Following the money — in cash

When Steve Swanson decided to stop accepting cash at his longtime chain of Sacramento area dry cleaning stores, it seemed to make all the sense in the world. 

“Cash was such a small portion of our operation,” he says. “Some days we might have only a few dollars for a whole day.”

But soon he might not have a choice.

Some say that going cashless helps fight financial crimes like bribery, tax evasion, money laundering, and counterfeiting.

In early February, Sen. Jerry Hill introduced SB 926, a bill to require all retail businesses in California to accept cash. If it ultimately becomes law, California would join a small but growing number of states and major U.S. cities that bar restaurants and retail outlets from giving up on cash transactions.

Massachusetts, which has had its law in place since 1978, was the lone state or major municipality in America to require retailers to accept cash until last year, when Philadelphia and then San Francisco adopted citywide ordinances. New Jersey and Rhode Island followed suit, and the New York City Council approved a similar measure in January. Mayor Bill de Blasio is expected to sign it into law.

Efforts to prohibit cashless stores are also underway in Washington D.C. and Chicago, as well as in Vermont, Connecticut, Oregon, New Hampshire and Wisconsin.

Proponents like Swanson cite a plethora of benefits to going cashless, with improved efficiency usually at the top of the list. Anyone who has watched a teenager struggle to make simple change can relate to that one.

But there are higher level issues at stake too.

Proponents say that going cashless helps fight financial crimes like bribery, tax evasion, money laundering, and counterfeiting. Stores with no cash on hand are much less likely to be targets for armed robbery, making the workplace safer for both workers and customers. And nobody can skim off a till that doesn’t exist.

A 2017 FDIC survey found that 8.4 million Americans are completely unbanked – without any checking or savings account at an accredited financial institution

For many younger people, losing the need to carry cash in favor of an electronic payment option – from Google Pay or Venmo to a simple debit card – is a no-brainer. Hill says that when he told his 38-year-old son-in-law about the bill, the younger man was incredulous.

“He said, ‘You’re behind the times. I don’t pay for anything in cash,’” Hill says.

Hill says he jokingly called his son-in-law “a misguided Millennial.” But he adds it is not a laughing matter for businesses to take a stance that discriminates not only against a large segment of the population that is either unbanked or underbanked, “but also those who just prefer to use cash for those transactions.” 

It is a legitimate concern. A 2017 FDIC survey found that 8.4 million Americans are completely unbanked – without any checking or savings account at an accredited financial institution – and another 24 million are underbanked, meaning they have some kind of bank account but regularly must go outside the bank to make financial transactions. That could mean anything from going to a 7-11 for a money order or a payday lender for a cash loan.

These numbers, both nationally and in California, are much higher among communities of color, low income, and the disabled. According to the same Fed study, only 52 percent of African-American and 63 percent of Latino households in America are fully banked. And at least 16 percent of white households have minimal or no banking access. 

Jessica Bartholow of the Western Center on Law and Poverty in Sacramento, which supports Hill’s measure, says retail outlets going cashless is just one example of how the poor and those who depend on cash are disadvantaged in our society. She says the problem could also soon get worse if the Supreme Court upholds President Donald Trump’s efforts to end the Deferred Action on Childhood Arrivals (DACA) program, which could cost 200,000 currently-employed Californians their ability to be gainfully employed.

“These people may have to earn their money and conduct all their business through cash payments just to survive,” she says.

But Swanson notes that forcing businesses like his to take cash is also something of a hardship.

“We have eight stores,” Swanson says. “By the time you pay for a courier to come collect it and take it to the bank, it was actually costing us a fortune per dollar that we were taking in to accept cash. Dry cleaning is a very lean business, and you can’t justify a courier coming by for three dollars in cash.”

There is in fact ample evidence to support the continued acceptance of cash.

He says only a few of his customers have complained, but only about the concept and not due to any inconvenience to them.

Nelson German, owner of alaMar Kitchen and Bar in downtown Oakland, says he also got minimal complaints when he took his eatery cashless last year. But the experiment only lasted a few months.

“There’s benefits to it but ultimately it wasn’t a good fit for us,” he wrote in an email, adding he felt it was a “disservice” to people and his business “to say no to money.”

