Introduction
Envision a low-income neighborhood outside a large metropolitan area. Most of the community pinches pennies just to live under a roof and feed their families. Families keep their savings as cash hidden away somewhere in their houses because outdated, illegal bank redlining still lingers.1 As a result, an insufficient number of banks and automated teller machines (ATM) are within walking distance. Cars are expensive to maintain, and it is nearly impossible to afford to park downtown in the city where most of the community works.
From this community, a Black middle-aged man commutes to work by train in midday because he works late hours in the middle of the night as the maintenance and cleaning crew for one of the hundreds of city skyscrapers. It is four o’clock in the morning, and his shift just ended. The man is hungry and walks into a nearby bodega to buy food. He places the food near the cashier, who rings up the total to eight dollars. As the man pulls out a ten-dollar bill from his wallet, the cashier quickly puts his hand out to stop the man and informs him that the bodega recently became cashless and only accepts debit and credit cards since it was robbed a few weeks prior.2 The man claims that he does not have a card and can only pay in cash. The cashier apologizes that he cannot sell the man the food and rejects the cash.
The man walks out of the bodega and sees a cheap diner across the street. He decides he will treat himself to a freshly cooked meal and enters the diner. Unbeknownst to him, the diner is also cashless. The cost of maintaining the right amount of cash and dealing with employee theft forced the diner to switch to cashless. After the man finishes his meal, the waiter leaves the check on the table. The man places down the same ten-dollar bill that was rejected at the bodega across the street. The waiter stops by the table to pick up the payment and notices the money. The waiter kindly notifies the man about the diner’s cashless policy, and the aggravated man asserts that he only has cash. The man already ate his food and the diner only accepts cards—what happens next?
This scenario will be a growing trend as more businesses reject cash and become entirely cashless.3 Businesses are finding cashless operations ever more attractive as the practice thwarts robberies and maintains efficiency.4 Many low-income households mostly use cash to purchase goods and services, and typically only have a savings account from a bank.5 Cashless businesses harm these types of low-income families, which tend to be minorities.6 Currently, mostly luxury businesses are cashless, but there is a push by many to remove or limit cash from their business operations.7 Low-income households, especially minorities, will find it increasingly difficult to purchase necessities with cash and may be unfairly precluded from participating in fundamental economic activity.
Unfortunately, there are almost no legal avenues by which to address cash discrimination.8 A plaintiff can claim an Equal Protection violation, but this cannot constitutionally reach private businesses.9 A plaintiff can demonstrate the difficulty of obtaining a checking accounts from banks or the inefficiency of buying prepaid cards at retail stores, but this is unlikely to persuade a court to enjoin cashless businesses from refusing cash.10 A plaintiff can argue that legal tender11 must be accepted at sit-down restaurants under contract law, but the vagueness of the relevant precedents would not provide a clear path to outright success.12 This is a problem in need of a solution but it will not come from litigation. Instead, it must come from the legislature.
This Note proceeds in three parts. Part I illustrates the background of the U.S. dollar and its status as legal tender, the relationship between the low-income and banks, and the advancement of cashless businesses and the relevant applicable law in the United States and in other countries. Part II addresses why there is no cognizable claim for a plaintiff to stop cashless businesses. Part II highlights that, although minorities and minors are disparately harmed by cashless systems, asking a court for an injunction on Equal Protection grounds would likely fail. Furthermore, Part II explores why a legal-tender claim against a sit-down restaurant will not persuade a court. Part III reviews Congress’s Commerce Clause power and proposes the need for legislation grounded in that power to enact a cash discrimination statute to protect groups such as the low-income and minorities. Part III also encourages state and local governments to adopt similar cash policies in addition to a federal statute. Lastly, the proposal offers a middle-ground solution to encourage cashless business growth while providing payment options for low-income customers.
I. Cash and the Digital World
A. Legal Tender and Its Decline
1. What is “Legal Tender?”
Both the Federal Reserve and the Department of the Treasury consider coins and bills to be legal tender for all debts.13 Every note’s front side displays in print that the note is legal tender for all public and private debts.14 This means that government services and private businesses must accept the banknotes for payment of debt.15 Although it is the popular belief that merchants are required to accept cash,16 private businesses are not, in fact, mandated by federal statute to accept any type of currency for their goods or services.17
One way to understand legal tender is through example. In a first example, a driver pulls up to a gas station and pumps twenty dollars’ worth of gas into his car. When he offers to pay in cash, the attendant must accept it because the driver owes twenty dollars for the gas.18 Now, to repeat the scenario, the driver pulls up to the gas station, but this time the attendant says it costs twenty dollars to pump the gas. In this version, the gas station can choose to reject cash and turn away business because the driver is not yet indebted to the gas station.19
Additionally, the gas station attendant may stipulate which note denominations (i.e., different bill types) he will accept, as long as the driver has not already pumped gas.20 For example, many gas stations late at night refuse large denominations, such as $50 and $100 bills, to prevent robberies.21 This style of deterrence is legal as long as the driver is not indebted to the gas station; the gas station can choose any means of payment, including the denominations of bills.22 Accordingly, the driver could not sue the gas station, nor could any plaintiff sue any business, for turning away legal tender as long as the plaintiff is not indebted to the business.
