Getting cash back when paying with a prepaid or debit card used to be a free service that retailers happily provided to their valued customers. Now, large retailers apparently value their customers' money more than they value the customers.
The Consumer Financial Protection Bureau (CFPB) says big national retailers like Dollar General, Dollar Tree/Family Dollar, and Kroger are charging cash-back fees, even for small amounts. Coupled with a decrease in local bank branches and growing ATM fees, consumers are paying millions of dollars to access their money.
Many convenience stores also charge fees due to what they say are the higher operating costs associated with handling cash.
“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,” said CFPB Director Rohit Chopra in a news release.
Even banks are increasingly reluctant to dispense cash to their customers.
A ConsumerAffairs reporter watched not long as a Bank of America customer tried to cash his paycheck. The teller refused and the branch manager backed her up, saying the consumer wasn't writing enough checks but merely using his checking account as a way to cash his paychecks. When the man protested, the manager closed his account and ordered him out of the bank.
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While merchants have long offered cash-back to their customers, the CFPB scan found this is changing.
The 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.
The report’s findings include:
- Cash-back fees cost consumers millions of dollars. The CFPB found that three companies in the sample charge cash-back fees and estimates that they collect over $90 million in fees annually. The CFPB also estimates that the marginal cost to merchants for processing each transaction may be a few pennies, compared to the much higher fees these retailers charge consumers.
- Cash-back fees are levied on low withdrawal amounts. Many merchants pre-determine the withdrawal amount options in a single transaction, commonly between $5 and $50. 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.
- Three major retail chains in the sample charged cash-back fees. Dollar General, Dollar Tree/Family Dollar, and Kroger charge fees for this service while the other companies did not. 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 charges 50 cents for up to $100 cash back at their other brand stores such as Ralph’s, Fred Meyer, and others.
- 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. These areas are also more likely to have fewer bank branch locations and more residents reliant on cash for daily transactions than others.