Does a cash-free society hurt the working poor?

(NewsNation) — As the U.S. embraces the digitization of currency, millions of Americans are finding themselves excluded from daily transactions due to the lack of a bank account.

Approximately 6 million individuals in the United States don’t have bank accounts. This predicament intensifies as more businesses refuse to accept cash as a form of payment.

Wisconsin and Vermont are the latest states to join the push for laws requiring retailers to accept cash payments, PaymentsJournal reported. Wisconsin’s proposed bill, introduced in late 2023, aims to prevent establishments from refusing cash for in-person transactions of less than $2,000.

Meanwhile, Vermont’s bill takes a more straightforward approach, stating that sellers offering goods or services cannot refuse cash as a payment method, without imposing any specific limits.

“Participation in a cashless society presumes a level of financial stability and enmeshment in bureaucratic financial systems that many people simply do not possess,” The American Civil Liberties Union argues. “Opening a bank account requires an ID, which many poor and elderly people lack, as well as other documents such as a utility bill or other proof of address, which the homeless lack, and which generally create bureaucratic barriers to participating in electronic payment networks.”

Currently, Arizona, Colorado, Massachusetts, Michigan, New Jersey, New York, Mississippi and the District of Columbia have laws allowing cash transactions at all physical points of sale. At the city level, Philadelphia and San Francisco have enacted similar legislation.

Contrary to state initiatives, the Federal Reserve said that there is no federal requirement for businesses to accept cash. According to the Fed’s website, private businesses are free to set their own policies regarding cash acceptance, unless a state law dictates otherwise.

The Federal Deposit Insurance Corporation found in a survey that the primary obstacle to banking for many remains the inability to meet minimum balance requirements. In 2021, more than 40% of respondents cited a lack of funds as the primary reason for not having a bank account.

This finding aligns with broader data indicating that lower-income households face higher rates of “unbanked” status. The FDIC reported that approximately one-quarter of individuals earning less than $15,000 annually are without a bank account.

While affluent individuals often enjoy fee-free banking, fees pose a significant financial hurdle for those unable to maintain a minimum balance. A Bankrate survey highlighted that basic monthly service fees range from $5 to $15.

The shift away from cash acceptance by businesses exacerbates the challenges faced by the unbanked, argues Jay L. Zagorsky, clinical associate professor of Markets, Public Policy, and Law at Boston University. Forced to adopt alternative payment methods, many turn to prepaid debit cards, which come with their own set of financial burdens.

Major retailers including Walmart offer reloadable basic debit cards at a cost of $1 to purchase, accompanied by a monthly fee of $6. Loading the card with cash at Walmart’s registers incurs an additional $3 fee. For individuals seeking a basic debit card for occasional purchases, the minimum $10 setup cost becomes a substantial barrier.

In Wisconsin, some venues, including Lambeau Field and the state fair, have adopted a card-only policy, PaymentsJournal reported. However, The Cap Times reported that a Milwaukee breakfast chain, Brunch, reverted to accepting cash after facing customer complaints.

The movement to ensure cash acceptance gained traction during the pandemic, although card-only retailing has been on the rise for years. New Jersey banned cashless retail outlets in 2019.

The push to retain cash is supported by Cash Matters, a nonprofit backed by the ATM industry, advocating for the continued relevance of cash in the payment landscape. Cash Matters reports that cash is used in 12% of all point-of-sale transactions in the U.S.

While some lawmakers argue for cash acceptance laws based on anecdotes, reports suggest uncertainty about the prevalence of cashless businesses. Even in Vermont, where the proposal lacks specifics, lawmakers couldn’t name businesses with certainty that practice a card-only policy.

This trend is not limited to Wisconsin and Vermont, as similar legislation is under consideration in Georgia and Miami, among other places. On the other hand, Mississippi and North Dakota have previously debated and rejected such bills.