2. What Backs Legal Tender?
The United States dollar has a long and complex history, but the modern dollar found its beginning in 1913.23 After several economic panics,24 especially the Panic of 1907, citizens believed banking reform was needed to better adapt to a fluctuating economy.25 President Woodrow Wilson signed the Federal Reserve Act of 1913, which created the Federal Reserve System and gave it the authority to issue Federal Reserve Notes.26 Congress required all nationally chartered banks to purchase non-transferrable stock in their regional Federal Reserve banks and set aside reserves to become members of the Federal Reserve System.27 From 1913 through today, banknotes have been backed by the Federal Reserve’s assets.28 The Federal Open Market Committee, created in 1933, practices debt monetization when it purchases its assets, which are generally Treasury securities.29
For a time, there were two types of dollar bills in circulation: the United States Note and the Federal Reserve Note, which coexisted and maintained the same value, yet were different.30 The United States Note was a bill of credit that the Treasury would directly circulate, interest-free, but the government could never guarantee gold to individuals who redeemed the notes, even if the Treasury was authorized to do so.31 The Federal Reserve Note is a bill of debit that chartered banks purchase from the Federal Reserve, dollar for dollar. The Federal Reserve holds assets equal in value to the notes it purchases from the Bureau of Engraving and Printing.32 As of 1933, the notes cannot be exchanged for the collateral held against them and are never redeemable for any precious metal.33
Inevitably, the United States Note found its end. In 1933, Congress banned all private ownership of gold except for jewelry, coins, and some minor items, but notes could be exchanged for silver.34 By 1968, the United States’ changed to a fiat currency—paper currency not backed by metals35—thus removing the option to exchange notes for silver.36 With little to differentiate between both notes, the United States Note ceased circulation by January 1971.37
Later in 1971, the dollar battled devaluation by foreign price-gougers.38 Between the end of the Great Depression and 1966, the dollar fared well. The 1944 Bretton Woods System created an international monetary system that allowed foreign countries to maintain their international accounts in dollars, which could be converted into gold at a fixed exchange rate made redeemable by the United States government.39 The United States briefly benefitted from the system, especially after World War II, when the United States dollar was the anchor to gold convertibility; nevertheless, as Germany and Japan recovered from the war, the nation’s debt grew from the Vietnam War, and other national and global events occurred, the United States’ gold reserve fell.40 By 1971, nations began to redeem their notes for gold and back out of the system.41 President Nixon issued Executive Order 1161542 to dissolve the Bretton Woods System, freeze wages and prices for ninety days, and levy a ten percent surcharge on imports.43 This is widely known as the “Nixon Shock.”44 Since then, no metal or commodity—besides assets held as collateral, which maintain the note as legal tender and provide public reliance on the dollar—has backed the dollar.45
3. Cashless Business Growth
Advancement in payment technology, mostly due to the payment system and card reader Square,46 has encouraged small and large American businesses to move towards cashless point-of-sale (POS) systems.47 Many businesses conclude cash hurts their operations and are willing to pay the small fees to only take plastics. It takes time and money to maintain an adequate number of each denomination and to travel to the bank to deposit the revenue.48 Furthermore, employee theft costs businesses up to $200 billion each year, worrying small businesses that accept cash.49
Large companies, such as Starbucks and Amazon, have noticed the drawbacks to cash and have tested cashless stores.50 According to Professor Jonathan Zhang at the University of Washington’s Foster School of Business, customers in the location of Starbucks’ cashless test location mostly use plastic or mobile payment, so Starbucks only loses approximately five percent, at most.51 However, shaving seconds per order over a year can be more beneficial than the loss of cash buyers.52
While Starbucks is considered a luxury rather than a necessity, Amazon’s acquisition of Whole Foods Market and creation of Amazon Go plans to disrupt the traditional supermarket worldwide.53 Amazon Go is a new grocery market concept that allows customers to pull items off the shelves, walk out of the store, and have their debit or credit cards charged without any interaction with a cashier.54 It is essentially a cashierless, checkout line–free store.55 This is accomplished through Amazon’s mobile application and radio-frequency identification (RFID) technology.56 Supermarkets nationwide plan to imitate Amazon Go’s business model to cut costs.57 For example, Microsoft is developing a system similar to Amazon’s and plans to sell its product to supermarkets, while Walmart tested a checkout-free “Scan & Go” service.58
Cutting costs will drive other large and regional markets to follow suit. As markets adopt cashierless technology, it will be increasingly difficult, or even impossible, to pay with cash and food stamps.59 This will bar individuals and households who strictly use cash and food stamps to purchase necessities, such as groceries and household items, from supporting their families.
B. Obstacles for the Public in the Cashless Economy
1. Unbanked and Underbanked
As of mid-2018, approximately 7.5% of the United States’ population—around 24.5 million people60—remains unbanked.61 An individual or family is deemed unbanked when they do not have a checking or savings account with a bank.62 The unbanked tend to include minority races and other classes like the less-educated, the youth, the indigent,63 and the foreign-born.64 According to the Federal Deposit Insurance Corporation’s (FDIC) latest survey in 2017, Black people are nearly six times more likely to be unbanked than Caucasian people, while Hispanic people are nearly five times more likely to be unbanked than Caucasian people.65 The survey shows nearly 17% of Black households and 14% of Hispanic households are unbanked.66 Low levels of income and education are common themes of the unbanked: two years prior, the 2015 survey showed nearly 37.5% earned $30,000 or less, and about 33% did not have any college education.67
Even with an increase of brick-and-mortar banks in low-income communities, many individuals still do not use banks due to the fees and minimums balances required to maintain an account.68 However, many communities still lack sufficient access to financial services provided by banks, so most of their members tend to manage their finances through check-cashing services and microloans.69 This hardship is known as underbanking. As of 2017, underbanked households represent nearly 19% of the nation’s population, which includes a higher proportion of Black and Hispanic households than does the unbanked population.70 Even though the underbanked have accounts at banks, nearly 70% use these accounts to electronically pay bills, and 52% use them to write personal checks.71
Ultimately, the unbanked use cash and the underbanked rely on cash or debit cards to make most of their purchases.72
2. Know Your Customer
In 2002, the United States began to require all banks to acquire and confirm the identity of each client under a Customer Identification Program.73 The initiative, commonly known as Know Your Customer (KYC), was enacted under the 2001 USA PATRIOT Act to strengthen security after the terrorist attacks on September 11, 2001.74 Along with the Bank Secrecy Act of 1970, KYC regulations, which require banks to collect information about its customers, were put into place to detect money laundering attempts, to prevent terrorist organizations from receiving laundered money, and to thwart fictitious bank accounts.75 Banks may ask their potential customers as many personal questions as they wish, but most banks require their customers to disclose their Social Security numbers, dates of birth, phone numbers, email addresses, physical U.S. addresses, citizenships, and debit cards or other account information.76
Banks’ excessive KYC requirements cause many indigent and low-income families to disregard bank accounts as inconvenient, untrustworthy, and inefficient options for saving money.77 Surveys confirm that the KYC requirements may have an impact on the unbanked: around thirty percent of unbanked households cited that they remain unbanked because they do not trust banks, and twenty-eight percent cited that they avoid banks to give themselves more privacy.78 Additionally, nearly fourteen percent of the unbanked cited issues with valid identification, proper credit, or former bank accounts as a reason they are unbanked.79 KYC is undoubtedly valuable to antiterrorism and anti-money laundering efforts, but it creates a strain on low-income Americans who struggle to gain access to banks.
