[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
CASHED OUT: HOW A CASHLESS
ECONOMY IMPACTS DISADVANTAGED
COMMUNITIES AND PEOPLES
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VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 14, 2021
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-53
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-196 PDF WASHINGTON : 2021
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on Oversight and Investigations
AL GREEN, Texas Chairman
EMANUEL CLEAVER, Missouri TOM EMMER, Minnesota Ranking
ALMA ADAMS, North Carolina Member
RASHIDA TLAIB, Michigan BARRY LOUDERMILK, Georgia
JESUS ``CHUY'' GARCIA, Illinois ALEXANDER X. MOONEY, West Virginia
SYLVIA GARCIA, Texas DAVID KUSTOFF, Tennessee
NIKEMA WILLIAMS, Georgia WILLIAM TIMMONS, South Carolina,
Vice Ranking Member
C O N T E N T S
----------
Page
Hearing held on:
October 14, 2021............................................. 1
Appendix:
October 14, 2021............................................. 29
WITNESSES
Thursday, October 14, 2021
Breyault, John, Vice President, Public Policy,
Telecommunications, and Fraud, National Consumers League (NCL). 4
Garcia, Norma, Policy Counsel and Director, Mission Economic
Development Agency (MEDA)-San Francisco........................ 6
Ruggia, Beverly Brown, Director, Financial Justice Program, New
Jersey Citizen Action.......................................... 8
Valdez, Alex, Member, Colorado House of Representatives.......... 9
Zywicki, Todd, Senior Fellow, Center for Monetary and Financial
Alternatives, Cato Institute; and Foundation Professor of Law,
George Mason University Antonin Scalia School of Law........... 11
APPENDIX
Prepared statements:
Breyault, John............................................... 30
Garcia, Norma................................................ 43
Ruggia, Beverly Brown........................................ 50
Valdez, Hon. Alex............................................ 53
Zywicki, Todd................................................ 56
Additional Material Submitted for the Record
Garcia, Hon. Jesus ``Chuy'':
Written responses to questions for the record from John
Breyault................................................... 69
Garcia, Hon. Sylvia:
Written responses to questions for the record from Norma
Garcia..................................................... 72
CASHED OUT: HOW A CASHLESS
ECONOMY IMPACTS DISADVANTAGED
COMMUNITIES AND PEOPLES
----------
Thursday, October 14, 2021
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 12:04 p.m.,
via Webex, Hon. Al Green [chairman of the subcommittee]
presiding.
Members present: Representatives Green, Cleaver, Adams,
Tlaib, Garcia of Texas, Williams of Georgia; Emmer, Mooney,
Kustoff, and Timmons.
Ex officio present: Representative Waters.
Chairman Green. The Oversight and Investigations
Subcommittee will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of this subcommittee are authorized to
participate in today's hearing.
As a reminder, I ask all Members to keep themselves muted
when they are not being recognized by the Chair, to minimize
disturbances while Members are asking questions of our
witnesses. The staff has been instructed not to mute Members,
except when a Member is not being recognized by the Chair and
there is inadvertent background noise.
Members are reminded that all House rules relating to order
and decorum apply to this remote hearing. Members are also
reminded that they may participate in only one remote
proceeding at a time. If you are participating today, please
keep your camera on, and if you choose to attend a different
remote proceeding, please turn your camera off.
If Members wish to be recognized during the hearing, please
identify yourself by name to facilitate recognition by the
Chair.
Members are reminded that your questioning is limited to 5
minutes. You should be able to see a timer on your screen that
will indicate how much time you have left, and a chime will
sound at the end of your time.
The title of today's hearing is, ``Cashed Out: How a
Cashless Economy Impacts Disadvantaged Communities and
Peoples.''
I now recognize myself for 5 minutes, make that 4 minutes,
to give an opening statement.
Few things are more fundamental to the sustenance of life
than the very simple act of buying a bag of groceries. Yet in
recent years, the emergence of so-called cashless businesses, a
trend accelerated by the pandemic, has caused me to ask just
how simple that act really is if a merchant refuses to accept
the U.S. dollar as payment. The inability to access food is but
one example of how a cashless economy would adversely impact
many, including persons who are unbanked, of low wealth,
differently abled, homeless, or otherwise disadvantaged.
As today's expert witnesses will illuminate, cashless
commerce hampers equal access to other essential goods,
services, and transactions that many of us take for granted.
Unequal access to full economic participation is not the only
downside. There are serious privacy and security threats on
cashless commerce for virtually all consumers, and very real
consequences about which we will learn more today.
But against this dispiriting background, there is good news
to be found. It is the overwhelming bipartisan agreement, if
you will, by leaders in States, localities, and even here in
Congress that a totally cashless economy should not become a
reality. In purple, blue, and red States alike, policymakers
agree that the U.S. dollar in its physical form must continue
to be accepted as legal tender.
[inaudible] our witnesses today come from jurisdictions
that have enacted cashless bans at the State and local levels.
I look forward to hearing from each of them regarding the
lessons learned from the frontline experiences that they have
shared, and we hope that in so doing, we will get a better
understanding of what a cashless economy can do to persons who
are not as fortunate as some of us.
In closing, I thank Subcommittee Member Sylvia Garcia for
her leadership on the Payment Choice Act of 2021. I am honored
to join many of my colleagues on both sides of the aisle as a
co-sponsor of the bill and its proposed solution to many of the
ills about which we will learn more today.
The Chair now recognizes the ranking member of the
subcommittee, Mr. Emmer, for 5 minutes for an opening
statement.
Mr. Emmer. Thank you, Chairman Green. Thank you for hosting
this thoughtful hearing as we consider the implications of a
cashless economy and how those implications affect certain
communities and small businesses, and how they do so in an open
and free society.
In a world without cash, transactions are mediated by
financial institutions. Of course, this intermediation provides
efficiency and convenience, but I must stress that cash is a
tool that was used even by ancient civilizations to
specifically avoid intermediation and preserve values of
individual liberty and privacy.