There is in fact ample evidence to support the continued acceptance of cash. According to a 2018 report by the Federal Reserve Bank of San Francisco, cash stills represents 30 percent of all payments. And while a recent analysis by the Harvard Business Review of millions of payment transactions made through the financial services company Square showed a rapidly growing trend toward using credit or debit cards for low-dollar items, the FRBSF report showed that 55 percent of transactions under $10 were still made with cash.

Orange County’s four toll roads – which together make up 51 miles of state highway – went cashless in 2014. 

To Hill’s point, there is some generational variation. The FRBSF analysis showed that consumers younger than 25 and older than 45 use cash about 34 percent of the time, while those between 25 and 44 used it about 25 percent of the time.

According to the Harvard analysis, over half of small business owners support bills like SB 926, and an overwhelming majority, 83 percent, say they never plan to go cashless. That sentiment, however, is not shared by one of the most oft-used services in California: toll agencies. A growing number of states, including New York, Maryland, Illinois and Massachusetts, have or soon will shed all of their cash toll collections, and California is rapidly following suit. 

Orange County’s four toll roads – which together make up 51 miles of state highway – went cashless in 2014. Kit Cole, the Chief External Affairs Officer for the Orange County Toll Agency, said there are multiple good reasons for doing so. For one, eliminating toll booths definitely eases traffic bottlenecks that can make notorious Southern California commutes on tolled roads even more of a slog than they already are. And there is a simple dollars and cents element too – of the more than 300,000 toll transactions that take place on those roads every day, only 1.4 percent are paid for with cash.

Those who choose to pay cash, however, will not only have to go out of their way to do so, they’ll pay extra for the privilege.

Right now, when a driver with a pre-paid FasTrak transponder uses a toll bridge or road, the fee is automatically deducted from their balance.

“If a customer wants to pay with cash, they have two options.  First, they can come into our walk-in center in Irvine within five days of using the toll road, and pay without incurring any additional fee.  Alternatively, a customer can walk into a participating 7-11 or CVS, and for a small fee ($1.99) pay through a third-party vendor called PayNearMe.”

Orange County was following the lead of the Bay Area’s iconic Golden Gate bridge, which ceased accepting cash in 2013. Last fall, the Metropolitan Transportation Commission announced that the rest of the Bay Area’s seven bridges will soon follow suit, perhaps starting as early as 2022 though it could take up to five years for all of them to be fully converted.

Right now, when a driver with a pre-paid FasTrak transponder uses a toll bridge or road, the fee is automatically deducted from their balance. But if someone doesn’t have a transponder, the agency mails a bill to the address associated with the car’s license plate. And this is where the situation gets tricky, because getting a correct address from a license plate is a true hit or miss proposition.

There are currently numerous pending lawsuits from drivers who say they never received notice of a toll violation, and were later hit with unconstitutionally large fines and other penalties.

Perhaps no better example exists than the massive ongoing Takata vehicle air bag recall, which has impacted over 40 million U.S. cars sold by 19 carmakers between 2002 and 2015. A large portion have been successfully completed, but a report issued in January by a third party monitor indicated that more than 15 million remain to be done. The reason: “The results of the certified mail delivery showed that approximately 45% of the manufacturer’s remaining unrepaired population may not have received the recall communications because the addressee did not reside at the address to which the mail was sent.” 

Toll agencies have struggled for years to get a bill to the right person at the right address. There are currently numerous pending lawsuits from drivers who say they never received notice of a toll violation, and were later hit with unconstitutionally large fines and other penalties, including having a hold placed on their vehicle registration or even having their car impounded. Others claim their agencies have also misused their personal identifying information (PII).

Legislation introduced last year by Sen. Ben Allen, a Santa Monica Democrat, would have not only loosened the rules even more for toll agencies, it would have made those changes retroactive to 2011 as a way to nullify those suits. That bill, SB 664, drew significant resistance from consumer rights groups and even some of Allen’s fellow Democrats. It was turned into a two-year bill and is currently being reworked in the Assembly Privacy and Consumer Protection Committee.

Mike Herald, also of the Western Center on Law and Poverty, says a totally cashless statewide toll system is likely to make matters worse.

“In 2016, the Bay Area, Orange County and Los Angeles toll agencies issued 8.8 million violation notices,” he says. “There were 1.3 million holds put on DMV registrations from those violations alone. It’s hard to imagine that once we go cashless this situation is going to get better. This will be a giant cash machine for the toll agencies.”