C. Responses to Cashless Economies
1. Kenya: A Cashless System that Works
A cashless economy is possible even in developing countries. For example, observe Kenya and M-Pesa (em-pesʌ).80 In a country with a population of over forty-four million people, more people are subscribed to M-Pesa than those who have a bank account.81 M-Pesa is a mobile phone–based money-transfer application provided by Safaricom Network Company.82 M-Pesa established its dominance by targeting micropayments from “the one shilling,” which covers around 18.5 million Kenyans who live below the poverty line83—a staggering forty-two percent of the forty-four million Kenyans.84
To use M-Pesa, a user must create an account with an already-registered Safaricom SIM card at one of Kenya’s 40,000-plus M-Pesa agent locations.85 Additionally, documentation of identification, such as a government identification card or passport, is required.86 Once registered, an updated menu will appear on the user’s phone. The user can then deposit money into their M-Pesa account by giving cash to any M-Pesa agent.87 With money in their account, a user can send money to another by selecting the “Send Money” option and entering their M-Pesa PIN and the recipient’s phone number.88 Users may even pay bills by entering the company’s corresponding M-Pesa code.89 Users can withdraw cash by visiting an agent, selecting the “Withdraw Cash” option, and entering the withdrawal amount, their M-Pesa PIN, and the agent’s number.90
While M-Pesa provides users with money-transfer efficiency, these services come at a cost. M-Pesa charges users a fixed fee based on the amount transferred. For example, to withdraw between 2501 and 3500 Kenyan shillings (KES),91 M-Pesa presently charges 49 KES, which is between 1.4% and 2% of the withdrawal total.92 M-Pesa encourages users to transfer money to other M-Pesa users since transfer rates are higher for users to transfer to a non–M-Pesa account.93
M-Pesa offers additional services other than just a mobile money-transfer platform. All M-Pesa accounts are trust accounts and are owned by external trustees, which allows M-Pesa accounts to gain interest on the money left in them. However, this interest does not benefit the user, but is instead used to fund bank and audit fees, with the surplus used to fund charitable projects.94 For example, 70% of Kenya’s government bonds are owned by M-Pesa.95 M-Pesa provides customers with an M-Shwari savings account, which offers customers up to 6.65% interest per annum, as well as up to 70% of the Central Bank Rate for a Lock Savings Account.96 Furthermore, M-Shwari provides customers with the opportunity to receive microloans.97 M-Pesa also partners with KCB Bank Kenya Limited, another financial services provider, to offer services similar to those offered by M-Shwari.98
2. Europe: A Cautionary Tale of Misfortune
M-Pesa’s initial success was largely linked to its mass-distribution network when the service launched, but it did not find the same results when it expanded into Eastern Europe.99 For M-Pesa to offer low transaction rates, it must have millions of daily transactions; but it lacked the “critical mass” in its test countries of Romania and Albania, and accordingly discontinued its services in Eastern Europe.100 The reason is unclear, but it could be inferred that Eastern Europe’s teenagers and young adults failed to embrace the technology.101 M-Pesa could not reach the one-million-user “critical mass” as it did in its first year of business in Kenya.102
Despite M-Pesa’s failure in Eastern Europe, Sweden is one of the many countries like Kenya moving rapidly towards a cashless society.103 As of 2018, Sweden’s outstanding value of bills and coins in circulation sat at one percent of Swedish gross domestic product (GDP).104 Most Swedes use either cards or Swish, the instant-payment application created by Sweden’s seven big banks’ and which has been downloaded by more than half of Sweden’s population of around ten million.105 Swedish banks feel the burden of cash, known as krona, and have been dismantling ATMs and storing less cash on-site;106 around half of Sweden’s banks already do not accept cash deposits.107
While Sweden’s culture embraces technology,108 its legislature is worried about the future of going cashless. Lawmakers are concerned about the elderly and refugees who need access to physical cash.109 More importantly, if Sweden goes completely cashless, the Riksbank—its central bank—would struggle to be the country’s sovereign governor of cash; society would solely rely on the private sector to access money and payments, which is without precedent.110 The country would be unprepared if there was a crisis, such as an infrastructure failure, in which demand for physical cash would surge and the Riksbank would have little supply to place into circulation.111
The summer of 2018 illustrated what may occur when cashless options are unavailable. Some Visa customers in Europe, including in the United Kingdom, experienced card-payment outages due to a hardware failure.112 Banks and supermarkets were just a few of the many retailers who struggled to provide services—some stores even put up “cash only” signs.113 The issue was resolved within a matter of hours,114 but it reminded the world of a hypothetical crisis becoming reality.