Cash is essential to an open and free society--4.7 percent
of the U.S. adult population is unbanked, meaning they don't
have credit, they don't have a credit card or a debit card, and
a larger population is underbanked. The FDIC found that one of
the primary reasons people are underbanked or unbanked is
because they do not trust their institutions. While electronic
transactions have exponentially increased during the pandemic,
Americans are also storing physical cash on their selves at a
higher rate than previous years.
This is all to say that cash is clearly an important tool
in any open and free society, but we are also in a digital age
where electronic transactions often just make more sense.
With that being said, government should never be in the
business of telling people and businesses, large or small, what
forms of payment they should accept. Sometimes, holding cash
can put the business and its employees in danger or it can be
more expensive. My office has received feedback from small
businesses across the country that, for the most part, prefer
not to hold cash and would oppose any Federal law requiring
them to accept cash as a payment.
So, how do we adapt to the digital economy while
maintaining the privacy elements of cash? Decentralized
technology like cryptocurrency and stablecoins can offer this
solution. Because these tools run on distributed ledger
technology, they are open, permissionless, and private. This
allows citizens to continue to live in an open society while
that society becomes more and more digitized.
I implore my colleagues to look to financial technology as
a solution. Financial technology is a solution to extending
financial services to the unbanked and the underbanked. It is a
solution to adapting to an increasingly digital society while
maintaining individual liberty and autonomy. And it is also a
solution that not only offers more affordability to consumers,
but keeps consumers, small businesses, and employees safe.
Mr. Chairman, again, I appreciate the opportunity to engage
in the discussion today, and I look forward to our witnesses'
testimonies. Thank you, and I yield back the remainder of my
time.
Chairman Green. The gentleman yields back.
The Chair now recognizes the Vice Chair of the
subcommittee, the gentlewoman from Georgia, Ms. Williams, for 1
minute.
Ms. Williams of Georgia. Thank you, Mr. Chairman.
Today's topic is personal for me. I am a Congresswoman who
has been unbanked, and I have been that person trying to make
it to payday. I have been that person who needed a couple
hundred bucks but couldn't get access to lending. I have been
that person who has had to rely on cash to get by.
Too many of my constituents remain unbanked or underbanked,
and this is an equity issue. In 2019, for instance, the FDIC
reported that 13.8 percent of Black individuals were unbanked,
compared to only 2.5 percent of White individuals. We have to
do all that we can to help those most marginalized get access
to responsible financial services. We have a lot of work to do
on this issue, but meanwhile, we can't take a step backward by
cutting off the only option that some people have: cash.
Today, I look forward to discussing how we can preserve
financial inclusion as the digital economy expands. Our
constituents are counting on us to get this right, and I am
determined to hold the door open for more people like me to
make it from a place of financial hardship to a place like
Congress.
Mr. Chairman, I yield back.
Chairman Green. The gentlelady yields back.
Please allow me now to welcome each of our witnesses, and I
am pleased to introduce this panel.
We have with us today: John Breyault, the vice president of
public policy, telecommunications, and fraud at the National
Consumers League; Norma Garcia, a policy counsel and director
at the Mission Economic Development Agency in San Francisco;
Beverly Brown Ruggia, a financial justice program director at
New Jersey Citizen Action; Representative Alex Valdez, a member
of the Colorado House of Representatives; and Todd Zywicki, a
professor of law at George Mason University Antonin Scalia
School of Law, and a senior fellow at the Cato Institute.
Our witnesses are reminded that your oral testimony will be
limited to 5 minutes. You should be able to see the timer on
your screen that will indicate how much time you have left, and
a chime will go off at the end of your time. I would ask that
you be mindful of the timer, and quickly wrap up your testimony
if you hear a chime, so that we may be respectful of both the
witnesses' and the subcommittee members' time.
And without objection, your written statements will be made
a part of the record.
Once the witnesses finish their statements, each Member
will have 5 minutes to ask questions. I do want to remind the
Members that you should ask your questions and receive your
answers within this 5-minute period to be respectful of the
time of others. So, please ask questions and receive answers
within the 5-minute period to the extent that you can.
Mr. Breyault, you are now recognized for 5 minutes to give
an oral presentation of your testimony.
STATEMENT OF JOHN BREYAULT, VICE PRESIDENT, PUBLIC POLICY,
TELECOMMUNICATIONS, AND FRAUD, NATIONAL CONSUMERS LEAGUE (NCL)
Mr. Breyault. Good afternoon, Mr. Chairman, Mr. Ranking
Member, and members of the subcommittee. My name is John
Breyault, and I am the vice president of public policy,
telecommunications, and fraud for the National Consumers League
(NCL).
Founded in 1899, NCL is the nation's pioneering consumer
and worker advocacy organization. Our nonprofit mission is to
advocate on behalf of consumers and workers in the United
States and abroad. I appreciate the opportunity to provide the
subcommittee with NCL's perspective on the growing use of peer-
to-peer (P2P) payment apps and the need for stronger consumer
protections from fraud and erroneous payments for users of
these services.
As you will hear from my fellow witnesses, a cashless
economy is one where far too many consumers, particularly those
with low incomes, and especially those who come from
historically marginalized communities, are likely to be left
behind. To be clear, a cashless economy is one that comes with
real costs for these vulnerable consumers, such as fewer retail
choices, higher prices for everyday goods and services, more
surveillance, and less access to the banking system.
Emblematic of the impact of a cashless economy on
vulnerable consumers is the explosive growth of peer-to-peer,
or P2P, payment apps, like PayPal's Venmo, Square's cash, and
the banks' Zelle service. By one estimate, roughly 4 in 5, or
79 percent, of Americans have used mobile payment apps. By
2023, more than $1 trillion will likely be transacted via these
platforms.
Unfortunately, the features that make P2P services
appealing--low cost, nearly instantaneous payments all made via
mobile app--are also key contributors to high fraud rates. In
2020, the FTC received nearly 62,000 complaints from consumers
who sent money to fraudsters via payment apps or similar
services, with a total reported loss of $87 million. These
complaint statistics, sobering as they may be, are just the tip
of the iceberg. Analysts estimate that fraud rates on these
platforms are 3 to 4 times higher than for traditional payment
methods, such as debit or credit cards.
