Cash machines should be labelled to show from a distance whether there is a fee for making withdrawals, MPs say.
Charges penalise people on low incomes, MPs say
A Treasury Select Committee report was also critical of the Post Office, saying it had too many charging ATMs - which could hit the poor in particular.
Overall, consumers now pay £140m a year to access their own money, it added.
ATM operators said fewer than 4% of transactions involved fee-charging machines, and most were at sites which would not otherwise have an ATM at all.
The report said stickers already on cash machines to warn of charges are often hidden away and that on-screen alerts come too late - when customers are just about to withdraw money.
The machines also prominently advertise "free" balance inquiries in an attempt to mislead customers, it continued.
In many areas charging ATMs - which now account for four out of 10 machines - have replaced free-to-use machines, the MPs said.
Most of the growth has come from fee-charging machines being installed in locations such as pubs and post offices.
But some banks, including HBOS and Abbey, have sold their non-branch based ATMs to fee-charging providers.
Fee-charging cash machines typically charge users between £1.25 and £1.75 a transaction.
The MPs called on the Post Office to review its policy after MPs heard 75% of cash machines in its branches charge customers.
Sub-postmasters have no control over what type of machine they install, and no account is taken of the needs of the local community, the committee was told.
"The Post Office has a responsibility to move towards greater provision of free machines, particularly when there are no banks nearby," the report ruled.
During sometimes heated exchanges MPs quizzed the chief executives of the UK's biggest High Street banks and fee-charging machine providers.
They also took evidence from a wide range of consumer groups.
The Committee's report concluded:
- Signs which warn users of fee-charging ATMs must be made larger and be easier to see
- Post offices must "urgently" re-examine the decision to allow fee-charging ATMs
- People on low incomes suffered the most
- Some communities were heading towards a situation where there were no free cash machines
- Banks must "think carefully" before selling off their free non-branch based ATM sites to fee-charging providers
- Greater regulation of fee-charging cash machine operators is needed by bringing them under the UK Banking Code
Committee chairman John McFall MP described the explosion in the number of fee-charging ATMs as "very worrying".
"It would be wrong if every withdrawal was to hit consumers in the pocket," he said.
Greater cash access
Industry body, the Association of Payment Clearing Services (Apacs), said that members of the Link network - which includes banks and fee-charging ATM providers - would look at the committee's conclusions.
"I am glad that MPs recognise that 97% of cash machine withdrawals are free and that UK consumers get a good deal, particularly when compared to other countries," a spokeswoman said.
Consumer groups welcomed the committee's findings.
"Easy access to cash, free of charge, must be protected," said Laurence Baxter, senior policy adviser at Which?.
"The massive growth in charging threatens people's right to get hold of their money for free."