Hailey Johnson
Cash back is a service offered to retail customers where they receive cash from their bank account when making a purchase with a debit or credit card. While cash back was traditionally offered for free, some retailers now charge fees for this service, particularly dollar store chains. These fees can be a significant percentage of the withdrawal amount, and they disproportionately affect low-income consumers and those with limited banking access. The fees charged by retailers are in addition to any fees that may be incurred for using an out-of-network ATM, which can also be costly. Banks may also charge a fee for a cash advance on a credit card, typically 3% to 5% of the cash advance amount or $10, whichever is higher.
| Characteristics | Values |
|---|---|
| Cash-back fees charged by banks | No |
| Cash-back fees charged by retailers | Yes |
| Cash-back fees charged by credit unions | Yes |
| Average out-of-network ATM fee | $4.77 |
| Average total cost for an ATM withdrawal | $4.72 |
| Cash-back fee at Dollar General and Dollar Tree/Family Dollar | $1 or more for amounts under $50 |
| Cash-back fee at Kroger's Harris Teeter stores | 75 cents for $100 or less |
| Cash-back fee at Kroger's other brand stores | 50 cents for $100 or less |
| Cash-back fee at the U.S. Postal Service | None |
| Maximum cash-back amount at the U.S. Postal Service | $50 |
| Cash-back fee at Albertsons, Walgreens, CVS, Walmart, and Target | None |
| Cash-back fee charged by some vendors | Yes |
| Minimum purchase amount enforced by some vendors | Yes |
| Fixed fee charged by some vendors | Yes |
| Cash-back fee charged by merchants for credit card transactions | Yes |
| Cash-back fee charged by merchants for debit card transactions | No |
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What You'll Learn
Retailers that charge fees for cash back
Consumers in the US are paying tens of millions of dollars in fees to access their money when getting cash back at large retail stores. This is a result of bank mergers, branch closures, and the prevalence of out-of-network ATM fees, which have reduced the number of free cash access points.
A report by the Consumer Financial Protection Bureau (CFPB) found that three major retail chains charged cash-back fees: Dollar General, Dollar Tree/Family Dollar, and Kroger. These retailers often have stores in rural, low-income, and minority communities, where access to banks and cash may be limited.
Dollar General and Dollar Tree/Family Dollar charge some of the highest fees for small withdrawal amounts. For example, at Dollar General, the fee could range from \$1 to \$2.50 per withdrawal up to \$40, depending on location and other variables. Similarly, Dollar Tree and Family Dollar charge \$1 for cash-back transactions under \$50.
Kroger, the largest grocery chain in the US, has a two-tier fee structure. At some of its brands, such as Ralph's and Fred Meyer, it charges 50 cents for up to \$100 cash back. At its Harris Teeter stores, the fee is 75 cents for \$100 cash back or less, and \$3 for withdrawals between \$100 and \$200.
While these fees may be relatively small, they can add up over time and disproportionately affect consumers in rural and low-income areas, who may already have limited access to banking services.
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The impact of cash-back fees on vulnerable populations
The shift towards a cashless society has been accompanied by a rise in fees for cash-back transactions, which disproportionately impacts vulnerable populations. This phenomenon is particularly evident in the United States, where large retail chains, including dollar store corporations, have started charging fees for cash-back services. These fees, often ranging from $1 to $5, are levied on small withdrawal amounts, constituting a significant percentage of the total amount. For instance, Dollar General and Dollar Tree Inc., two of the largest dollar store chains, charge fees of $1 or more for cash-back amounts under $50.
The impact of these fees is twofold. Firstly, they serve as a financial burden, particularly for vulnerable and low-income populations. The fee, when combined with the constrained withdrawal amount, can result in a high percentage of the total cash withdrawn, limiting individuals' ability to mitigate the impact by withdrawing larger amounts. This is further exacerbated by the prevalence of dollar stores in rural, low-income, and minority communities, which often face challenges in accessing banking services. As a result, individuals in these communities may be disproportionately affected by cash-back fees, encountering them more frequently and with fewer alternatives.
Secondly, cash-back fees contribute to the broader issue of reduced access to cash, undermining the resilience of the financial system. The CFPB estimates that cash-back fees cost consumers about $90 million annually, creating a barrier to accessing cash when needed. This is particularly concerning in communities without local banks or facing bank branch closures, as individuals may rely solely on retailers for their cash needs, making them susceptible to any fees imposed.
Furthermore, the rise of cash-back fees is indicative of a broader trend of increasing fees in a cashless society. Banks may respond to the decline in cash usage by increasing their fees, which can ultimately cost consumers. This includes charges for peer-to-peer payment services, credit card fees, and potential negative interest rates. While switching banks or opting for free bank accounts can mitigate some of these costs, the overall trend suggests a shift towards a more expensive and complex financial landscape, disproportionately impacting vulnerable populations with limited financial resources or access to alternative options.
