Federal agency discovers that customers of Dollar General, Dollar Tree, and Kroger pay more than $90 million annually in cash-back fees.

• In recent years, customers who request cash back at Dollar General, Dollar Tree, and Kroger have been charged.
• The Consumer Financial Protection Bureau reports that their annual cash-back fees exceed $90 million.
• Retailers argue that they provide a crucial service to consumers in banking deserts by offering cash access, which may otherwise be difficult to obtain.

According to the Consumer Financial Protection Bureau, over $90 million annually is earned by the three largest retailers in the US - Dollar General, Dollar Tree, and Kroger - from customers who request "cash back" at check-out.

Consumers who pay for purchases with a debit or pre-paid card can receive cash-back from many retailers.

The CFPB analysis released on Tuesday suggests that charging a fee for financial services may be considered "exploitative" towards certain customers, particularly those residing in areas without convenient access to bank branches or free cash withdrawals.

The CFPB stated that the dynamic tends to disproportionately affect rural communities, lower earners, and people of color.

Financial institutions are being scrutinized by the agency for charging "junk fees," which include cash-back fees ranging from $0.50 to $3 per transaction. Not all retailers charge these fees.

The IRS's last resort method for collecting overdue taxes How investors can prepare for lower interest rates Why remote work is here to stay

Out of the eight companies examined by the CFPB, five provide cash back without any cost.

The companies involved in the merger include Albertsons, CVS and Walgreens, and discount retailers Target and Walmart. The proposed merger between Kroger and Albertsons is currently pending in court.

Adam Rust, director of financial services at the Consumer Federation of America, stated that fees for obtaining cash back are simply additional pennies that accumulate over time.

""It becomes increasingly difficult to manage, with numerous small cuts," he stated."

A Dollar General spokesperson stated that cash back can help customers save money compared to "non-retail alternatives" such as check cashing or ATM fees.

Dollar General offers cashback options at over 20,000 stores nationwide as a service to customers who may not have easy access to their primary financial institution, despite not being a financial institution ourselves.

Neither Kroger nor Dollar Tree, which operates Family Dollar and Dollar Tree stores, responded to CNBC's requests for comment.

In 2023, the National Retail Federation ranked Kroger as the No. 4 largest U.S. retailer by sales, Dollar General as No. 17, and Dollar Tree as No. 19.

Cash back is popular

The practice of charging for cash back is relatively new, Rust explained.

In 2019, Kroger Co. introduced a fee of $0.50 for cash back of $100 or less and $3.50 for amounts between $100 and $300, as per CFPB.

The same policy was applied to various brands, including Kroger, Fred Meyers, Ralph's, QFC, and Pick 'N Save.

In January 2024, Kroger Co.'s Harris Teeter brand started charging $0.75 for cash back on amounts of $100 or less and $3 for larger amounts up to $200, according to the CFPB.

According to a CFPB analysis of the Diary and Survey of Consumer Payment Choice, cash withdrawals from retail locations is the second most popular way to access cash, representing 17% of transactions over 2017-22.

ATMs were the most popular, at 61%.

According to CFPB and consumer advocates, there are significant differences between retail and ATM withdrawals.

It is difficult to minimize the impact of fees when cash-back amounts are limited, according to them.

According to the CFPB, the average retail cash withdrawal was $34 from 2017-22, while it was $126 at ATMs.

Banking deserts are growing

Experts suggest that retailers may be the only viable option for consumers in banking deserts to obtain cash.

In 2023, approximately 3.8% of the U.S. population, or more than 12 million individuals, resided in a banking desert, as stated by the Federal Reserve Bank of Philadelphia.

The figure has increased from 11.5 million, which represents 3.5% of the population, compared to 2019.

A banking desert refers to any area without a nearby bank branch. People living in these areas do not have access to physical banking services within a 10-mile radius. The closure of brick-and-mortar bank branches due to the rise of digital banking, accelerated by the Covid-19 pandemic, has led many banks to shut down their physical storefronts, according to Lali Shaffer, a payments risk expert at the Federal Reserve Bank of Atlanta.

Vulnerable populations who are less likely to have access to online and mobile banking may be harmed by these deserts, as written recently.

Retailers blame banks

Retail advocates say banks are to blame for cash-back fees.

Banks charge merchants fees ranging from 2% to 4% for every transaction made using a debit or credit card.

Banks charge merchants fees for any cash requested by consumers, as cash-back totals are included in the total transaction price.

Most retailers do not charge for cash back, resulting in a financial loss for them to offer this service to customers for free, according to Doug Kantor, general counsel at the National Association of Convenience Stores and a member of the Merchants Payments Coalition Executive Committee.

"Retailers are being overcharged by banks for simply accepting customers' cards or providing cash, as many communities have been abandoned by these financial institutions," he stated.

Retailers receive benefits from offering cash back, but this is not taken into account by consumer advocates when calculating the impact of cashback programs.

"Rust remarked that it seems like the store would benefit from the bank branch not being present, as customers would come in, but instead, they are still charging an additional fee."