P2P services are aware that scammers use their services to
obtain funds from their victims, and while P2P services do
employ technological measures and consumer education messaging
to try and stop fraudulent transactions, there is a business
incentive not to introduce too many security roadblocks in the
payment process. If these platforms are making the decision to
skew their services towards speed and convenience, at the
expense of safety and security, they must take responsibility
for those business choices.
While no financial service is immune from fraud,
protections for consumers who lose money on P2P apps to scams
or even simple errors are sorely lacking. A big reason for this
is a loophole in the Electronic Fund Transfer Act (EFTA) that
excludes payments initiated by the consumer from the
protections of unauthorized charges. This is also known as
fraud in the inducement or victim-assisted fraud. This allows
P2P services and banks to avoid liability for payments sent
from consumers to scammers, even when such payments are the
result of fraud.
Similarly, when a consumer sends a payment in error, such
as by entering the wrong email address into the app, the P2P
platforms are not obligated to correct the error. Instead, they
simply encourage the consumer to ask the unintended recipient
to voluntarily send the money back. Unsurprisingly, this is no
substitute for strong antifraud and error resolution
protections.
The end result of this loophole is that the liability risk
for fraud is transferred from the platforms and banks to
consumers themselves. The only recourse for many victims of
fraud or errors committed via these apps is to throw themselves
on the mercy of the banks or platforms and beg to be made
whole. Unfortunately, thanks to the lack of legal protections,
it is far too easy for the banks and P2P platforms to simply
tell fraud victims that they are out of luck.
This state of affairs is unacceptable for consumers.
Billion-dollar banks and payment platforms are far more able to
spread the costs of protecting consumers from errors and fraud
across the system. By comparison, a single error or instance of
fraud can be devastating to an individual consumer.
To ensure the P2P apps are secure for their users and do
not continue to be powerful tools for fraudsters, action by
Congress is urgently needed. My written testimony includes a
number of legislative actions to strengthen protections for
consumers using P2P apps.
In particular, I would like to urge Congress to pass
legislation that expands the EFTA's definition of unauthorized
electronic fund transfer to cover fraudulently induced
payments, with ultimate liability resting with the institution
that received the fraudulent payment. Doing so would give
consumers confidence that they will be made whole if they are
induced to send money to scammers via P2P services. It would
also create a strong incentive for all stakeholders in the P2P
payments ecosystem to make security a priority just as it is in
the debit and credit card space.
Chairman Green, Ranking Member Emmer, on behalf of the
National Consumers League, thank you for your continuing work
to protect consumers and for holding this hearing. I look
forward to answering your questions.
[The prepared statement of Mr. Breyault can be found on
page 30 of the appendix.]
Chairman Green. Thank you, Mr. Breyault.
Ms. Garcia, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF NORMA GARCIA, POLICY COUNSEL AND DIRECTOR, MISSION
ECONOMIC DEVELOPMENT AGENCY (MEDA)-SAN FRANCISCO
Ms. Garcia. Thank you very much, Chairman Green, and
members of the subcommittee. My name is Norma Garcia, and I am
the policy counsel for the Mission Economic Development Agency
in San Francisco, California.
Since 1973, the Mission Economic Development Agency has
been advancing the mission towards creating equity for Latinos
and immigrants seeking a better life. We are a Latino-led
nonprofit organization that invests in the lives of our
underserved Latino families through direct services, community
development initiatives, and policy advocacy.
You have asked me to focus my testimony on a few questions,
and I will get to those now. You have asked for policy
recommendations to protect consumers in marginalized
communities from adverse implications of a cashless society,
and I will say that because many of the community members we
serve fall into several categories of vulnerability, as
outlined in my written testimony, we do not support the idea of
moving to a cashless economy. To do so would perpetuate a
growing income inequality by making it harder for people who
use cash and don't have access to credit and technology to
effectuate a cashless payment.
We cannot exclude a portion of the population from the
economy, quite a large portion of the population. That is not
good for our communities, that is not good for our country, and
we must remain vigilant in ensuring that our economy is
inclusionary and accessible to everyone.
I do believe this committee is asking the right questions.
You are asking us to consider the impact on the most vulnerable
populations, and that is what we call essentially an equity
impact analysis. It is kind of a corollary to an environmental
impact analysis, and we think it is an essential piece of any
policy proposal that is coming before us for consideration.
So, what is the impact on the most-vulnerable communities?
We can tell you that in San Francisco, my organization serves a
highly vulnerable population that does not share equally in the
economic boom that is San Francisco and Silicon Valley. In
fact, due to growing income inequality, San Francisco's Latino
community lives in one of the nation's ground zeroes for
displacement of Latinos from a community they have called home
for generations.
We believe that a proper equity impact analysis demands
that once it is determined that a particular policy will have a
negative adverse impact, we need to decide that if it is not
working, and it is going to adversely impact the most
vulnerable, we should move on to other ideas. And, ideally, if
there are other mitigating circumstances that are being
considered in determining if there is a path forward, the
communities that are most affected must be at the table.
We need to find new ways to coexist with existing
practices, like electronic payment options, in addition to cash
payments. It is one way to protect consumers in those
communities that are marginalized from having outside adverse
implications.
We are doing this in San Francisco. We passed an ordinance
in 2019, and it is something that can serve as a model in other
parts of the country. Essentially, we are talking about
preserving cash as a payment option which can coexist with
other payment options. We have identified the universe of
businesses to which this applies. We have created reasonable
parameters around any exceptions. We are educating businesses
and community members about their rights and obligations, and
we are creating effective mechanisms for monitoring and
enforcing this new ordinance. This is super important, and we
are happy to share this with you.
On the impacts of a cashless society, I think other
witnesses have clearly said this in a very effective way: We
know that those who suffer most in a cashless society are
immigrant communities, senior citizens, unbanked and/or
unhoused persons, and others who are likely to depend on cash.
And I think that one constituency that has not been mentioned
is young people who may not be able to get a bank account but
need to be able to transact in cash.
I think I would like to move on, given that my time is
running out.
