A new report has found that American shoppers are paying millions in fees when getting “cash back” at large retail stores.
The report, from the Consumer Financial Protection Bureau (CFPB), sampled eight large retail companies (Dollar General, Dollar Tree/Family Dollar, Kroger, Albertsons, Walgreens, CVS, Walmart, and Target) and assessed their practices for charging cash-back fees on purchases with a debit or prepaid card.
Three of the retailers in the sample study (Dollar General, Dollar Tree/Family Dollar, and Kroger) were found to have collected over $90 million in cash-back fees annually, the report said.
The CFPB also estimated that the marginal cost to merchants for processing each transaction may only be a few pennies, compared to the much higher fees the retailers charge to consumers per transaction.
At Dollar General and Dollar Tree/Family Dollar, cash-back fees for small withdrawal amounts are the highest in the sample ($1 fee or more for cash-back amounts under $50). Kroger, the country’s largest grocery chain, recently announced new charges at their Harris Teeter stores (75 cents for $100 cash back or less), and additionally charges 50 cents for up to $100 cash back at their other brand stores such as Ralph’s, Fred Meyer, and others.
The report also found that consumers with lower incomes or fewer banking choices encounter cash-back fees disproportionately. Dollar stores are frequently located in small rural towns, communities of color, and low-income communities—areas that are also more likely to have fewer bank branch locations and more residents reliant on cash for daily transactions, the report stated.
“While not a financial institution, Dollar General provides cash back options at our more than 20,000 stores across the country as a service to customers who may not have convenient access to their primary financial institution,” Dollar General said in a statement. “These services may also help customers save money on fees compared to alternative, non-retail options such as check cashing locations or ATM fees.”
“Like many retailers, Dollar Tree and Family Dollar offer cash back as a convenient service for our customers,” said a Dollar Tree company spokesperson. “Shoppers who want to take advantage of our cash back offering are charged a clearly disclosed fee, which in turn helps offset the variety of costs we incur to offer this helpful service.”
A representative from Kroger did not reply to a request for comment in time for publication of this story.
Many merchants pre-determine the withdrawal amount options in a single transaction, commonly between $5 and $50. Adding a fee on small transactions may constitute a significant percentage of the withdrawal amount, and it may also induce repeat withdrawals, with consumers incurring a new fee each time, the CFPB said
“While retail chains had long provided cash back on debit card purchases for free, the CFPB has found that dollar store chains and other retailers are now charging fees for access to cash,” said CFPB Director Rohit Chopra. “Many people living in small towns no longer have access to a local bank where they can withdraw money from their account for free. This has created the competitive conditions for retailers to charge fees for cash back.”
The Consumer Financial Protection Bureau, founded in 2011 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act, is a U.S. government agency dedicated to ensuring consumers are fairly treated by banks, lenders, and other financial institutions.