Sweden is weighing two proposals to address its cashless concerns.115 The first would require the biggest banks to maintain cash on-site; however, the banks are adamant that holding a regulated amount of cash and providing accessibility to it nationwide are unduly burdensome.116 Second, the Riksbank in 2019 will pilot a digital currency called e-krona, which complements cash and preserves the central bank’s function of maintaining a currency backed by the state.117 It would have a one-to-one conversion with kronor held in accounts within the Riksbank or stored on cards or in mobile applications.118
3. Approaches by States and Cities to Preserve Legal Tender
The Federal Reserve takes a hands-off approach when it comes to private businesses’ payment policies; however, these policies must comply with state law.119 For example, Massachusetts law states that any retail business which offers goods or services may not discriminate against cash buyers by requesting credit only and must accept all legal tender.120 But a lack of enforcement and specificity of what is considered a “retail establishment” have resulted in most Massachusetts residents and businesses being unaware of the law.121 In one instance, Sweetgreen, a popular national salad chain, went cashless in its Massachusetts stores until the Boston Globe inquired about the policy’s lawfulness,122 after which Sweetgreen quickly removed its cashless policy in those stores to comply with the statute.123 In contrast, some small shop owners are aware of the law, but choose to ignore it.124 While some get away with it, not all are successful. One location of Clover Food Lab, a Boston-area restaurant, went cashless during the late evening and early morning shifts for security reasons; however, the City of Cambridge found out and sent Clover Food Lab a cease-and-desist letter.125
The vagueness of what defines a “retail establishment” has left businesses wondering whether their operations fall under the law’s umbrella. Some claim that even though the term “retail establishment” may be vague, courts generally define it as a business that intends to sell or offer goods or services.126 This ambiguity has led to parking garages going cashless and to Greater Boston’s Massachusetts Bay Transportation Authority’s (MBTA) plan to go cashless by 2020 for its trains and buses.127
As a precaution, nevertheless, the MBTA will accept cash at some stations.128 The MBTA plans to remove cash payment on all buses, trolleys, and commuter trains. Instead, the MBTA will install vending machines at stops for customers to use cash to load rides on a plastic fare card.129 With an abundant number of stops on its bus routes, the MBTA will not be able to install vending machines at every stop, but its plan includes increasing the availability of fare cards at vendors around the city.130 Although retailers are hesitant to sell the cards due to the low 1.8% commission rate, the MBTA continues to negotiate with them to expand fare-card availability near its stops and stations.131 The MBTA plans to provide free cards to low-income riders, who make up a large portion of the 7% of bus riders who pay with cash.132 An MBTA survey revealed that about 4% of its passengers do not own a debit card, credit card, or smartphone, about half of whom are minorities and more than three-quarters of whom pay with cash or receive passes from their schools or employers.133
To combat cash discrimination and the challenges it creates among the socioeconomic ladder, New Jersey advanced the first state-level bill in nearly fifty years to ban cashless retailers, which was signed into law by the governor in March 2019.134 The newly enacted statute not only prohibits cashless retailers, but also imposes a fine of $2500 for the first violation, a fine of $5000 for the second violation, and climbing fines for each violation thereafter.135 Yet, the law exempts some retailers from its requirements, such as those in airports, certain parking facilities, and car rental businesses.136 Conglomerates such as Amazon are pushing back, worried that the bill circumvents their heavy investment in their cashless brick-and-mortar book stores and future grocery stores.137 In the meantime, however, Amazon is accepting cash to comply with state and local laws.138
Fortunately for Amazon, some cities are considering the idea of prohibiting cashless businesses while preserving Amazon’s business model.139 Large metropolitan cities like Philadelphia, the first U.S. city to enact a cash discrimination bill,140 recognize the implications of a growing cashless economy. While the new section of the Philadelphia Code added by the ordinance uses words similar to Massachusetts’s statute, the former’s language is less ambiguous than the latter’s.141 In addition to making it unlawful to refuse cash as payment, the Philadelphia ordinance prohibits other certain conduct by those “selling or offering for sale goods and services at retail,” including posting anti-cash signs on the premises and charging higher prices to cash-paying customers.142
However, the ordinance’s second subsection is unique: it defines “at retail,” albeit by listing the types of businesses not required to accept cash.143 The list exempts from the law’s mandate parking lots and garages, Internet and phone purchases, rentals, retailers that require a membership, and more’.144 Philadelphia also exempted retailers that require mobile application accounts to purchase goods and services,145 which allows businesses like Amazon Go and Uber to still operate.146 Any business that violates the section can be fined up to $2000.147
Some cities, like Philadelphia, have banned cashless stores, while others have considered doing so. In May 2019, San Francisco banned brick-and-mortar retail businesses from rejecting cash, except for mobile retail outlets like food trucks and Uber.148 Chicago indefinitely postponed a vote on an ordinance to prevent businesses from going cashless,149 and Washington, D.C., has introduced a similar bill for approval.150 A New York City councilman has also proposed a ban on cashless retailers similar to New Jersey’s, but with a significantly smaller fine of $250 for a cashless retailer’s first violation and $500 for each subsequent violation.151
Aware of both states’ and cities’ responses towards the anti-cash movement, Congress joined the effort and introduced two cash discrimination bills in 2019.152
II. Nonviable Litigation Claims
A. The Disparate Impact of Cashless Businesses and Why an Equal Protection Claim Is Not the Solution
Brick-and-mortar businesses in the United States that run cashless operations accept payment via debit and credit cards or mobile phones.153 Even where mobile phones are accepted, their payment capabilities are usually linked to an individual’s debit or credit card.154 To acquire a debit or credit card, most go through a bank and must open an account.155
The government’s KYC regulation requires banks to obtain personal information from anyone inquiring to open a checking account, which includes, among other criteria, a permanent home address.156 Homeless and low-income individuals struggle to provide a permanent home address because they either cannot afford housing or live among family members within different homes. While there are ways to overcome the absence of a permanent home, such as using a volunteering homeless shelter’s address or a post office (PO) box,157 many of these individuals are deterred from checking accounts and from banks overall.158 Additionally, the main reason households remain unbanked is because they do not have enough money to maintain the minimum account balance.159 Without checking accounts, the unbanked and underbanked lack the means to pay without cash. Because the majority of the unbanked and underbanked are racial minorities,160 people of color are disparately impacted; that is, they are discriminated against as a protected group by the negative effect of these facially neutral practices.161
While most businesses do intend to racially discriminate, a business that requires cashless payment adversely impacts many minorities who cannot pay for the goods or services.162 Some businesses go cashless explicitly to maintain a specific type of consumer, such as an upscale cashless restaurant that believes individuals without checking accounts should not be eating in its establishment.163
Cashless restaurants inadvertently discriminate against age as well.164 Minors must appoint a legal guardian to open a checking account, and without a checking account, minors are forced to use cash as their only means of payment.165 Some cashless shops see up to ten minors a day walk out without a purchase upon learning about the shop’s cashless policy.166
The only way for the unbanked, the underbanked, and minors to work around the need for checking accounts is to purchase prepaid cards or gift cards at stores that still accept cash167 and then use those cards at other businesses. This process is both inefficient and burdensome.168 Individuals will need to rely on third parties to provide payment options for cashless businesses. A third party’s operating hours, location, and stock of prepaid cards will be key factors in determining accessibility to a means of acceptable payment, and may create hardship on and unfair dependence by individuals who only use cash.169 This burden will be borne by both minorities and minors who engage with private businesses or government services.
