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In denial: ATM fee for getting nothing

We all know it often costs money to get your own money at an ATM machine; but now, you might have to pay up when you don’t get money.  Let me introduce you to a fee you've probably never heard of -- the "ATM denial fee." Rejection, it turns out, can be costly. 

Some banks are sneaky; their ability to slip itsy-bitsy fees onto your monthly statement proves their creativity knows no end. The death-by-a-thousand-cuts draining of our bank accounts happens relentlessly -- $3.00 check enclosure charge; $2 out-of-network withdrawal fee; $10 for dipping below a minimum $1,000 balance for an afternoon; $13 for new checks.  One of those fancy free checking accounts can easily cost $50-$100 a year. 

But the denial fee is a new entrant into this game, or at least, it is new to me and many industry insiders. Bank of America, on the other hand, says it's old hat.  Either way, here's how $1.50 leaked out of my checking account for money I didn't get, and how it might be leaking out of your account too.

Quick: What's your daily ATM withdrawal limit?  If you said $400, you might be wrong. At Bank of America, for example, the limit is $300.  The price of making that mistake is $1.50.  That's what I found out last month when I tried to grab as much cash as I could before I hopped a plane to cover Hurricane Rita in Texas.  Given other reporters’ experiences after Katrina, I decided to bring as much cash as possible.  The ATM nearest the plane gate wasn't Bank of America, but I decided to pay the $4 or so in fees for using another bank’s machine.

My first attempt to get $400 was denied and my transaction canceled. That's all I knew. I took my card back.

Moments later, I tried to withdraw $300, and was warned I'd face fees both from the machine owner and my bank for using the wrong ATM. Duly censured, I accepted the fee. And that, I thought, was that.

It was, until I spied my bank statement a month later. I found that I was charged $2 for the cash I did get, and another $1.50 for the cash I didn't get. ATM Denial Fee, my statement read.

"What is this?" I asked Bank of America's customer service telephone representative.  I did not tell him I was a reporter. I was calling as a customer.

The rep calmly explained that it was, in fact, an ATM Denial Fee.  I must not have read the latest disclosure statement from the bank, he said. He then explained that Bank of America is charged fees by other banks when a withdrawal is attempted, whether it is successful or not. This bank-to-bank fee can be $5, $7, or even more, he said.  He then explained to me that the bank actually eats close to 90 percent of these fees and is just trying to recoup some of the costs.

To be fair, he agreed to wipe away the $1.50 fee when I told him the circumstances of the failed withdrawal.  Still, I hung up wondering just how many people have been unknowingly paying these denial fees. I set out to learn more about them.

'A new one on me'

I called Tony Hayes of Dove Consulting, an ATM expert. He'd never heard of ATM denial fees, and he was skeptical that Bank of America would have to pay the $5-$7 that its customer rep quoted me for a failed withdrawal.

Then I tried Greg McBride of, who studies ATM fees. His oft-cited reports are among the most comprehensive in the industry.

"That's a new one on me," he said.

But Betty Riess of Bank of America knew all about denial fees. In fact, she said, there's nothing new about them.  The bank had been charging them "for some time."  There was no updated notice earlier this year, she said. She also wouldn't discuss the intra-bank fees my customer service agent mentioned, but she did say she had no idea where he got his facts. 

Denial fees are spelled out on Bank of America's Web site.

"The denial fee applies to each request to withdraw funds at a non-Bank of America ATM that is denied because the request exceeds either your available balance or your daily cash limit," the site says.  I hadn't read it.

It's unclear how many other banks charge such a fee. Washington Mutual’s Mary Kelley said her bank didn't charge denial fees; A spokesman for Citibank said the bank doesn't charge a denial fee.  An Internet search revealed some smaller banks do have denial fees published on their Web sites. Bank of America's $1.50 was the steepest I found, however.

'Wrong ATM' charges cost $4 billion a year

McBride, from BankRate, was surprised to learn of this denial fee, but he did say something that is probably obvious to all of us -- bank ATM fees are at the highest rate ever.  In fact, in a report he issued earlier this year, McBride said consumers pay $4 billion each year as a penalty for using the wrong bank's ATM. That's up 44 percent from 1999 levels, his report said.

That's a lot of $1.50 charges. Revenue by 1,000 cuts.

But we’re just trying to run a business, banks protest.  In the past, I have heard the following arguments from banks: Consumers have more access to their money than ever before, and should pay a little for that.  ATM machines are actually expensive to operate, and most banks lose money on them (see "Are there too many ATMs). And banks face fees from each other, so consumers should expect to cover some of that cost when they use the "wrong ATM."

It all makes some sense, except that last point, which is hard to swallow. Banks may well be charging each other indiscriminate fees, but does that mean they should pass those fees on to us?

'Gotcha' capitalism

This is not a fair market.  Consumers paying the fees often don’t have a choice.  Often, they are forced to pay the fees when facing some crisis or time crunch, like when I was leaving for the hurricane.  That’s no time to change banks.

This is the first example of a phenomenon we’ll discuss a lot in Red Tape Chronicles,  something I call “gotcha” capitalism.  You’re in a hurry to catch a plane, you don’t have time to refill that rental car tank – “Gotcha!” Suddenly, a gallon of gas costs $6.  Oh, and that ATM transaction will cost you $5.50 -- $2 to the machine, $2 to your bank, and another $1.50 for a typo that made you ask for $400 withdrawal instead of $300.

That’s not to say ATM fees are entirely unfair.  Consumers shouldn’t expect to receive something for nothing.  The convenience of getting cash from any bank’s machines is worth something.  But when banks are charging something for nothing, then we know something is wrong.