The Rise of Cash-Back Fees: Retailers Filling the Void Left by Banking Deserts
In a surprising shift, some dollar store chains and other major retailers are now charging consumers for the once-free service of obtaining cash back on debit or prepaid card purchases. This development has raised concerns about the impact on consumers, particularly those living in areas with limited access to traditional banking services.
Empowering Consumers in the Face of Banking Deserts
Addressing the Void in Cash Access
The CFPB (Consumer Financial Protection Bureau) has reported that the introduction of cash-back fees by certain retailers is a response to the growing number of "banking deserts" – areas where traditional financial institutions have become scarce. In these communities, often located in small towns, rural areas, and low-income neighborhoods, residents have increasingly relied on retailers to provide a convenient and affordable way to access cash for their daily transactions.According to 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." By stepping in to fill this void, retailers are providing a vital service to consumers who might otherwise struggle to obtain cash without incurring significant fees.
The Cost of Cash-Back Transactions
The CFPB's research suggests that the typical cost to a merchant for processing a cash-back debit card transaction ranges from a mere penny to around 20 cents. However, some retailers have chosen to pass on these costs to consumers, introducing fees for the cash-back service.The bureau's sampling of eight large retailers, including Dollar General, Dollar Tree/Family Dollar, Kroger, Albertsons, Walgreens, CVS, Walmart, and Target, revealed that only a few – Dollar General, Dollar Tree Inc., and Kroger Company stores – currently charge fees for cash back. The CFPB estimates that these national chains collect more than million annually from these fees.
Variations in Fee Structures
The CFPB's investigation uncovered a range of fee structures among the retailers that charge for cash-back services. For instance, Dollar Tree charges consumers for cash back at its Dollar Tree stores, but .50 at its Family Dollar stores. Kroger Co. stores have a two-tier system, with a {{royaItemContent}}.50 fee for customers receiving 0 or less and a .50 fee for amounts between 0 and 0.Interestingly, Kroger's Harris Teeter grocery chain, which the company acquired in 2014, did not begin charging a cash-back fee until January 2024. These stores now charge {{royaItemContent}}.75 for amounts of 0 or less and for larger amounts. Kroger has also made exceptions, exempting customers using electronic benefits transfer (EBT) cards and those using their Kroger Plus cards for amounts under 0.
The Disproportionate Impact on Vulnerable Consumers
The CFPB has expressed concern that the introduction of cash-back fees disproportionately affects consumers with lower incomes or fewer banking choices. The bureau noted that dollar stores are often located in small rural towns, communities of color, and low-income neighborhoods – areas that are also more likely to have fewer bank branch locations and a higher reliance on cash for daily transactions.This dynamic suggests that the cash-back fees imposed by some retailers may be placing an additional financial burden on the very consumers who can least afford it, further exacerbating the challenges faced by those living in banking deserts.
Regulatory Considerations and Implications
Despite the CFPB's policy concerns, the bureau did not assert that the retailers in question had any legal obligation to provide cash-back services or that they had violated any laws in assessing fees for doing so. This suggests that the introduction of cash-back fees, while potentially problematic for certain consumers, may fall within the retailers' legal rights.However, the CFPB's findings and the broader implications of this trend may prompt further regulatory scrutiny and discussions around the role of retailers in providing access to cash and the potential need for consumer protections in this area. As the financial landscape continues to evolve, the balance between the needs of consumers and the business decisions of retailers will likely remain a topic of ongoing debate and policy consideration.