Normally, to fight discrimination by the government, a plaintiff can claim an Equal Protection Clause violation. The Fifth and Fourteenth Amendments prohibit the federal and state governments, respectively, from denying any person of a suspect classification any fundamental right guaranteed by the Constitution.170 The Supreme Court has held that a suspect class is a group that meets a list of criteria which indicates the group is a probable target of discrimination.171 The type of suspect class dictates which category of scrutiny a court will use to assess the constitutionality of the law at issue.172 Typical suspect classes that trigger either strict or intermediate levels of judicial scrutiny include race, alienage, and gender.173
A court may still find a violation of the Equal Protection Clause where neither a suspect class nor a fundamental Constitutional right are implicated if the law does not reasonably further a valid objective within the state’s power to regulate.174 For example, while indigency is not considered a suspect classification that triggers strict scrutiny, wealth discrimination may be analyzed under the lower standard of rational-basis review, where a law or the enforcement of a law will be upheld as long as it is rationally related to a legitimate government interest.175
Regardless, an Equal Protection argument would not be effective against cashless private businesses because it thwarts only discrimination by state or federal laws or conduct.176 But one might sustain a claim under the Equal Protection Clause if government-sponsored public services, such as public transportation and highway tolls, refuse to take cash.177 But such a claim is unlikely to prevail when scrutinized under rational-basis review if the government can show that its statute or action is rationally related to a legitimate interest like preventing robberies or refining processes to lower costs and increase efficiency.178 Courts have generally defer to states’ policy judgments concerning electronic toll disputes as long as the decisions benefit commuters.179 Additionally, the government could likely show it already provides multiple options for cashless payment; for example, cashless bridge tolls scan a driver’s license plate and send the bill to the driver’s registered address to pay by cash, check, money order, or credit card.180 Therefore, a cash discrimination claim against either a state government or the federal government will fall short.
B. The Legal-Tender Argument
The impact of a cashless practice on minorities and minors is not the only problem. The dollar as legal tender for all debts is an unrecognized fallacy and a problem that affects many. Legal-tender theory has flaws, and a cashless system, combined with legal tender notes, clashes with the classic law of contract. For example, in the United States, customers generally pay after consuming their meals in sit-down restaurants.181 This custom is heavily rooted in implied-in-fact contract theory.182 The Supreme Court has held an implied-in-fact contract is a legally binding contract upon the meeting of the minds from the conduct of both parties.183 The customer and restaurant are parties to an implied-in-fact contract when the customer’s actions indicate they will purchase food for the price on the menu from the restaurant and will be responsible to pay the bill afterwards.184 After a customer consumes the restaurant’s food, the customer is in debt to the restaurant.185 Under legal-tender theory, a restaurant must accept cash from the indebted customer because dollar bills are legal tender for all debts, public and private.186 Restaurants like Sweetgreen do not run into a legal-tender problem because they hand over the food once a customer pays—the customer is never in debt.187 Potential plaintiffs looking to recover from “cafeteria-style” restaurants will fall short because they never are in debt.
Furthermore, potential plaintiffs looking to recover from cashless sit-down restaurants will not find success since these restaurants circumvent this issues through proper notification. Most cashless restaurants post notifications on their entrance doors or as one enters the establishment. For example188:
However, the lack of regulations means there is no guidance as to where exactly these warning signs should be placed. Should regulators instruct retailers to post notifications or give verbal warnings? The trend tends to be the former, but how visible a sign should be is unclear.189 As long as there is a sign in clear view either upon entry or when sitting down, most customers would be on notice and would legally accept the stipulation that they must pay in a form other than cash.190
III. A Legislative Solution
A. Why Private Businesses like M-Pesa Cannot Help Disparate Impact Victims in a Cashless America
Although M-Pesa and similar systems work for countries like Kenya by facilitating mobile-to-mobile or mobile-to-online payments,191 the global North favors POS systems like Square that use RFID technology rather than mobile-to-mobile payment.192 Even if American businesses switched to an M-Pesa–like system, such a cashless structure would be detrimental to the indigent and the homeless. M-Pesa requires a form of identification,193 which is difficult for many homeless individuals to obtain because of the associated costs and the need for proof of residency.194 Additionally, M-Pesa users must have a service plan for their mobile phones.195 Forty-six million Americans, around fifteen percent of the population, live below the poverty line and cannot afford mobile phones with service providers.196
Although the indigent and the homeless are able to purchase mobile phones without service-provider contracts,197 many families who do pay for such a contract share phones, but switch out SIM cards to personalize the phone to the individual using it at the moment.198 Today, the stigma that the homeless cannot afford mobile phones is untrue: around ninety-four percent of homeless individuals either own or have owned a cell phone while being homeless, and fifty-six percent of those who owned a mobile phone owned two or more.199 With the reality of mobile payment, like Apple Pay and Samsung Pay, the issue is not whether a cashless society unfairly excludes the homeless because they lack access to mobile phones; the homeless have access to mobile phones, and in many large cities, even have access to public Wi-Fi to use the Internet on their phones.200 Rather, the pressing issue right now is that homeless and low-income individuals do not have the means to add a checking account to their mobile phones to facilitate mobile payment.
