A Dollar General store in Germantown, New York, on Nov. 30, 2023.
Angus Mordant/Bloomberg via Getty Images
Three of the nation’s largest retailers — Dollar General, Dollar Tree and Kroger — charge fees to customers who ask for "cash back" at check-out, amounting to more than $90 million a year, according to the Consumer Financial Protection Bureau. This practice, while increasingly common, is raising concerns about its impact on vulnerable consumers, particularly those living in "banking deserts" with limited access to traditional financial services.
Key Takeaways:
- Big Retailers Charge for Cash Back: Dollar General, Dollar Tree, and Kroger are among the major retailers charging fees for cash back, adding to the financial burden of customers, especially those who already face challenges accessing banking services.
- Fees Disproportionately Affect Vulnerable Communities: This fee practice disproportionately impacts rural communities, lower-income earners, and people of color, who often live in banking deserts and rely on retailers for basic financial services.
- Banking Deserts on the Rise: The number of banking deserts is growing due to the closure of bank branches as digital banking becomes more popular, leaving many without convenient access to cash.
- Retailers Argue for Necessity: Retailers argue that they bear significant fees from banks for processing debit and credit card transactions and that charging for cash back helps offset these costs.
- Consumer Advocates Disagree: Consumer advocates argue that these fees are exploitative and that retailers should see cash back as an opportunity to attract customers who are underserved by traditional banking institutions.
Cash back is popular
The convenience of getting cash back at the checkout counter is popular among consumers. Retailers, particularly those operating in areas with limited access to traditional banking services, have made it accessible by providing cash-back options. This practice, however, has evolved in recent years, with some retailers implementing fees for this service, sparking debate about its impact on consumers, especially those without convenient access to banking services.
The practice of charging for cash back is relatively new, according to Adam Rust, director of financial services at the Consumer Federation of America. In 2019, Kroger introduced a $0.50 fee for cash back of $100 or less and $3.50 for amounts between $100 and $300 across its various brands. Since then, other retailers have followed suit, creating a trend that is concerning consumer advocates.
A CFPB analysis of the Diary and Survey of Consumer Payment Choice revealed that cash withdrawals from retail locations constitute the second most popular way to access cash, representing 17% of transactions between 2017-2022. This underscores the reliance of many consumers on retailers for cash access, making the imposition of fees particularly concerning for those facing financial difficulties.
Banking deserts are growing
The issue of cash-back fees takes on a different dimension when considering the increasing prevalence of banking deserts. These areas, characterized by a lack of physical bank branches, leave residents with limited options for accessing their funds. The Federal Reserve Bank of Philadelphia found that over 12 million people, roughly 3.8% of the U.S. population, lived in a banking desert in 2023, marking a significant increase from 2019’s 3.5%.
The growth of digital banking and the closure of traditional brick-and-mortar bank branches have contributed to the expansion of banking deserts, leaving those with limited access to technology and financial literacy at a disadvantage. This trend, amplified by the COVID-19 pandemic that further pushed consumers toward digital banking, has highlighted the financial vulnerability of those reliant on retail locations for cash access.
Retailers, often operating in underserved communities, have become crucial points of access for essential financial services. However, the imposition of fees on cash withdrawals further exacerbates existing financial inequalities, making it challenging for those in banking deserts to manage their finances.
Retailers blame banks
Retailers defend their cash-back fees by arguing that they are simply passing on the costs they incur when processing debit and credit card transactions. Banks charge significant fees for these services, and since cash-back transactions are considered part of the total purchase, retailers claim they are forced to pay these fees as well.
Doug Kantor, general counsel at the National Association of Convenience Stores and a member of the Merchants Payments Coalition Executive Committee, emphasizes that the vast majority of retailers do not charge for cash back, indicating that they are absorbing these costs. He criticizes banks for imposing high fees on retailers, particularly in underserved areas, claiming that they are taking advantage of the situation.
However, consumer advocates like Adam Rust argue that this explanation overlooks the benefits retailers receive from offering cash back. They contend that retailers, who operate in areas with limited banking access, should perceive cash back as a means of attracting customers who rely on their stores for financial services. They emphasize that rather than passing on costs, retailers should seize the opportunity to provide a valuable service and build loyalty.
The debate over cash-back fees highlights a complex issue at the intersection of financial access, banking industry practices, and consumer vulnerability. As the digital landscape evolves and traditional banking becomes less accessible, the role of retailers in providing essential financial services will continue to grow. Finding a balance that ensures fairness and accessibility for all consumers while recognizing the financial realities of the retail sector will be crucial in charting the future of cash access.
