Lawmakers clash over government's role in preserving cash

Despite the rapid advancement of digital payments, many people still rely on cash, leading to partisan disputes over the best way to ensure consumers who need paper bills can avoid being shut out of the financial system.

"We have a lot of work to do on this issue, but we can't take a step back by removing access to cash," said Rep. Nikema Williams, D-Ga., during a House Financial Services Committee hearing Thursday on the underbanked and cash access called "Cashed Out: How a Cashless Economy Impacts Disadvantaged Communities and Peoples."

The hearing's testimony fell largely along partisan lines, with Democrats advocating government action to either require businesses to accept cash or to create a direct relationship between consumers and the Federal Reserve to ensure universal access to the banking system. Republicans and conservative witnesses pushed for fintech competition and an easier route for private companies that provide digital financial services to receive banking licenses.

Williams is a co-sponsor of the Payment Choice Act of 2021, a bill that would make it illegal for businesses to refuse to accept cash. Sens. Kevin Cramer, R-N.D., and Robert Menendez, D-N.J., have introduced a bill in the Senate that would prohibit businesses from refusing cash, posting signs that cash is not accepted or charging a higher price for using cash.

"Businesses make their own decisions," said Rep. William Timmons, R-S.C., who said he's opposed to government mandates to protect cash. "The free market is working here" and the payment choice bill "is a solution in search of a problem."

Cash's decline accelerated during the pandemic, as people rapidly moved to online shopping while others adopted contactless payments over fears that paper bills could spread the virus. Cash's share of payments dropped 7% in 2020 after holding steady for two years, according to the Federal Reserve Bank of San Francisco.

Democrats who testified generally pointed to the U.S. unbanked rate of about 7% as an impetus to protect cash.

"Many businesses are moving to go cashless," said Rep. Maxine Waters, D-Calif., who chairs the House Financial Services Committee. Waters contended the acceleration of cash-free payments could leave certain segments of the population behind. "Do you see the potential for economic segregation here?"

Waters, who pushed for the Federal Reserve to disburse "digital dollars" in an early version of a pandemic relief bill in 2020, on Thursday advocated for public policy that would protect cash payments to independent contractors who prefer cash.

"There is an underground economy with handymen and women who are taking care of their communities. They want to be paid in cash," Waters said.

There's also signs that the decline of cash may not be accelerating as quickly as experts predicted at the start of the pandemic. While 46% of consumers globally reported using cash less due to the pandemic, that figure was 35% in the U.S., according to Visa. And in the U.K. cash usage fell by half during the first three months of the pandemic before stabilizing, according to the country's LINK ATM network.

"Even though the pandemic accelerated trends toward digital payments, cash is the primary payment method" for the unbanked, said Rep. Rashida Tlaib, D-Mich., who advocated for public banking methods or postal banking during Thursday's hearing. "Consumers prefer alternatives" to big financial companies.

And even as cash declined, new technology options to support cash payments at unmanned primarily digital touchpoints gained ground during the past year. The conservatives who testified at the Thursday hearing pushed innovation that supports a cash option in a digital world as the best way to protect access to paper money, rather than legislation or a government mandate.

"There's no one size that fits all," said Rep. Tom Emmer, R-Minn., who advocated digital currencies such as stablecoins as a means to address privacy concerns for consumers who may not want to use bank-supported digital payments. "Government shouldn't be in the business of telling people and businesses, large or small, what payment types they should accept," Emmer said.

The cost of handling cash has become a concern for banks and merchants. Managing cash costs retailers between 5% and 15% of payment volume (a $100 sale paid in cash would cost $15), according to PlainsCapital, which cited research from IHL Group.

In the U.K., ensuring access to cash has sparked battles between banks and the government, mostly over the fees the country's postal service collects from banks in exchange for providing access to cash at post offices.

"Cash is not free," said Todd Zywicki, a professor of law at the George Mason University Antonin Scalia School of Law and a witness at Thursday's hearing. The government should promote competition via broader credit union chartering and by issuing more industrial bank licenses or make it easier for retailers and other non-banks that provide financial services to offer banking, Zywicki said. "Rather than propping up cash, we should promote greater competition," he said.

Local jurisdictions have already made moves to mandate cash. Colorado earlier this year passed a state law that requires most retailers to accept cash payments. Democratic state Rep Alex Valdez, one of the state bill's co-sponsors, testified at Thursday's hearing that the push to cash-free retail disproportionately impacts Black and Latinx communities.

San Francisco is among a number of jurisdictions to have passed a law mandating that businesses accept cash. The law was partially in response to the growth of checkout-free stores that followed the introduction of Amazon Go.

"That ordinance can be a model about preserving cash as a payment option that can coexist with other options," said Norma Garcia, policy counsel and director of the Mission Economic Development Agency, a Latinx community organization in San Francisco, who was a witness at Thursday's hearing.

Amazon Go, which operates a checkout-free model by linking in-store cameras to consumers' Amazon e-commerce accounts, is one of several technology projects that spurred a movement to protect the use of cash. Massachusetts, New Jersey and Philadelphia passed laws requiring businesses to support cash, while New York, Connecticut, Rhode Island are considering bills. Amazon later added a cash option to its Amazon Go stores.

"The war on cash is not a new concept," said Valdez, who is pushing the U.S. Congress to advance national legislation to protect cash.