There are some other considerations that need to be taken
into account, and one that has not been mentioned is that
noncash systems are not always inherently reliable. They
require connectivity. Power outages occur with regularity here
in California. We know that when the power goes out, merchants
can't take electronic payments, and cash only is the way to
pay. With mobile wallets, phones must be charged. Pay-by-the-
minute accounts need to be topped off, which means that people
need to have the resources to keep this going. And for low-
income communities, this may be particularly burdensome.
The implications for small businesses, particularly
minority-owned small businesses--I can tell you that in San
Francisco's Mission District, the merchants that serve our
community are used to dealing in cash because our community is
used to dealing in cash. And so, these merchants know that if
they want to have a successful business, they need to meet
customers where they are, and they may well have incentives to
deal in cash themselves as merchants to avoid any costs
associated with electronic receipt of payments. They are able
to keep prices lower that way. They are not passing those costs
on to the consumer, and they are not in a position where they
have to absorb the costs themselves.
Some businesses can--
Chairman Green. The gentlelady will have an opportunity to
give additional comments. I am going to have to move on, but
thank you for your testimony thus far.
Ms. Garcia. Thank you. I appreciate the opportunity.
[The prepared statement of Ms. Garcia can be found on page
43 of the appendix.]
Chairman Green. Thank you.
Ms. Ruggia, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF BEVERLY BROWN RUGGIA, DIRECTOR, FINANCIAL JUSTICE
PROGRAM, NEW JERSEY CITIZEN ACTION
Ms. Ruggia. Thank you, Chairman Green and members of this
subcommittee, for the opportunity to testify. My name is
Beverly Brown Ruggia, and I am the financial justice director
for New Jersey Citizen Action, a Statewide nonprofit
organization which has been working since 1984 for social,
racial, and economic justice through advocacy, organizing, and
community empowerment programs for low- and moderate-income New
Jerseyans.
I will be underscoring much of what has been said, and it
is based on what we are experiencing in our State.
In 2019, New Jersey passed bipartisan legislation to
protect consumers' choice to use cash as payment for most
retail purchases. The legislature acted because denying cash as
a form of payment for goods and services discriminates against
people who cannot afford or are unable to obtain noncash
payment options. Additionally, the practice potentially
subjects consumers to unnecessary costs, violations of privacy,
and to cybersecurity risks.
Cashless payment policies discriminate against communities
of color and low-income customers disproportionately. As has
been cited, the FDIC showed that 7.1 million Americans are
unbanked or live in households where no one has a bank account.
According to the study, almost 15 percent of African-American
households and about 13 percent of Latino households are
unbanked, compared with just 2 to 3 percent of White
households.
Another 24 million households are underbanked, meaning that
at least one household member has a bank account but does not
generally use credit cards or other traditional bank credit
products. Indigenous and working-age disabled households and
households with volatile income are also among the unbanked and
underbanked at high rates.
A 2018 Reveal news report demonstrated that redlining
persists in this country and still denies millions of low- and
moderate-income people, especially Black and Brown people,
access to banking services and accounts. Even where possible,
opening a bank account requires documents, which many low-
income and elderly people do not have. People experiencing
homelessness usually cannot provide utility bills or other
proof of address needed to open a bank account.
Online banking services also require, as has been said,
reliable and affordable internet access, which low- and fixed-
income people often cannot afford, and people for whom English
is not their first language are more likely to be unbanked than
native English speakers.
But the main reason cited by 29 percent of the FDIC
survey's respondents is not having enough money to maintain the
minimum balances required to open and maintain a bank account.
Cashless policies specifically penalize individuals and
households who cannot afford a bank account, a credit card, and
the consumer credit products needed to make noncash payments.
The alternatives to credit cards, such as prepaid cards or
mobile devices, are costly. A study by the Financial Health
Network found that in 2018, unbanked and underbanked households
spent $180 billion in fees and interest on nonbank financial
products.
Cashless payment policies can also pose practical barriers.
One of Citizen Action's Board Co-Chairs is blind. She cannot
use bank cards because the terminals are not accessible in
design, lacking braille key pads and appropriate PIN security,
for example. In other words, cashless policies exclude the
most-vulnerable individuals and households among us who are not
able or cannot afford to use anything but cash.
The second-most popular reason cited in the FDIC survey of
unbanked households was a distrust of the banking system. Bank
card payments are not as private as cash payments. Point of
sale systems give businesses and large companies access to
personal and financial information. Cashless payments also
force customers to expose themselves to potential identity
theft and other forms of cyber fraud.
So, it should be no surprise that another national study
found that cash has been the preferred method for daily
transactions among communities of color, whether they are
banked or unbanked.
Technology in banking and finance must expand financial
equity and inclusion by providing choices and options that make
personal financial management easier, more efficient, and safer
for all consumers. Technology must not limit choices and
perpetuate systemic inequities in our financial system that
exclude and discriminate.
Cashless payment policies amount to discriminatory retail
redlining. Instead of a redline around a neighborhood, there
are millions of redlines around individual customers shopping
on Main Street every day which deny them access to goods and
services despite having perfectly sufficient U.S. legal tender
to spend.
Thank you.
[The prepared statement of Ms. Ruggia can be found on page
50 of the appendix.]
Chairman Green. Thank you for your testimony.
State Representative Valdez, you are now recognized for 5
minutes to give an oral presentation of your testimony.
STATEMENT OF STATE REPRESENTATIVE ALEX VALDEZ, MEMBER, COLORADO
HOUSE OF REPRESENTATIVES
Mr. Valdez. Good morning, Mr. Chairman, and thank you,
members of the subcommittee. My name is Alex Valdez, and I am a
State Representative from Colorado's House District 5, which
encompasses downtown Denver.
My district, like Denver's population, is heavily Latino.
My district is 40-percent Latino, and Colorado's population as
a whole is nearly 22-percent Latino. As a Latino
Representative, the Chair of the Latino Caucus, and the Chair
of the LGBTQ Caucus, as well as the Chair of the Energy and
Environment Committee, I am more than familiar with how
minority communities are affected by the policies we make on
our everyday lives.
