Wednesday, September 4, 2024
Getting cash back at a store is fairly common. Many retailers offer this option at checkout, with preset maximum withdrawal amounts. Consumers benefit from having cash—which counts for a lot in areas where there is a dearth of banks and/or fee-free ATMs. Merchants benefit by having an added means of attracting customers, and it helps reduce cash-handling costs.
While some retailers have been offering cash back for free for many years, the CFPB's analysis suggests this is changing, particularly at dollar-store chains.
"Many people living in small towns no longer have access to a local bank where they can withdraw money from their account for free," said CFPB Director Rohit Chopra. "This has created the competitive conditions for retailers to charge fees for cash back."
The CFPB assessed the cash-back practices of eight large merchants: Dollar General, Dollar Tree/Family Dollar, Kroger, Albertsons, Walgreens, CVS, Walmart and Target. What it found was that three of the eight – Dollar General, Dollar Tree and Kroger, which also operate brands such as Family Dollar, Harris Teeter, Ralph's and others – combined collect over $90 million a year in cash-access fees. This is despite the fact that the marginal cost to these merchants often is just a few pennies per transaction, the CFPB pointed out.
According to a report the CFPB just released, lower-income consumers or those with fewer banking choices are more likely than others to encounter cash-back fees. "Dollar stores are frequently located in small rural towns, communities of color and low-income communities. These areas are also more likely to have fewer bank branch locations and more residents reliant on cash for daily transactions than others," the report noted.
The CFPB said its analysis found that most merchants continue to provide cash back at no charge. "[A]nd that means they are taking losses in order to provide this valuable service," said Doug Kantor, general counsel at the National Association of Convenience Stores, and a member of the executive committee of the Merchant Payments Coalition.
"Those who are charging a fee do so because they must pay exorbitant fees to credit card companies and banks," Kantor added. "We should always be clear that the source of the problem with consumer fees on any card transaction is the banking and credit card industry."
Large banks—those with at least $10 billion in assets—are limited by federal law to charging 22 cents by 0.05 percent of the total for POS debit card transactions, or about 25 cents. This is far less than the average $4.77 for accessing cash at an out-of-network ATM. Between these two extremes, merchants typically charge between 50 cents and $1 for cash back at the POS, according to the consumer finance website Bankrate.
In most instances, cash back is limited to between $5 and $50, the CFPB wrote. These transactions account for 17 percent of all transactions where consumers accessed cash from checking, savings or prepaid card accounts between 2017 and 2022, according to Federal Reserve data.
Among merchants sampled by the CFPB, Dollar General and Dollar Tree charge the highest fees for cash back.
"Levying a fee on small transactions may constitute a hefty percentage of the withdrawal amount, and it may also induce repeat withdrawals, with consumers incurring a new fee each time," the bureau wrote.
Family Dollar, for example, charges $1.50 for cash back, and the maximum cash back a customer can request is $50. That means customers pay a fee equal to 3 percent of the cash received for every $50 requested.
The CFPB also found that fees often vary by store location. The consumer watchdog agency sent out secret shoppers to sample the market. It said it found one store in the most isolated county sample, with about 3,600 residents, charged $2.50 for cash back.
The CFPB conceded that cash-back fees are being levied "by just a small handful of large retail conglomerates." But it added that it is "concerned that reduced access to cash undermines the resilience of the financial system and deprives consumers of a free, reliable and private means of engaging in day-to-day transactions."
The consumer watchdog agency said it will continue to monitor the situation, "and work with agencies across the federal government to ensure people have fair and meaningful access to the money that underpins our economy." 
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