The CFPB Reviews Cash Back at the Point of Sale

Retailers providing cash-back services at the point of sale fill a void for many consumers who may live in so-called banking deserts, the Consumer Financial Protection Bureau says in a recent report on the service. Some, however, charge a fee for that access, among other banking hurdles.

The Cash-back Fees report, issued late in August, says its sample of eight retailers—only Dollar General, Dollar Tree Inc., and Kroger Co. charge cash-back fees—found that they annually collect more than $90 million in these fees.

“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 charged by these retailers to consumers. While there may be other costs related to cash handling, these are generally reduced by the provision of cash back, as it reduces merchants’ cash on hand,” the report says.

The five other retailers in the report—Albertsons Brand, Walmart, Target, Walgreens, and CVS—charge no cash-back fees.

Dollar General charges between $1 and $2.50, dependent on the amount and other variables, for a maximum of $40 in cash, according to the report. Dollar Tree, which includes the Family Dollar and Dollar Tree brands, assesses a $1.50 fee at Family Dollar and $1 at Dollar Tree, with a $50 maximum on cash back.

Kroger, which has numerous brands, charges 50 cents for less than $100 and $3.50 for more than $100, with a maximum of $300 in cash. Its Harris Teeter brand charges 75 cents and $3, correspondingly, with a maximum of $200 cash back. The other five retailers in the report have maximum cash-back amounts ranging from $20 to $200.

Consumers use a debit card or prepaid card to access cash back at the point of sale. The CFPB estimates the additional merchant cost of a debit card cash-bank transaction on a $20 payment with $10 in cash back at 33 cents for the transaction alone and 5 cents for the cash-back portion at a national discount chain and 33 cents and 1 cent for the same transaction at a national grocery store.

Getting cash from a bank account or prepaid card is mostly done at an ATM, with that accounting for 61% of cash access for the combined years of 2017 to 2022, according to the CFPB. Next highest was at the retail point-of-sale at 17%, followed by bank teller, 14%, and other, 8%.

Among the key findings, besides the $90 million in fees, are that three retailers charge a fee, that these cash-back fees are levied on low, pre-set cash-withdrawal amounts, and that consumers with lower incomes or fewer banking choices may be more likely to encounter cash-back fees.

A merchant group, however, says the issue lies more with the banking industry. “The source of these issues is the banking industry charging retailers excessive fees to accept debit cards,” says Doug Kantor, general counsel of the National Association of Convenience Stores.

The CFPB points out that banks have abandoned these towns, Kantor says. Retailers are serving these consumers and “getting hit with fees. That’s a real cost to those retailers,” he says. The focus should be on banks creating the problem rather than retailers, which are caught in the middle, says Kantor, an executive committee member of the Merchants Payment Coalition.

The CFPB’s review also points out that offering cash back at the point-of-sale has benefits for merchants, including attracting new shoppers and potentially reducing the merchant’s cash-handling costs.

The CFPB’s concern is centered on the availability of banking services.

“[I]n 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,” Rohit Chopra, CFPB director, says in a note about the report.

“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,” Chopra’s note continues.

Chopra says while digital payments continue to grow, access to cash is critical, and retailers are stepping in to fill a void left by the banking system. “The CFPB will be working to ensure that consumers and businesses across the country can have a free option to access their own money,” he says.