During Colorado's 2021 legislative session, I sponsored
House bill 21-1048, ``Concerning a Requirement that Retail
Establishments Accept United States Currency for Purchases.''
House bill 21-1048 required retail establishments offering
goods or services to accept U.S. currency as a form of payment
for in-person transactions. Retail establishments that do not
comply may be fined up to $250 per transaction.
Throughout the stakeholder process, some exceptions were
established--certain instances that retail establishments need
not comply if the transaction is for a security deposit being
placed on a credit card or if the retail establishment is a
bank or a credit union. This was important for rental cars, et
cetera.
The catalyst for this bill came directly from the
community. Marginalized communities within House District 5,
and underbanked and underbanked Coloradoans in general were
struggling to survive as the myth spread that COVID-19 spread
on cash but not on credit or debit cards. Spread throughout the
State, country, and the world, this war on cash is not a new
concept, but one that we saw grow exponentially during the
global health pandemic, adding even more strain to families
having to navigate a tumultuous time. This attack on cash has
long affected minority communities, creating inequalities in
every facet of the economy.
In 2017, 4.2 percent of Coloradoans did not have any sort
of bank account, and 17.3 percent of Coloradoans were
underbanked, which resulted in many having to use cash for
everyday necessities. According to a 2017 Federal Deposit
Insurance Corporation report, it was estimated that 25 percent
of all American households are either underbanked or
underserved. This is roughly 32 million households without a
bank account or access to traditional banking systems,
including debit and credit cards.
To deny so many people their sole method of purchasing
power is wrong, especially when a third of low-income
qualifying individuals and 17 percent of Latinos countrywide
use cash for all purchases. Cash usage is still prevalent and
important throughout our society. There are large swaths of
Coloradoans who still prefer to use cash.
When crafting this bill, I spoke with a variety of folks
about how this would impact them. Some were not able to buy
their groceries at a local store and were forced to travel long
distances to find establishments that accepted cash. Others had
undocumented relatives who faced yet another barrier when
denied cash purchases. On one occasion, I even attempted to pay
with cash after having dinner with a friend and was told by the
restaurant that they did not accept cash. I was lucky, I had a
credit card I could use to pay, but those who don't are no less
deserving of having a meal, buying groceries, or purchasing
goods. In situations such as this, no person should be made to
feel embarrassed, rejected, or judged based on their purchasing
method.
The policy solution to address this crisis is laid out in
the sponsored bill. Putting an end to the ban on cash supports
all members of our society, especially people of color, the
elderly, undocumented folks, and the unhoused. As our economy
continues to navigate and recover from the COVID-19 pandemic,
it is critical to ensure that every person can fully
participate in our economy. Cashless systems prevent this,
sifting economic recovery and hindering healthy communities.
Banning one of the simplest ways to pay--cash--is
inequitable. Those who don't have a credit or debit card or a
bank account should not be excluded. The millions of Americans
who are underbanked have the right to participate in our
economy to meet their basic needs.
Our currency states that it is good for all debts, public
and private, and it is my hope that you will advance
legislation making that statement a reality.
Thank you very much for your time today. I am excited to
answer any questions the subcommittee may have.
[The prepared statement of Mr. Valdez can be found on page
53 of the appendix.]
Chairman Green. Thank you very much.
We will now hear from Professor Zywicki. You are recognized
for 5 minutes to give an oral presentation of your testimony.
STATEMENT OF TODD ZYWICKI, SENIOR FELLOW, CENTER FOR MONETARY
AND FINANCIAL ALTERNATIVES, CATO INSTITUTE; AND FOUNDATION
PROFESSOR OF LAW, GEORGE MASON UNIVERSITY ANTONIN SCALIA SCHOOL
OF LAW
Mr. Zywicki. Thank you, Chairman Green, Ranking Member
Emmer, and members of the subcommittee. My name is Todd
Zywicki, and I am the George Mason University Foundation
Professor of Law at the Antonin Scalia Law School, and a senior
fellow of the Cato Institute. And during the 2020 year, I
served as the Chair of the Consumer Financial Protection
Bureau's (CFPB's) Task Force on Consumer Financial Law, which
gave me a unique perspective on these issues, a unique
perspective on consumer finance and financial protection,
during a time of unprecedented challenges and unprecedented
acceleration of these trends that we have seen with respect to
the migration towards electronic payments over the last several
years.
Let me make clear at the outset that I am neither in favor
of banning cash, nor am I in favor of requiring cash. I am
sensitive to the issues here. I am very sensitive to the issues
of financial inclusion, and the centerpiece of our CFPB task
force report was how to increase financial inclusion so that
nobody is left behind, and as we see this transition toward a
more cashless society, to make sure nobody is left behind here
also.
But I am also aware of the advantages to consumers, to
businesses, and to the economy from the developments that we
have seen, and the developments that we saw this past year. It
has been said that 6 months of time was telescoped into maybe 3
years of accelerated transition during the past year during the
pandemic with respect to electronic payments. But I think that
this, like many other things--dealing with this is
presumptively left to the market and to voluntary choices of
consumers and businesses, unless there is compelling evidence
to the contrary.
We saw a similar transition during my own lifetime with the
virtual elimination of checks, which were a very popular and
ubiquitous and maybe the most important payment system for most
people. And during our lifetime, we saw the phasing out of
checks simply because of the cost of checks and the preferred
convenience and cost of electronic payments.
Let's make a couple of things clear at the outset, which
is, first, I think that these trends we have seen during the
past year are inevitable. They are going to continue, and I
think, over time, we are going to continue to see a decline in
the use of cash and an increase in the use of electronic
payments. Generational change is supporting this, new entrance
by businesses are supporting this, especially because a lot of
the cost of accepting cash are fixed costs the legacy
businesses have in terms of installing vaults, security
systems, cash registers and the like.
But at the same time, we also know that a lot of consumers
are going to continue to want to use cash. A lot of businesses
are going to continue to want to accept cash, especially larger
legacy businesses who have made these investments. So I think
at this point, there is no reason to intervene to either compel
use of cash or to prohibit it.