To address these concerns, the CFPB is committed to monitoring developments related to cash-back fees and working with federal agencies to ensure fair and meaningful access to cash. Their efforts aim to protect consumers, especially those from economically vulnerable populations, from bearing the brunt of corporate profit-seeking through cash-back fees.
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Cash back as a safe and low-cost service for merchants
Cash back is a valuable service for both consumers and merchants. It is a popular method for consumers to obtain cash via their bank debit or prepaid cards, and it helps merchants attract customers and reduce their cash-handling costs. While some retailers have offered cash back for free, the Consumer Financial Protection Bureau (CFPB) has observed that an increasing number of retailers are charging fees for this service, particularly dollar store chains. These fees can be a significant percentage of the withdrawal amount, and they can limit consumers' ability to spread the cost over larger amounts.
Despite the fees, cash back remains a safe and low-cost service for merchants to offer. It provides an outlet for the cash that a store takes in, reducing the need to deposit excess cash in a business bank account, which can be costly due to the fees charged by banks and the costs of transporting and insuring the cash. Cash back transactions also carry less risk of fraud than credit card transactions because debit cards usually have an EMV chip and require a PIN. In the event of a disputed transaction, the merchant is protected, as the cash back amount is exempt from the chargeback process.
Merchants can also benefit from offering cash back by meeting customer expectations and attracting customers who make purchases specifically to obtain cash back. This is especially true for certain types of businesses, such as convenience stores, where customers may frequently expect to have the option to get cash back. In addition, by allowing customers to take excess cash off their hands, merchants can reduce the security risks, time spent handling cash, and the number of trips to the bank.
Overall, while cash back transactions may involve some additional responsibilities and costs for merchants, the value they add to the customer experience and the potential for cost savings make them a safe and low-cost service to offer.
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The cost of cash back for merchants
Offering cash back at the point of sale can be beneficial to merchants. Firstly, it may attract potential shoppers, either those making a purchase to get cash back or those who prefer the convenience of combining tasks. Secondly, it reduces merchants' cash-handling costs. Dispensing cash through cash-back transactions reduces the merchants' supply of cash and therefore also reduces their costs of handling, transporting, depositing, and insuring excess cash.
Merchants incur costs for processing any type of payment transaction, including cash-back transactions. On any purchase using an electronic payment method, including a PIN-authorized debit card or prepaid card, a merchant will incur a range of fees for processing that payment, such as interchange, network, and processing fees. While the merchant incurs these fees for a consumer’s purchase, there is an additional cost for providing cash back to the consumer. The Consumer Financial Protection Bureau (CFPB) estimates that the additional marginal transactional cost to a merchant for processing a typical cash-back debit card transaction may range from a penny to about 20 cents.
Some retailers charge a fee for this transaction, typically on small, constrained amounts, which may constitute a high percentage of the cash withdrawal. This may induce repeat withdrawals, with consumers incurring a new fee each time. Three major retail chains in the sample charged cash-back fees: Dollar General, Dollar Tree/Family Dollar, and Kroger. At Dollar General and Dollar Tree/Family Dollar, cash-back fees for small withdrawal amounts are the highest in the sample ($1 or more for amounts under $50).
While cash-back fees cost consumers millions of dollars, the marginal cost to merchants for processing each transaction is much lower compared to the fees charged by retailers.
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Cash-back fees at ATMs
Additionally, some banks may charge a foreign transaction fee for using an ATM in a different country. These fees can vary depending on the bank and the location. It is always a good idea to check with your bank to understand their specific fees and policies for ATM transactions, especially when travelling internationally.
It is worth noting that some banks may offer reimbursement for ATM fees. For example, Ally reimburses up to $10 in ATM fees per statement, and Charles Schwab reimburses all ATM fees worldwide. It is important to review the terms and conditions of your bank account to understand any potential fees and reimbursement policies.
In some cases, retailers may also offer cashback services when a customer makes a purchase with a debit or prepaid card. This can be a convenient way for customers to obtain cash without incurring additional ATM fees. However, it is important to note that some retailers may charge a fee for this service, which can range from $0.50 to $3.50 in the United States. Similar to ATM fees, it is recommended to check with the retailer beforehand to understand their specific fees and policies for cashback transactions.
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Frequently asked questions
Banks do not typically charge for cash-back transactions. However, some retailers charge a fee for this service, which can be a percentage of the withdrawal amount or a fixed fee.
Cash-back transactions are costly for merchants as they involve additional labour, security risks, and transportation and insurance costs. Charging a fee helps to offset these costs.
Some retailers, such as Kroger, Walgreens, and CVS, do not charge fees for cash-back transactions. Additionally, the U.S. Postal Service offers cash back on debit transactions free of charge.
