Banking and Finance Law Daily Wrap Up, CREDIT, DEBIT AND GIFT CARDS—Large retailers collect millions in fees on cash-back transactions, (Aug 27, 2024)

By Lauren Bikoff, MLS

Instead of offering cash-back as a free convenience while shopping, some large stores are now charging fees to customers for this service, which is negatively impacting people in small towns and rural communities, the CFPB says.

In a new Issue Spotlight, the Consumer Financial Protection Bureau has found that Americans are paying millions of dollars in fees to access their own money by getting cash-back at large retail stores when making a purchase with a debit or prepaid card. The Bureau noted that these cash-back fees are occurring “against the backdrop of bank mergers, branch closures, and prevalence of out-of-network ATM fees that have reduced the supply of free cash access points for consumers.”

The CFPB noted that while providing cash-back used to be a free convenience for customers, large retailers, especially dollar store chains, are now charging a fee for the service. The report assessed the practices at eight companies: Dollar General, Dollar Tree/Family Dollar, Kroger, Albertsons, Walgreens, CVS, Walmart, and Target. Of these, Dollar General, Dollar Tree/Family Dollar, and Kroger charge fees for providing cash-back while the other companies did not. The report found that these three companies are collecting more than an estimated $90 million in annual fees, when the cost to merchants for processing each transaction may be a few pennies.

Many retailers pre-determine the withdrawal amount options in a single transaction, commonly between $5 and $50. The Bureau noted that “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 fee each time.” In addition, dollar stores are frequently located in small rural towns, communities of color, and low-income communities. These areas also are more likely to have fewer bank branch locations and more residents reliant on cash from daily transactions than others.

“In many parts of the country, people can struggle to find easy and free access to their own cash. In our discussions with elected officials from small towns and rural areas, they’ve described the impact of the last bank branch closing or how services degraded after a bank merger. We heard how people in these communities encounter high fees to withdraw cash, small businesses struggle to make change in cash transactions, and there are fewer safe places to make cash deposits,” wrote CFPB Director Rohit Chopra. “While digital payments will continue to grow in volume, access to cash continues to be critical.”

Companies: Albertsons; CVS; Dollar General; Dollar Tree/Family Dollar; Kroger; Target; Walgreens; Walmart

RegulatoryActivity: BankingOperations CFPB ChecksElectronicTransfers CommunityDevelopment CreditDebitGiftCards FinTech MergersAcquisitions