Most consumers who have bank accounts have had occasion to use an ATM. While many ATMs can multi-task—accept deposits, transfer money, etc.—most people just use them for taking out cash. There are over 400,000 ATMs operating in the U.S. today. About half are controlled by banks and the other half by independent ATM owners or merchants.

If you’re of a certain age and remember writing checks to “Cash” and trying to find a bank that would take your check when you needed some "street money," as we say, an ATM is nothing short of a miracle. But the downside of ATMs in getting stuck with the fees charged to use them.

A group of U.S. senators thinks that downside is pretty steep, so they commissioned the General Accountability Office to study them. The GAO, in a report published this past April not only looked into fees, but also into the business dynamics of the ATM industry. What they found may surprise you.

The “fee” charged to use an ATM will vary by the owner, much in the same way that rental car fees or hotel rates differ by company based on that company’s business case. In the case of ATMs, there is no “fee,” but a series of fees. For example, using the ATMs owned by the bank that issued your ATM card is generally part of the deal. But if you use a machine not owned by your bank, you’re likely to be assessed a surcharge of a couple of bucks. In addition, when you use someone else’s machine, your bank is likely to charge you an additional “foreign” fee for having to tell another ATM owner that you have enough money to cover the transaction.

On top of those, your bank will have to pay the ATM owner an “interchange” fee to compensate the foreign owner for the use of his machine. Interchange fees charged by banks to merchants for accepting their debit cards have been become such a bone of contention that Congress in 2010 instituted price caps on them.

There are also “switch” and “acquiring” fees that are paid to the electronic networks that move the transactions back and forth between banks and ATMs.

If all of this sounds pretty arcane, it is. The GAO has tried to sort through the details in its April 2013 report. There are really three factors that underlie the ATM fees. The first is competition. Consumers may pay a certain surcharge in an area where there is an ATM on every corner. On the other hand, use an ATM where the owner has a captive audience—such as a mall or an airport, where it may be the exclusive provider—and you’ll probably pay more.

The second factor that drives fees is the cost to operate a certain machine. Independently owned machines placed in areas where they are subject to damage or additional security requirements are likely to feature higher surcharges to help recover the higher cost of operation. Banks, which may use ATMs to advertise other services or attract new customers, may feature lower fees because costs may be offset by other sources of revenue.

A third factor is usage. The more transactions that flow through an ATM the greater the base over which the operating costs can be spread. A machine that sees less activity has fewer units (transactions) over which to spread its costs, resulting in higher pricing per unit at that machine.

Consumers who wish to lessen the cost of ATM usage have a few options. Many banks and ATM owners belong to so-called “surcharge-free” networks. These networks work out deals with ATM owners that allow consumers to use their machines free of surcharging. Consumers can also restrict their ATM usage to their own bank’s machines. This will eliminate surcharges and foreign fees. Third, consumers can work ahead on their cash needs and request cash back when they use their card at a merchant point-of-sale terminal so they don’t have to visit an ATM quite as often. There’s no need to be paying top dollar every time you use an ATM when these options are available.

If this sounds like humdrum Consumer Economics 101, that’s because it is. These are the same pricing decisions that any business—large or small—goes through. American consumers are pretty savvy but they need to remember that when they pay to use an ATM what they’re buying is convenience. With a little information they can figure out how much ATM convenience they want to buy.

  Nevertheless, look for Congress to use the GAO’s extensive report as justification for rounding up the usual financial industry suspects for hearings on the subject of ATM fees. If past is prologue expect significant political pressure on ATM owners and their profitability. And if that results in elimination of the least profitable of those 400,000 ATMs, the convenience that ATMs offer will become a lot less convenient for consumers—and a little bit more expensive.  

For the past two years it’s been nearly impossible to turn the page of the newspaper or channel surf through the cable news stations without seeing some story about welfare fraud. Whether it’s a Maine woman indicted on 20 counts of welfare fraud or a Massachusetts state agency sending benefits to dead people, there’s no shortage of news on this topic.

In 2012 Congress decided to crack down on fraud by forcing states to tighten up on misuse of federal benefits or risk losing a portion of their welfare block grant from Washington. Shortly thereafter state lawmakers around the country decided to get into the action by passing their own get-tough welfare fraud laws. Currently there are over 40 such bills that have been introduced in state capitals from Olympia to Tallahassee.

Which brings us to Indiana, where Governor Mike Pence last month signed an anti-fraud measure that could result serious unintended consequences.

Senate Bill 559 would do a couple of things to tighten up on welfare fraud. First, it would prohibit beneficiaries from getting their benefits through ATMs or POS terminals located in certain prohibited locations. These include horse tracks, casinos, gun shops, liquor stores, or strip clubs. No problem there. I personally find the thought of someone using the kids’ lunch money to drop a two buck bet or tip a stripper personally revolting.

But the real problem with 559 is that it places the primary burden on the owners of the electronic payment systems, not on the retailer or the recipient of the cash. The exact language of the bill is:

But the real trouble with this bill will come on July 1, 2013, three weeks from now, when ATM and POS operators are supposed to begin complying with the law. That’s not nearly enough time to make the changes to the electronic payment systems necessary to comply with the law.

Electronic payment systems are complex, interdependent systems that connect multiple large scale mainframe computers from disparate sources. These include both the public and private sectors, the EBT processor in a particular state, and downstream third parties like merchant processors and switches. Making the changes called for in 559 will require coding by all parties, testing and retesting of each interconnected system, end-to-end testing and retesting, and regression testing to make sure the changes didn’t mess up any other systems that have access to those particular terminals.

 If that happens you can envision a scenario on July 1 when ordinary Hoosiers find out that their bank cards won’t work in particular ATMs, or retail checkout lines slow to a crawl as befuddled cashiers try to figure out why some cards don’t work while the lines back up. It could be a nightmare. One processor says it will take about a year to make, test and implement the changes the bill will require. The law gives owners and processors less than two months.

This is a case where the bill’s sponsors should have consulted with the payments industry to find out the unintended consequences of their law. Holding open and transparent hearings might have helped avoid this potential mess.

The only way to remedy this is for the governor, the General Assembly and the state agency responsible for implementing the law to get together and push back the implementation date. July 1, 2014 sounds good to me.

I’m all for reforming the way we do public assistance in this country. Payment technology can go a lot to ensure that the money that we allocate for the relief of hunger or lack of shelter goes where it should go. I’m sure Indiana lawmakers feel the same way. But in their rush to judgment, they ignored the one stakeholder group that could help them and instead saddled them with the liability.