While M-Pesa does provide checking accounts, the “critical mass” that sparked its success in Kenya would be incredibly difficult to achieve in American culture for similar reasons that M-Pesa’s Eastern European expansion failed.201 With competing financial applications that provide money-transfer services, such as Venmo202 and Zelle,203 it is unlikely to convince millions of Americans to use another payment application that encourages customers to use its unique feature of exchanging cash for credit at local convenience stores. M-Pesa would be just another money-transfer application among several in an already-crowded market.
B. The Development of Congress’s Commerce Clause Power
Consumers hurt by a cashless society can look to Congress’s enumerated Commerce Clause power to ameliorate the problematic practice.204 The Commerce Clause provides Congress the ability to regulate interstate commerce which falls into one of three categories: (1) channels, (2) instrumentalities, and (3) intrastate commerce that has a substantial effect on interstate commerce.205 While many Supreme Court cases have greatly influenced Congress’s power to regulate commerce, a few cases have been most important in shaping and molding the present-day Commerce Clause.
The Commerce Clause found its broad economic application as Congress attempted to regulate the booming industrial economy. After the Court rejected several of Congress’s attempts to regulate a laundry list of the Progressive movement’s core beliefs, the Court appeared to finally succumb to political pressure in United States v. Darby.206 To curb the Great Depression, President Franklin Roosevelt wanted to combat poor labor conditions then-present among all forty-eight states and believed states’ initiatives were fruitless.207 The Fair Labor Standards Act of 1938 was enacted to establish a federal minimum wage, a forty-four hour work week, and requirements for overtime pay.208 Darby, a successful Georgia lumber company, was cited for violating the Act and successfully petitioned the U.S. District Court for the Southern District of Georgia to quash the indictment.209 The Supreme Court unanimously disagreed and held that Congress could regulate employees’ production of goods shipped across state lines.210 Accordingly, Congress could constitutionally regulate through its interstate commerce power the poor labor practices permitted by the states to benefit their own individual economies.211
The Court later held Congress could regulate intrastate activities affecting interstate commerce,212 including small, local activities, because those activities in the aggregate may affect the nation as a whole.213 In Wickard v. Filburn,214 an Ohio farmer was fined for growing wheat on his farm for feeding his livestock in violation of the government’s wheat-production limit instituted to stabilize wheat prices.215 The farmer, Filburn, argued his wheat production for livestock did not affect the supply of wheat nationally; but the Court sided with Congress in holding that if all farmers were permitted to produce their own wheat, it could have a significant nationwide effect when aggregated.216
Congress later strategically gambled the scope of its Commerce Clause power to eradicate racial discrimination.217 After Congress enacted the Civil Rights Act of 1964, which mainly prevented businesses from discriminating against people of color, the Heart of Atlanta Motel maintained its practice of racial discrimination and filed suit in federal court.218 In addition to other constitutional claims, Heart of Atlanta claimed Congress overstepped its authority to regulate interstate commerce in its attempt to regulate a private business providing a public accommodation, even though seventy-five percent of its clientele was from out of state and it was located near two major interstate highways.219 Separate from Heart of Atlanta, a barbecue restaurant in Alabama owned by Ollie McClung challenged the Civil Rights Act on similar grounds.220 Ollie’s Barbecue restaurant, located near an interstate highway, bought approximately half of its produce from an out-of-state supplier and served Black people via take-out only.221
On the same day, the Court rejected the claims in both Heart of Atlanta Motel and McClung. Under a rational-basis review test, the Court upheld Congress’s determination that interstate travel would be deterred, and thus interstate commerce would be negatively impacted, if motels and restaurants could discriminate against minorities.222 In doing so, the Court explained that Congress may regulate intrastate activity if it substantially affects interstate commerce cumulatively.223
The Court did not limit the wide breadth of Congress’s Commerce Clause power for nearly thirty years. But in 1995, the Court declined to extend Congress’s power to regulating a non-economic activity.224 In United States v. Lopez,225 twelfth-grade student Alfonso Lopez carried a concealed weapon onto school property and was charged with violating the federal Gun-Free School Zones Act of 1990.226 Lopez unsuccessfully moved to dismiss his indictment by arguing that Congress had acted beyond its Commerce Clause power by attempting to regulate public schools.227
On appeal, the government failed to persuade the Supreme Court that violent crimes create substantial expenses and that the presence of firearms on school property deters students from attending and gaining an education, which both lead to a weaker national economy.228 A conservative Court drew a line that the Commerce Clause could not regulate a non-economic activity such as the pure possession of a gun,229 nor could an aggregation analysis save the Act by finding the statute had substantial economic effects similar to those in precedential cases.230 Chief Justice Rehnquist clarified three categories to which Congress’s Commerce Clause power extends: (1) channels of interstate commerce, such as highways, airspace, and the Internet;231 (2) instrumentalities of interstate commerce, such as cars, buses, boats, and people;232 and (3) activities that substantially effect interstate commerce.233 In disagreement with the majority, Justices Breyer and Souter dissented on the basis that the Court should defer to Congress’s determination concerning the connection between economic activity and the effects of gun restrictions.234
Five years later, the Court in United States v. Morrison235United States v. Morrison, 529 U.S. 598 (2000). restated its holding from Lopez that local non-economic activity by itself—in this case, gender-based violence—could not be viewed in the aggregate to validate Congress’s use of its commerce powers.236 Although Congress justified the Violence Against Women Act through an abundance of evidence illustrating how gender-based violence had a substantial effect on interstate commerce, the Court found no jurisdictional connection between the two.237 Writing for the majority and drawing from Lopez, Chief Justice Rehnquist articulated a four-part test to determine whether Congress exceeds the bounds of its Commerce Clause power in enacting a statute. This analysis requires a court to ask whether there is: (1) a jurisdictional element, such as moving in interstate commerce; (2) a legislative finding of an economic link between the regulated activity and the interstate commerce goal; (3) a sufficiently substantial effect on interstate commerce by the regulated activity; and (4) a non-economic activity being regulated by Congress.238