A Dollar General store in Germantown, New York, on Nov. 30, 2023.
Angus Mordant/Bloomberg via Getty Images
Three of the nation’s largest retailers — Dollar General, Dollar Tree and Kroger — charge fees to customers who ask for "cash back" at check-out, amounting to more than $90 million a year, according to the Consumer Financial Protection Bureau. This practice, while increasingly common, is raising concerns about its impact on vulnerable consumers, particularly those living in "banking deserts" with limited access to traditional financial services.
Key Takeaways:
- Big Retailers Charge for Cash Back: Dollar General, Dollar Tree, and Kroger are among the major retailers charging fees for cash back, adding to the financial burden of customers, especially those who already face challenges accessing banking services.
- Fees Disproportionately Affect Vulnerable Communities: This fee practice disproportionately impacts rural communities, lower-income earners, and people of color, who often live in banking deserts and rely on retailers for basic financial services.
- Banking Deserts on the Rise: The number of banking deserts is growing due to the closure of bank branches as digital banking becomes more popular, leaving many without convenient access to cash.
- Retailers Argue for Necessity: Retailers argue that they bear significant fees from banks for processing debit and credit card transactions and that charging for cash back helps offset these costs.
- Consumer Advocates Disagree: Consumer advocates argue that these fees are exploitative and that retailers should see cash back as an opportunity to attract customers who are underserved by traditional banking institutions.
Cash back is popular
The convenience of getting cash back at the checkout counter is popular among consumers. Retailers, particularly those operating in areas with limited access to traditional banking services, have made it accessible by providing cash-back options. This practice, however, has evolved in recent years, with some retailers implementing fees for this service, sparking debate about its impact on consumers, especially those without convenient access to banking services.
The practice of charging for cash back is relatively new, according to Adam Rust, director of financial services at the Consumer Federation of America. In 2019, Kroger introduced a $0.50 fee for cash back of $100 or less and $3.50 for amounts between $100 and $300 across its various brands. Since then, other retailers have followed suit, creating a trend that is concerning consumer advocates.
A CFPB analysis of the Diary and Survey of Consumer Payment Choice revealed that cash withdrawals from retail locations constitute the second most popular way to access cash, representing 17% of transactions between 2017-2022. This underscores the reliance of many consumers on retailers for cash access, making the imposition of fees particularly concerning for those facing financial difficulties.
Banking deserts are growing
The issue of cash-back fees takes on a different dimension when considering the increasing prevalence of banking deserts. These areas, characterized by a lack of physical bank branches, leave residents with limited options for accessing their funds. The Federal Reserve Bank of Philadelphia found that over 12 million people, roughly 3.8% of the U.S. population, lived in a banking desert in 2023, marking a significant increase from 2019’s 3.5%.
The growth of digital banking and the closure of traditional brick-and-mortar bank branches have contributed to the expansion of banking deserts, leaving those with limited access to technology and financial literacy at a disadvantage. This trend, amplified by the COVID-19 pandemic that further pushed consumers toward digital banking, has highlighted the financial vulnerability of those reliant on retail locations for cash access.
Retailers, often operating in underserved communities, have become crucial points of access for essential financial services. However, the imposition of fees on cash withdrawals further exacerbates existing financial inequalities, making it challenging for those in banking deserts to manage their finances.
Retailers blame banks
Retailers defend their cash-back fees by arguing that they are simply passing on the costs they incur when processing debit and credit card transactions. Banks charge significant fees for these services, and since cash-back transactions are considered part of the total purchase, retailers claim they are forced to pay these fees as well.
Doug Kantor, general counsel at the National Association of Convenience Stores and a member of the Merchants Payments Coalition Executive Committee, emphasizes that the vast majority of retailers do not charge for cash back, indicating that they are absorbing these costs. He criticizes banks for imposing high fees on retailers, particularly in underserved areas, claiming that they are taking advantage of the situation.
However, consumer advocates like Adam Rust argue that this explanation overlooks the benefits retailers receive from offering cash back. They contend that retailers, who operate in areas with limited banking access, should perceive cash back as a means of attracting customers who rely on their stores for financial services. They emphasize that rather than passing on costs, retailers should seize the opportunity to provide a valuable service and build loyalty.
The debate over cash-back fees highlights a complex issue at the intersection of financial access, banking industry practices, and consumer vulnerability. As the digital landscape evolves and traditional banking becomes less accessible, the role of retailers in providing essential financial services will continue to grow. Finding a balance that ensures fairness and accessibility for all consumers while recognizing the financial realities of the retail sector will be crucial in charting the future of cash access.
