CLEVELAND — A Cleveland city council member is exploring possible legislation that would prohibit businesses in the city from going ‘cashless.’ Based off of similar legislation recently passed in cities like Philadelphia and San Francisco, Councilman Kevin Conwell (Ward 9) said the legislation would prevent consumers in low income areas from being disenfranchised because of their lack of access to financial services.
Although the cashless economy has yet to take a firm hold in Cleveland, financial experts believe the transition to debit, credit and cryptocurrency-only transactions is coming, especially with the proliferation of smartphones and online banking. Some retailers, including Amazon, have explored or implemented cashless payment systems in their brick-and-mortar stores.
However, city officials in Philadelphia, San Francisco and state lawmakers in New Jersey have implemented legislation that would prohibit this practice in an effort to prevent low-income individuals from being left out. Councilman Conwell believes Cleveland leaders need to consider a similar proposal.
“If [residents] have cash they need to be able to use cash. If you go into a cashless economy, what that would do is add constraints and barriers on my residents and people dealing with poverty,” Conwell said. “Some people don’t have access to banks, especially in depressed neighborhoods.”
There are no federal laws that require merchants to accept cash as a form of payment, according to the Federal Reserve. However, merchants are required to accept legal tender, which can include cash, credit, debit and other forms of payment.
In certain areas of the city, especially in low income neighborhoods where financial services aren’t as readily available, cash remains king. Additionally, for certain cultural reasons, there are portions of the population who have a general distrust for banks. A fully cashless economy would leave many of those individuals with difficulties in purchasing basic goods and services, Conwell said.
“It’s the fairness of it. I need to shine a light on it to make sure it’s fair,” Conwell said.
Lakshmi Balasubramanyan, an assistant professor of finance at Case Western Reserve University’s Weatherhead School of Management, said a push to a cashless economy will have serious societal ramifications.
“The impact will be great on these segments of the population that are unbanked or underbanked,” Balasubramanyan. “They are not going to have access to utilizing these financial services in making their payments. You certainly have a societal responsibility in ensuring that these segments of the population are included in the economy and have access to these services and they can participate. I think that is a societal consideration that we have to keep in mind.”
According to the FDIC, in 2017, which is the most recent data available, nearly 1 in 4 residents living in the Cleveland-Elyria metropolitan statistical area are either unbanked or underbanked. To be considered as underbanked, a resident must have a basic checking or savings account but also obtains financial products outside the banking system.
Retailers in the cities that have banned cashless operations have largely opposed the legislation. Merchants said by going cashless, their operations are more efficient and less prone to theft and robbery.
Conwell said he will be researching how prevalent cashless operations are in the city. The possible legislation will be preventing the problem from happening instead of reacting to it, Conwell said.
“I understand [retailers’] concerns but I also understand the concerns of fairness,” Conwell said. “We need to watch it to make sure we don’t just go into a cashless economy or we don’t go into a system of the have and have nots – a tale of two cities.”
Conwell said the legislation could be introduced early next year.