In both Lopez and Morrison, the Court acknowledged Congress’s findings that the lack of regulation of firearms in school zones and of gender-based violence, respectively, had substantial effects on interstate commerce, but also that Congress failed to express an element which would limit the reach of each of the statutes at issue.239 The Court feared the creation of a slippery slope from which Congress would have unlimited power to regulate all non-economic activities.240
During the Obama administration, the Court shifted gears from evaluating the regulation of an activity’s substantial effect on interstate commerce to that of an inactivity.241 The Affordable Care Act, famously known as Obamacare, forced uninsured individuals either to enroll in a health insurance plan or to pay a penalty tax to the Internal Revenue Service (IRS).242 When the law was challenged in National Federation of Independent Businesses v. Sebelius,243 Congress justified the statute on multiple grounds, one of which was that the law was a constitutional exercise of its commerce power. Congress argued that the failure of individuals to buy insurance had a substantial effect on interstate commerce because of cost shifting; if the young and healthy did not buy health insurance, the healthcare industry supporting the elderly and the sick would collapse.244 Chief Justice Roberts declined to extend Congress’s Commerce Clause authority to the regulate individuals’ inactivity under the guise of regulating commerce.245 The Court explained that authorizing Congress to use its commerce power in such a way, even doing so would compel citizens to act in a manner beneficial to society, would start to shape a federal police power not envisioned by the Framers as a part of the Constitution’s scheme.246
C. How Congress Can Address Cash Discrimination
Congress may reach private actors by enacting a cash discrimination statute under the Commerce Clause. However, any such statute must first fall into one of the three categories discussed in United States v. Lopez.247
The first category requires a determination of whether the statute regulates channels of interstate commerce, such as highways, airspace, or the Internet.248 The use of cash to purchase goods and services would not be a channel of interstate commerce since it is not a physical path or gateway between two or more states. The first category is not met.
The statute must next be assessed under the second category: whether it regulates any instrumentalities of interstate commerce, such as cars, buses, boats, or people.249 Cash does not transport individuals or objects between states. Thus, the second category of the analysis would not apply to cash regulation.
Lastly, if the prior two categories are unmet, the statute must regulate activities that substantially affect interstate commerce in order to constitutionally survive under the Commerce Clause.250 The regulation of cashless businesses would likely affect interstate travel because individuals will not travel to and patronize businesses that do not accept their available means of payment.251 While cash discrimination that impacts interstate commerce is not as severe or immoral as racial discrimination—as seen in Heart of Atlanta and McClung—the economic activity of spending cash significantly affects the purchase of goods and services among interstate commerce.252 Ultimately, a regulation to force both public and private actors to accept physical cash would fit the third category articulated by Chief Justice Rehnquist: economic activity that has a substantial effect on interstate commerce.
It is likely that regulating businesses such that they must accept the nation’s physical legal tender would be accepted as having a substantial effect on the United States’ economy. Some may argue, however, that most businesses that decline cash affect only a small percentage of their customers and therefore do not substantially affect the economy.253 But with the growth of cashless businesses and the aggregated total of cash-paying customers declined by businesses in the United States, a Wickard aggregation argument would likely prevail.254 To invalidate any Act that is enacted under the Commerce Clause and that relies on a Wickard aggregation argument, it must be compared to the Lopez and Morrison exceptions of non-economic activities. Since a cashless regulation is an economic activity, there is no need to apply the Morrison factors.255
The last hurdle to regulate a substantial effect of an activity is to apply a Sebelius inactivity analysis where the primary question is whether Congress is attempting to regulate a citizen’s lack of activity.256 If the answer is yes, the regulation would be an overstep of Congress’s Commerce Clause power.257 If Congress were to impose a requirement to accept payment by cash, this would likely be considered a regulation of an activity. Therefore, the law would be upheld under a Sebelius standard.
D. A Practical Cash Discrimination Statute and How to Enforce It
Plaintiffs will be unable persuade a court to enjoin all cashless businesses. As cashless businesses grow, minorities will continue to experience buying-power discrimination. Recently, two bills were introduced in Congress to prevent retailers from going cashless: the Cash Always Should be Honored (CASH) Act258 and the Payment Choice Act.259 While these proposed bills are still new and in development,260 they are steps in the right direction. More members of Congress should support and encourage the exercise of its Commerce Clause power to prohibit all businesses from operating as cashless business entities.261
The unbanked and underbanked, who are predominately members of low-income households, rely on cash to purchase goods and services.262 These low-income households tend to be comprised of racial minorities and immigrants.263 Even without malicious intent, cashless businesses may hinder the interstate travel of people, particularly minorities, who can only pay with cash. As the number of cashless businesses grow, more low-income households will bear the burden of having to apply for checking accounts to use debit cards, credit cards, or checks. If low-income households are denied accounts, they will be unable to pay for basic needs. Therefore, Congress should enact a cash discrimination statute to prohibit a cashless economy from completely barring from participation those individuals and households whose socioeconomic statuses cannot support a cashless lifestyle.
