CFPB spotlights a move away from free cash-back services

The CFPB found that three companies charge fees for cash back when customers use debit or prepaid cards at the register. Fees range from 50 cents to $3.50 per transaction, adding up to an estimated annual total of more than $90 million. The findings suggest a shift away from free cash-back offerings.

As CFPB Director Rohit Chopra put it, “While retail chains had long provided cash back on debit card purchases for free, the CFPB has found that dollar store chains and other retailers are now charging fees for access to cash.”

The CFPB sampled the cash-back offerings of the two largest national retailers, measured by number of locations, in each of four retail categories: Dollar Stores, Grocery Stores, Drugstores, and Discount Retailers. 

Of the eight retailers sampled, the CFPB found that, “Three retail companies Dollar General, Dollar Tree, and Kroger, which also operate brands such as Family Dollar, Harris Teeter, Ralph’s, and others, charge fees for this service while other national retail companies sampled by the CFPB do not charge a fee.”

The CFPB cited bank closures and exorbitant out-of-network automated teller machine (ATM) fees as likely contributing to the market conditions that have allowed retailers to start charging fees for cash back. The CFPB also said that, “Bank mergers, branch closures, and bank fee creep have reduced the supply of free cash access points for consumers.”

PIRG knows something about fee creep. We first surveyed the proliferation of ATM fees in the late 90s and early 2000s. Since then ATM fees have continued to increase, with Bankrate finding in August that ATM fees have reached a 26-year high of an average total cost of $4.77. Back in 2000, PIRG foresaw that, “As bank mergers continue, ATM network control and ownership also concentrates in the hands of the bigger players,” which could decrease competition in the marketplace and result in higher costs for consumers.

As was the case with ATM fees, cash-back fees appear to far exceed retailer costs for providing the service.

PIRG’s Ed Mierzwinksi told the LA Times in 2019 that Kroger’s revenue from cash-back fees was “a nice chunk of revenue, likely well above cost.” The CFPB’s calculations back that up, showing costs to merchants for processing cash-back may be a few pennies per transaction. 

Additionally, the CFPB notes how fees can add up for customers. Although cash-back fees can appear to be lower than ATM fees, stores place lower limits on how much cash back customers can receive per transaction. That could induce customers to make multiple purchases during the same shopping trip to get the amount of cash back they might have gotten from a single withdrawal at the ATM.

The CFPB’s cash-back spotlight is another example of the important market monitoring the CFPB conducts. The CFPB says it will, “continue to monitor developments related to the fees consumers pay for accessing cash, and work with agencies across the federal government to ensure people have fair and meaningful access to the money that underpins our economy.” We will be watching for developments. Stay tuned.