Philly right to ban discriminatory cashless stores

Philadelphia recently became the first U.S. city to ban most cashless stores, a recognition that not everyone benefits from the inexorable shift toward plastic and apps. Those who support the ban believe cashless stores discriminate against those who lack financial stability. 

When stores refuse to accept cash, they’re sending a not-so-subtle signal to certain customers that they don’t belong. 

{mosads}Most people I know can go weeks without visiting an ATM. It’s increasingly easy for many of us to manage our financial lives with credit cards and a smartphone. Yet, cash remains the most frequently used retail payment instrument, used in 32 percent of all transactions in 2015 (down from 40 percent in 2012). 

Who are the people who continue to use cash, albeit in decreasing numbers? Most belong to the 25 percent of Americans classified as “unbanked” or “underbanked” by the Federal Deposit Insurance Corporation (FDIC).

These labels imply that all Americans should be banked, that you’re ignorant if you’re not. In my 25 years of research in low-income communities, I’ve learned that this isn’t the case.

I got an up-close view of the cash economy during my four months working as a teller at RiteCheck, a check-cashing store in the South Bronx, in one of the poorest zip codes in the country.

I suspected that the explanation for why people didn’t use banks was more nuanced than a lack of financial literacy. The majority of people who patronize these stores are low-income, and most of the low-income people know where every penny goes. 

The reason I can operate without cash is because I have enough money coming in regularly to qualify for free checking. I’m able to make sure my bank account balances never drop below the monthly minimum, and I can keep a buffer in my account so that if I mistime when my paycheck comes in and my bill payments go out, I won’t overdraft. 

My credit score is also high enough to qualify me for low-interest credit cards. I pay almost nothing for the financial services I use. 

In order to maneuver through the world without cash, you either have to become part of the mainstream banking system or pay hefty fees to use a prepaid debit card, essentially paying for the right to access your own money.

It’s true that a bank account can operate as a gateway to increased financial health. But my customers taught me that you need to be financially healthy before it makes sense to get a bank account.

Zeke, a RiteCheck regular in his early 30s, told me he used to have a bank account, but he closed it soon after he lost his job as an assistant chef at John F. Kennedy International Airport.

Zeke now works as a janitor and hopes he can one day go to college; he uses a loan shark when he’s short on cash: “I’d like to go back to the bank, but I can’t afford the monthly charges,” he told me.

Maria, another regular customer, left her bank for the same reason: “It was like I just kept paying more and more,” she said.

Week after week, I waited on people like Zeke and Maria who cashed their paychecks at RiteCheck because they couldn’t wait the three or four days it would take their banks to clear their deposits. They needed that money as soon as they could get it — to feed their families or pay their bills on time and avoid late charges. 

They were willing to pay for that access — 1.95 percent of the face value of the check, when I worked there —because they had no other option.

My RiteCheck customers’ experiences were starkly different than mine. Their income was often unstable from week to week, making it hard to know whether they would meet monthly minimum balances. They were among the 40 percent of Americans who could not come up with $400 in the event of an emergency.

And if they timed their deposits and payments wrong, they were charged overdraft fees averaging $30 dollars a pop; this is up 50 percent from $20 in 2000. Banks made more than $34 billion in overdraft fees alone in 2017, with 90 percent of those fees typically coming from the poorest 10 percent of their consumers. 

Financial instability is the new normal for an increasing number of Americans, and operating in cash is a symptom of this much larger problem.

{mossecondads}To be sure, the trend toward cashlessness seems to be inevitable. Cash represents only 2 percent of the value of all transactions in Sweden, a country that’s on a fast track toward a cashless economy. But the context there is quite different.

Banks’ high fees and discriminatory practices send the message that certain groups aren’t welcome. Cashless stores do the same, restricting access to those who have the privilege of being able to afford mainstream financial services. 

Until we guarantee the provision of safe and affordable financial services to everyone, we must allow people to use cash to pay for the things they want and need. Our society is far too divided already without creating yet another barrier to participating in the economy and in civil society.  

Lisa Servon is professor and chair of the Department of City and Regional Planning at the University of Pennsylvania. She is the author of “The Unbanking of America: How the New Middle Class Survives” (Houghton Mifflin Harcourt 2017).