And I think the reason for these trends are clear. There
are benefits to businesses, which quite clearly will trickle
through to consumers. I detail these in my testimony, but the
first is simply, it can be less expensive. The primary cost of
cash, in addition to the capital start-up costs that I
mentioned, are labor costs. As labor costs go up, cash is very
labor-intensive. And as labor becomes more expensive, and we
know we are in an economy right now with labor shortages, that
increases the relative cost of handling cash. Payments are
becoming faster and more convenient.
Also, to state an obvious observation, cash is less
hygienic, especially for food in food establishments, and that
is why a lot of places banned or chose not to take cash at
sandwich shops and the like.
There are also benefits to consumers in terms of crime
concerns and the like, and there are benefits to society in
terms of reduced crime and tax evasion. And small businesses
and new entrants can probably benefit the most.
We should also recognize that there are benefits to even
unbanked consumers, excluded consumers, from trying to increase
access to electronic payments. Cash is not free. We have a lot
of check cashers. They charge a lot. They have concerns about
crime. Cash can be inconvenient. It can be difficult to obtain
cash. You can have trouble--it is difficult to make online
purchases and the like.
And so my view is that rather than propping up cash, it
would be better to look at what it is--the factors that are
excluding consumers and promote greater competition and
innovation to open and expand electronic payments to other
consumers. I list several in my testimony.
I think we should have broader credit union chartering to
serve underserved communities. I think we need more industrial
loan company chartering. I think fintech can help solve this
problem. I think better competition and portability in bank
accounts can do this. And I also think that a faster payment
system that would allow checks to clear faster will help
consumers very much as well, who rely on check cashers and the
like.
Thank you for your time, and I look forward to answering
your questions.
[The prepared statement of Mr. Zywicki can be found on page
56 of the appendix.]
Chairman Green. Thank you, Professor.
It is now my honor to recognize the Chair of the full
Financial Services Committee, the gentlewoman from California,
Chairwoman Waters, for 5 minutes of questions.
Madam Chairwoman, you are now recognized.
Chairwoman Waters. Thank you so very much, and I certainly
appreciate this hearing. This is very important.
Millions of Americans still use cash as their primary
method of payment, including disproportionately communities of
colors, unhoused persons, the underbanked and unbanked, elderly
persons, and immigrants without documentation, among others.
Many businesses such as tech companies, restaurants, and stores
are moving towards going cashless, and in some communities,
such as communities with low-income or migrant populations,
many stores are cash-only.
Do you see the potential for economic segregation here
where some consumers are economically shut out of making
purchases in certain communities, possibly even where they live
or work?
Now, let me just segue a bit and say something. I am very
much in support of innovation and looking toward the future and
how we can expedite, how we can use the electronic
opportunities that are available to us. However, let's talk
about what is happening in the real world.
I just referred to the underbanked and the unbanked. Let me
tell you about the millions of people who work every day in
different ways, some of whom are still cashing checks at these
check-cashing places. That costs them money, but they don't
have bank accounts. They are underbanked, or they are not
banked at all.
But in addition to that, do you know that there is an
underground economy where we have so-called handymen--I would
like to think of as handymen and handywomen--who are taking
care of communities all across this country? They are doing odd
jobs. They are painting. They are taking care of lawns, et
cetera, et cetera. And they want cash. They want to be paid in
cash. And I and a lot of other people do that. We pay them in
cash. These are people who are taking care of their families.
These are people who have children. These are people who depend
on the cash that they make on a daily basis in order to have a
decent quality of life.
I do not want to be in a position where we all move so
heavily against cash as a form of payment. As a matter of fact,
of course, I have credit cards and, of course, I use the
database systems in order to pay bills, et cetera, et cetera;
but I still resent the fact that people can't get a hotel room
if they don't have a credit card because hotels don't take
cash.
Having said that, Mr. Breyault, what do you say about those
people whom I am referring to, who are unbanked or underbanked,
and how cash systems are the only thing they know and the only
thing they use? Are we to forget about them?
Mr. Breyault. Chairwoman Waters, no, not at all. And I
couldn't agree more with your statements. The need for cash to
be a viable payment method for consumers is one that remains
with us and will continue to remain with us for many years.
Unfortunately, as you mentioned, more and more establishments
are choosing to only accept digital payments. That has real
costs in terms of access to the marketplace for low-income
consumers, who often come from marginalized communities, and it
has real costs in terms of greater surveillance.
When you pay with a digital payment, you necessarily have
to give your data to the bank, maybe two banks, the merchant,
maybe even a payment processor, and that data is shared with
advertisers, data brokers, and others who build often
discriminatory profiles on millions of consumers. Cash is an
anonymous way for millions of consumers to pay, and I think
that they should continue to have that right.
Chairwoman Waters. Thank you so very much.
And I am going to yield back so that you can move on. I
know you have other Members who have a lot of questions. Thank
you very much. And I yield back the balance of my time.
Chairman Green. The gentlelady yields back.
The Chair now recognizes the ranking member of the
subcommittee, Mr. Emmer, for 5 minutes of questions.
Mr. Emmer. Thank you, Chairman Green. And, again, thank you
to our witnesses for your time and your perspectives today as
we examine the implications of a cashless economy.
While some cities and some States have enacted laws that
require businesses to accept cash, there are also businesses
that have experimented with a cashless model. There is no one-
size-fits-all solution to payment options, of course, and cash
is certainly essential to democracy in an open and free
society.
That said, Professor Zywicki, I want to dive into the
reasons a business might not want to accept cash. And I will
ask several questions. I would appreciate as quick a response
as you can give to each.
First, retailers have to pay employees to account for cash
in the register and at the back of the store, count the drawer
nightly, package it up, and either hire a courier or send an
employee to transport it to the bank, and then they have to pay
fees for processing and handling.
Did I leave anything out, Professor?
Mr. Zywicki. I think that pretty much covers all of it. It
is a very labor-intensive way to do things.
Mr. Emmer. And there is also some risk that is associated
with handling all that cash. The business can be exposed to
theft and the employees can be exposed to danger in the form of
robberies.
Professor Zywicki, are there costs associated with these
types of risks?
