Senator Tom Harkin has proposed an amendment to the financial reform bill that will set ATM fees at $0.50.  Many consumers may celebrate this law, but as they teach in econ 101, if you set a price ceiling, quantity will go down and there will be a shortage. This means banks will put in less ATMs, and people will have to travel farther to get to shorter supply of them. In the end, consumer welfare very well may go down if total travel costs are greater than the gains from lower fees.

The fact that regulated fees lead to a lower supply of ATMs is fairly obvious, and supported international comparisons. The UK and France regulate ATM fees, and have 968 and 761 ATMS per million inhabitants respectively. The US and Canada don’t, and have 1,335 and 1,630. In addition, ATM supply has grown faster since banks started charging surcharges to other bank’s customers to use their ATM 1996. The number of ATMS per capita in the US was growing at an annual rate of 9.2% from 1991 to 1996,  and then at 16.7% from 1996 to 2001. This paper provides empirical evidence that consumers in counties with high travel costs experienced welfare gains from these increased ATM fees, while the effect is negative for those in low travel cost counties. This paper, which the above statistics come from, argues that bank profits are lower and consumer surplus higher when banks can charge ATM fees.

To the extent that poorer areas tend to be underbanked, and are most likely to experience higher ATM growth in the future than wealthy areas, the impacts of this law will have the worst impacts on poor people.