for capping, what the fees may be or any other possible alternate viable solution to this, I would only ask you, as the Finance Director, and Mr. Queenan, as the City Treasurer, who has a lot of contact with the City banks, you might have a little more success in talking to them. And, apparently, they wanted to exhibit today in talking to us that as things go forward, if I could impose on you as our Finance Director, to maybe initiate some of that dialogue and discussion. They might find themselves in a much better place than they potentially are going to find themselves in about two minutes.
Okay, thank you very much. 91 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 That will conclude the public hearing. - - -
We will now move into a public meeting. And I would ask Councilman DiCicco for a motion on Bill 970485. I'm sorry, Councilman. Before I do that, I would ask, with the committee's approval, that the written testimony of Mr. Carl Frank, the testimony of the Greater Philadelphia Chamber of Commerce, and the testimony of First Union National Bank be added to this records as if it was read into -- read as testimony into the record, that all of those testimonies would be added to this record for this public hearing. Seeing no objection from the members, we'll see make sure that the stenographer receives copies of all of those testimonies. The Chair recognizes Councilman DiCicco.
Thank you, Mr. Chairman. I move that Bill No. 970485 be reported out of committee with a favorable recommendation. (Duly seconded.)
All in favor of the 92 COMMERCE & ECONOMIC DEVELOPMENT - BILL NO. 970586 motion, signal by saying aye. Let the record also note that Councilwoman Blackwell and Councilman Mariano, who had been appointed to the committee by the Council President, previously left their votes in favor of the motion to report the bill out committee. All opposed, say nay. The ayes have it. The bill is reported out of the committee. That will conclude our public meeting. Thank you very much. (Adjourned at 3:22 p.m.) - - - 93 C E R T I F I C A T E I HEREBY CERTIFY that the foregoing proceedings of the Council of the City of Philadelphia of Thursday, May 28, 1998, were reported and accurately by me, and that this is a correct transcript of same. RE: COUNCIL COMMITTEE ON COMMERCE AND ECONOMIC DEVELOPMENT BILL NO. 980485 __________________________________, JOSEPHINE CARDILLO, Registered Professional Reporter