Mr. Zywicki. Absolutely, Mr. Emmer. There are security
costs. There are the costs of hiring armored cars. There are
the costs of installing vaults and safes. And as you said,
there is the cost of--there is the risk to employees who work
on the front lines who have a lot of cash on hand.
Mr. Emmer. So, Professor, is it fair to say that a Federal
requirement to accept cash is effectively a tax on any business
that might otherwise prefer to go cashless?
Mr. Zywicki. Absolutely, yes.
Mr. Emmer. Businesses that stop accepting cash might boost
their bottom line by reducing overhead costs, saving time, and
creating some operational efficiencies, no doubt. But,
Professor Zywicki, do you agree that for some small businesses
that may be struggling during the ongoing pandemic, those
savings might actually be the difference between staying open
versus going out of business?
Mr. Zywicki. I think that is exactly right. And I think one
of the points here is that legacy businesses have already
incurred a lot of these costs: surveillance, security systems,
safes, all these sorts of things. For new businesses, however,
they are completely unnecessary, in many cases, for a lot of
these businesses, and so it is just a cost that is a tax
imposed on them by incumbents that blocks small businesses,
blocks new entrants of new businesses and so could really make
the difference for many of these businesses.
Mr. Emmer. Thank you. I appreciate your perspective.
Technology and payments innovation provides more
convenience and affordability for the consumer certainly. The
privacy implications of a cashless economy, however, cannot be
emphasized enough, as far as I am concerned. So as we grapple
with preserving privacy and transitioning to a digital economy,
I believe we must look to technology solutions in payments that
preserve the privacy elements of cash. And, again, I said it at
the beginning of this hearing, and I will say it again,
stablecoins and decentralized technology innovations are the
first things that come to my mind as these are solutions that
are actually open, permissionless, and private.
Thank you again, Mr. Chairman, and to all of the witnesses,
for your time. I yield back the remainder of my time.
Chairman Green. The gentleman yields back.
The Chair now recognizes the gentleman from Missouri, Mr.
Cleaver, who is also the Chair of our Housing, Community
Development, and Insurance Subcommittee, for 5 minutes.
Mr. Cleaver, you may be muted.
I don't see Mr. Cleaver, so we will move on to--
Mr. Cleaver. I am back.
Chairman Green. Okay. Mr. Cleaver, you are now recognized
for 5 minutes.
Mr. Cleaver. Okay. Sorry, Mr. Chairman, I was having some
technical difficulty.
Let me, first of all, say that I am not some kind of,
``Cro-Magnon'' Member of Congress. And in 1970, Tyrone Davis
said, ``I would like to turn back the hands of time.'' I am not
a Tyrone Davis either. However, I am very concerned about a lot
of the issues surrounding cryptocurrency.
Let me start by just saying that I am concerned about
security. We don't have a chance, Professor, right now, at
least our panel doesn't--we don't have the know-how to trace
bitcoin. We started using this invisible currency, and we still
are trying to figure out how to trace bitcoin. Is that
something we should continue to allow in the marketplace in
terms of monetary policy?
Mr. Zywicki. Is that for me?
Mr. Cleaver. Yes, sir.
Mr. Zywicki. I think that is a great question. And the
issue that I think is raised by that is the issue of privacy,
and I think one of the things we deal with in this area is that
privacy is a double-edged sword. The privacy of cash is a
double-edged sword in the sense that we know that widespread
use of cash facilitates tax evasion, the shadow economy, and
the like, while at the same time, it preserves legitimate
privacy. And I think that is the same questions that are raised
by bitcoin.
I think it is going to be a long time before bitcoin is
widely used, and cryptocurrency, and I think one of the reasons
is kind of dealing with this tradeoff of the good and the bad
that is associated with privacy with these payment mechanisms.
Mr. Cleaver. Yes, thank you.
Somebody else may want to chime in, some of the other
witnesses. Because it is being traced after the exchange, is
the problem. Would any of the other witnesses like to respond
to this?
Go ahead?
Mr. Breyault. Congressman Cleaver, thank you very much for
the question. Certainly, in my written statement, I talked
about the lack of regulations on things like digital payment
apps, like Zelle or Venmo. When we talk about cryptocurrencies
in terms of consumer protections, it is basically a Wild West.
Consumers really have no protections in place when, for
example, someone hacks their Coinbase account and steals all of
their bitcoins. We constantly hear stories of this happening.
So, I think that it is a space where there needs to be much
stronger consumer protection regulation.
But to Mr. Zywicki's point about the anonymity of
cryptocurrency, I would just have to add that an important
distinction to make between cryptocurrency and cash is that
cash is backed by the full faith and credit of the United
States Government. It is heavily regulated in its production,
and the U.S. Bureau of Engraving and Printing creates it.
Cryptocurrencies are only based on the faith of the people who
create them and who have them in their wallets. So, I hesitate
to sort of compare apples to apples--to think you are comparing
apples to apples when you are talking about cash versus
cryptocurrency.
Mr. Cleaver. Let me stay with you on that. So, creating
this cashless economy--and I really try not to hang back in
time, but it is chilling to think that somebody's hard-earned
money could be wiped out. Do you believe that we should perhaps
hold up on things like bitcoin until we figure out how we can
at least trace the exchange? Because right now, people can get
wiped out and there is no recourse, because they can't even--I
don't even think the FBI right now possesses the technology to
figure out where the money went.
Mr. Breyault. Congressman, I certainly think that greater
scrutiny of bitcoin and other cryptocurrencies is needed. I
know the FCC and various regulatory bodies and the Executive
Branch are currently looking at that. But in terms of whether
the spread of these cryptocurrencies can be held up, as you put
it, I think the cat is out of the bag. I think it is very easy
to create new cryptocurrencies by anybody in the United States
or abroad, and I think we need to look at regulating them to
make sure that they are as safe as possible rather than trying
to prevent their use altogether.
Mr. Cleaver. Yes, that was going to be my next question.
Isn't it time for Congress to start thinking about regulations?
We can't just sit back and watch this take place without doing
anything, understanding that the poorest people in the country
are going to be the prime targets for the unscrupulous.
