U.S. District Judge Vaughn Walker granted a preliminary injunction to Wells Fargo and Bank of America, which sued to block enforcement of bans on some ATM fees in the two cities.
The judge said the voter-approved prohibition on ATM surcharges in San Francisco, due to take effect in December, and the Santa Monica City Council's ban, which took effect last week, are likely to be found unconstitutional.
"It doesn't make any sense to have a system where there are different fees all over the country," Walker said. He ordered both banks to put the disputed fees in escrow so that they can be returned to customers if the city governments prevail.
The fees in question apply to people using an ATM at a bank where they do not have an account.
California Bankers Association spokesman John Stafford said the financial institutions were very pleased with Walker's decision.
Wells Fargo and Bank of America, which control 86 percent of the ATMs in the two cities, had refused to stop charging the fees. Instead, they closed some of their ATMs to non-account holders, arguing that only the federal government can regulate ATM fees.
Attorneys for both cities said they would turn to the 9th U.S. Circuit Court of Appeals, which ruled in 1990 that the regulation of bank ATMs is not limited to the federal government.
Iowa and Connecticut have never allowed ATM surcharges to non-customers, and Arkansas, Mississippi and Wyoming set limits on the fees.
"There are examples all over the place of regulations by the states of bank fees," argued Adam Radinksy, Santa Monica's deputy city attorney. "Those are good laws on the books."
Politicians from Los Angeles to New York are considering similar legislation to ban surcharges, said Santa Monica council member Michael Feinstein.
He said the judge's preliminary ruling wouldn't slow the movement. He also noted that smaller banks, including First Federal and Washington Mutual, complied with Santa Monica's ordinance and stopped charging the non-customer fees.
"More than two dozen cities and counties have contacted me personally expressing a strong interest in enacting a surcharge ban," said Radinsky. "We don't believe the ruling in any way affects the ability of other municipalities to impose a ban."
The backlash against ATM fees has grown along with the number of banks levying the surcharges on non-customers.
A survey by the Public Interest Research Group found more than 90 percent of banks now charge as much as $2.50 a transaction to non-customers who use the banks' ATMs. Those fees are on top of any fees the customers pay to their own bank.