On November 30, 2023, a Dollar General store in Germantown, New York.
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Three major U.S. retailers – Dollar General, Dollar Tree and Kroger – charge customers who request “cash back” at checkout more than $90 million per yearAccording to the Consumer Financial Protection Bureau.
Many retailers offer cash back options for consumers who pay with debit or prepaid cards.
But charging fees for the service could “exploit” some customers, especially those who live in so-called banking deserts without easy access to bank branches or free cash withdrawals, according to an analysis released Tuesday by the CFPB.
The CFPB said this dynamic tends to disproportionately impact rural communities, low-income people and people of color.
Not all retailers charge cash back fees, which range from $0.50 to $3 per transaction, the agency said, and in recent years it has been cracking down on so-called “junk fees” charged by financial institutions.
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Five of the eight companies sampled by the CFPB offer free cash rebates.
These include grocery store Albertsons; drugstore chains CVS and Walgreens; and discount retailers Target and Walmart. (Kroger has proposed a $25 billion merger with Albertsons in 2022, but that deal is pending in court.)
“The cost of getting the cash back is just a point and a half more, and it all starts to add up,” said Adam Rust, director of financial services at the advocacy group Consumer Federation of America.
“It just makes life harder and harder,” he said. “Thousands of little incisions at a time.”
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A Dollar General spokesman said cash back can help customers save money compared to “alternative non-retail options” like check cashing or ATM fees.
“While Dollar General is not a financial institution, it offers cash back options at more than 20,000 stores nationwide to serve customers who may not have convenient access to a major financial institution,” a spokesperson said.
Spokespeople for Kroger and Dollar Tree, which operates Family Dollar and Dollar Tree stores, did not respond to CNBC’s request for comment.
Kroger, Dollar General and Dollar Tree ranked 4th, 17th and 19th respectively. America’s largest retailer By 2023, sales will reach
Cash back is popular
The practice of collecting cash back is relatively new, Rust explained.
For example, in 2019, Kroger charged $0.50 for cash back on $100 or less and $3.50 on cash back between $100 and $300, according to the CFPB.
This applies to brands like Kroger, Fred Meyers, Ralph’s, QFC and Pick ‘N Save.
However, the CFPB said Kroger began charging cash back for its Harris Teeter brand in January 2024: $0.75 for cash back amounts $100 or less and $3 for amounts $200 or less .
Withdrawing cash from retail locations was the second most popular method of obtaining cash, accounting for 17% of transactions from 2017-22, according to a CFPB analysis of consumer payment choice diaries and surveys.
ATM machines are the most popular, accounting for 61%.
But the CFPB and consumer advocates say there are some key differences between retail withdrawals and ATM withdrawals.
For example, they say cash-back amounts are capped relatively low, making it difficult to limit the impact of fees by spreading them across larger withdrawals.
The CFPB said the average retail cash withdrawal from 2017-22 was $34, while ATM cash withdrawals were $126.
Bank deserts are growing
However, experts say that for consumers living in a banking desert, retailers may be the only reasonable way to get cash.
In 2023, more than 12 million people (approximately 3.8% of the U.S. population) will live in bank deserts, according to Federal Reserve Bank of Philadelphia.
The report found that this number was up from 11.5 million people in 2019, accounting for 3.5% of the total population.
Generally speaking, a bank desert is any geographic area without local bank branches. These people do not live within 10 miles of a physical bank branch. Covid-19 pandemic accelerates rise of digital banks Lead multiple banks Lali Shaffer, a payments risk expert at the Federal Reserve Bank of Atlanta, said they will close physical locations.
She said the deserts “could harm vulnerable populations” who are already less likely to use online and mobile banking Wrote recent.
Retailers blame banks
Retail advocates say banks should be held responsible for cash-back fees.
Every time a customer swipes a charge or credit card to make a purchase, the merchant must pay the bank a fee. These fees may be For example, 2% to 4% of the transaction.
Since the total cashback amount is included in the total transaction price, merchants also need to pay the bank a fee for any cash requested by the consumer.
Doug Kantor, general counsel for the National Association of Convenience Stores and a member of the Merchant Payments Association, said the “vast majority” of retailers don’t charge cash back fees, so offering the service for free to customers would cause financial harm. Executive Committee.
“Banks have abandoned a lot of these communities and they’re charging retailers just to take people’s cards or give people cash,” he said.
But consumer advocates say that calculation ignores the benefits retailers receive by offering cash back.
“You would think they would see this as a free way to get customers into the store because there are no bank branches,” Rust said. “Instead, they will continue to charge another garbage fee.”
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