While more state and local governments should enact statutes and adopt policies to alleviate the growing concern of cashless business growth, a federal regulation should be implemented first.264 Separate regulations across the United States will create difficulty for large, national businesses to operate on a national scale because they will have to comply with the regulations of different markets. For instance, Philadelphia’s ordinance provides exceptions for businesses like Amazon Go and Uber,265 but not every city or state may want to adopt this exception. On the other hand, if all cities and states adopt this exception, this may create a loophole where all businesses change to a membership model.266 Since it is unclear whether a membership model must be free to customers, restaurants, markets, and stores could potentially require an online or mobile account to bypass any cash-acceptance requirement. Massachusetts’s cash discrimination statute267 and Philadelphia’s ordinance are steps in the right direction, but—because of their vagueness, lack of enforcement, and loopholes—the statute and ordinance create more problems than solutions.268
Some may argue that state governments, through their Tenth Amendment police powers to protect the public welfare, safety, and health of their intrastate residents, are better equipped to enforce cash discrimination policies.269 But as more state and local cash discrimination regulations are adopted, a tangle of loopholes will materialize similar to Philadelphia’s ordinance. Philadelphia’s list of exceptions creates a slippery slope.270 It is best left to the federal government to enact a minimum-requirement statute on top of which states may legislate their own policies to fine-tune the federal statute to their local needs.
As a national interest, Congress should protect legal tender. As physical cash loses its authority and relevance with the growing number of cashless businesses, the supply and demand for cash will fall as well. A decline in the necessity for cash will affect the supply local banks purchase from the Federal Reserve.271 Without an e-currency in development, like in Sweden, and with the continued level of printing bills, the U.S. dollar could become unstable and at risk of inflation. The printing of the $100 note will continue to grow and be used for foreign transactions and illegal use, while small denominations to purchase goods domestically will slow in production.272 In the meantime, as the federal government develops an e-currency backed by the Federal Reserve and works on helping low-income families to adapt to cashless practices, cash acceptance at all businesses should be preserved.
Congress should use an improved-on combination of Massachusetts’s cash discrimination statute and Philadelphia’s ordinance that precludes ambiguity. Congress’s proposed statute should look like this:
(1) A PUBLIC OR PRIVATE ENTITY selling, RENTING, or offering for sale consumer goods or services at retail is prohibited from refusing to accept LEGAL TENDER as a form of payment to purchase goods or services. A PUBLIC OR PRIVATE ENTITY selling, RENTING, or offering for sale goods or services at retail shall not:
(a) Refuse to accept LEGAL TENDER as a form of payment;
(b) Post signs on OR AROUND the premises that LEGAL TENDER payment is not accepted; AND
(c) Charge a higher price to customers who pay WITH LEGAL TENDER than they would pay using any other form of payment.
(2) For purposes of this STATUTE:
(a) ‘at retail’ shall include any retail transaction conducted in person ON THE PHYSICAL PREMISES. IF THE INDIVIDUAL MAKING THE PAYMENT IS NOT PHYSICALLY PRESENT IN THE PHYSICAL RETAIL PREMISES AT THE TIME OF THE TRANSACTION, THEN SECTION (1) SHALL NOT APPLY; AND
(b) ‘LEGAL TENDER’ SHALL INCLUDE UNITED STATES CURRENCY, NOTE, OR COIN.
The capitalized words emphasize the additions to Philadelphia’s ordinance.273 These edits aim to solve the confusion of the definitions of a person and of legal tender. The revision also allows mailed, telephone, and online transactions to be cashless. Removing the list of exclusions prevents both public and private businesses from evading the regulation. Additionally, by excluding quantitative qualifiers such as “any” or “all” from “United States currency, note, or coin” in subsection (2)(b), the statute allows retailers—like gas stations—to maintain the practice of refusing large denominations to prevent robberies.274
There are multiple ways low-income individuals and households could benefit from a federal cash discrimination statute. Not only would indigent and low-income individuals have the power to purchase goods and services with their cash, but their communities may prosper from businesses that violate any cash discrimination statute. Businesses that do not conform to the law would face fines that could be directed to programs in low-income communities such as federal housing programs, community parks, and after-school activities. Improvements to low-income communities would incentivize the enforcement of a cash discrimination law.
Even though Congress may rely on its Commerce Clause authority to enact such a law, there may be policy concerns among individuals and political parties who support a free-market approach and fewer regulations. To find a healthy medium between businesses who want to grow their cashless operations and cash buyers who do not have access to cashless payment methods, Congress could require businesses to accept cash solely for purchases of ten dollars and below. For any total purchase above that cost, the business may choose to accept only cards and mobile payments. Nonetheless, the total purchase cost does not have to be ten dollars; it can be any amount deemed reasonable by Congress. But to adjust for inflation or other situations, the statute would need to allow for the flexibility to change the total purchase cost. It may not be perfect, but regulating businesses to accept cash for purchases under ten dollars would allow indigent and low-income individuals to purchase low-quantity necessities at cashless grocery and farmers’ markets, convenience stores, and fast food restaurants.
Conclusion
The concept of a cashless world has already begun, and in no way should countries stunt or outlaw its global expansion.275 Yet, the pace of a completely cashless economy is too fast for low-income individuals and households to keep up. Plaintiffs have almost no legal claim to remedy the disparate impact of a cashless economy. The United States has at least two paths to protect victims of cashless practices. First, Congress should enact a cash discrimination statute using its Commerce Clause power to force all businesses to accept legal tender. Second, and additionally, state and local governments should develop loophole-free laws governing cashless businesses and should enforce its policies to reassure low-income individuals that their purchasing power will not be hindered due to their socioeconomic status. Cashless businesses should be encouraged, but not all Americans are financially ready to make the leap to that type of economy yet.276 Low-income Americans should not be left behind.