Chairman Green. The gentleman's time has expired.
Mr. Cleaver. Thank you, Mr. Chairman.
Chairman Green. The Chair will now recognize Mr. Kustoff
for 5 minutes.
Mr. Kustoff. Thank you, Mr. Chairman. And thank you to the
witnesses for appearing this afternoon.
I was looking at a study from the Federal Reserve entitled,
``Findings from the Diary of Consumer Payment Choice,'' which
found that in the year 2020, last year, cash payments decreased
by roughly 7 percent. Credit card share payments increased from
24 percent in 2019 to 27 percent last year. That is the
percentage of the payments. Square, which I think we all know
is a digital payment system, also found that the number of
cashless transactions last year increased significantly.
Professor Zywicki, can you project, if Congress did
nothing, and if regulators did nothing, in 5 years, what do you
think the makeup of payment types will be, and roughly what
will the percentages be, if that makes any sense?
Mr. Zywicki. Yes, it does. I think that these trends are
clear. Obviously, we had an acceleration last year, both
because a lot of places just started doing remote ordering,
online ordering, for example, restaurants that did sort of
curbside pickup, that sort of thing. And so what we saw were a
lot--we also found it more difficult to get cash. I think
people were reluctant to go to the ATM or the bank or whatever
because it was difficult, and so we saw, while people were
spending cash less, they were hoarding cash more during this
same time.
My guess is we will probably revert to the long-term trend
going forward, but maybe a little bit more. A lot of people
have made the transition now. A lot of people who didn't do
online banking, for example, now have done online banking.
People who were unused to paying with electronic payments have
done it. And there is a huge generational change going on where
younger people really--some use cash, but a lot don't. So, I
would say we can look forward to 5 or 6 percent growth a year
in these electronic payments and a dwindling share of cash as
well.
Mr. Kustoff. Professor, you used an interesting term a
moment ago, ``generational,'' which I think all of us are
focused on. We have talked about urban districts. I have a
rural district which is slower to change.
Mr. Zywicki. That is right.
Mr. Kustoff. Can you inject, ``generational,'' and apply it
to districts that are more urban or more rural, that are slower
to change or may not have the resources to change? Does,
``generational,'' make a difference in those types of areas?
Mr. Zywicki. Absolutely. And we documented this in our CFPB
Task Force report. There are quite clearly things going on with
generations, which is that the Gen X generation, for example--
Gen Z, I'm sorry, are the first generation that does more
mobile banking than online banking. And you have to go all the
way back to, essentially, the baby boomers to still find a
generation where people do much in-person banking. It had
shifted online.
But you are right, there are very important issues
involving rural populations that I think are understudied. And
we called for more research in the CFPB Task Force report. I
mentioned it here, that rural populations face unique
challenges with respect to access to the internet, high-speed
internet service, mobile payments, and that sort of thing.
And so, I think that it is worth exploring in greater
detail what the unique challenges are of your rural populations
in order to promote financial inclusion and access to
electronic payments.
Mr. Kustoff. Thank you, Professor.
Mr. Breyault, if I could go backwards for a moment and ask
you generally the same question that I just asked the
professor, 5 years from now, if Congress doesn't take any
action, regulators don't take action, can you forecast what you
think the percentage, roughly, for the various payment methods
would be, digital versus cash?
Mr. Breyault. I'm sorry, Congressman. Are you directing
that to me?
Mr. Kustoff. Yes, sir.
Mr. Breyault. I don't have any reason to dispute Mr.
Zywicki's numbers, in terms of the trend lines. However, I
would say that if those trend lines hold, there will be
millions of consumers who depend on cash, who will find it
harder to continue to do so.
Now, I think that there are real societal harms that occur
if that continues without adequate safeguards being put in
place. And I think that Congress has a role to play in making
sure that the seniors, the immigrants, the low-income
consumers, the handymen and handywomen that Chairwoman Waters
talked about, are not left behind.
I would also point out that the access to the
infrastructure, the banks, has been dwindling. Between 2014 and
2018, 1,900 more banks were shut down in low-income areas than
were opened. And I think that is emblematic of the financial
industry's embrace of a cashless economy that, unfortunately,
does tend to harm consumers in low-income areas.
Mr. Kustoff. Thank you. My time has expired, I yield back.
Chairman Green. The gentleman yields back.
The Chair now recognizes the gentlewoman from North
Carolina, Ms. Adams, for 5 minutes.
Ms. Adams. Thank you, Chairman Green, Ranking Member Emmer,
and Chairwoman Waters, for holding the hearing today, and thank
you to our witnesses for your testimony.
This question is for Ms. Garcia and Ms. Ruggia. Since
joining Congress in 2014, addressing food insecurity/hunger has
been one of my top priorities. It is heartbreaking to me that
over 177,000 of my neighbors in North Carolina's 12th District
are food insecure, and it is even worse that nationwide, over
42 million Americans are struggling with food insecurity.
So my question is, what would a cashless economy in your
city or State mean for access to food and growing food deserts?
Ms. Garcia. Thank you very much for that question. And I
think you have highlighted a very important issue. When we are
talking about cashless economies and their impact on
communities, the idea that one cannot use cash, legal tender,
to purchase food for themselves or their families is absolutely
devastating.
And when we are talking about creating greater access to
the necessities of life, we have to leave open the avenues for
people to be able to do that with what they have. And if what
they have in their pocket is cash, then that should be the
method by which they should be able to access what they need.
What is really interesting is that we are talking about
people who want to pay for what they need. They are not asking
for it for free. And to not be able to use your money is a form
of economic exclusion, and, as Chairwoman Waters said, it is
economic discrimination and segregation. Thank you.
Ms. Adams. Right. Okay. Ms. Ruggia?
Ms. Ruggia. Yes. I would say that, by definition of food
desert, where people lack access to healthy foods, by
definition, it means they have limited choices. So if you have
a community where there are already few store outlets, food
outlets, and then many of those stores or any of those stores
move to cash only, then you are limiting the choices even more.
And that means that people will have less access to healthy
foods that they need for their families.
Ms. Adams. Thank you. We are all too familiar with the
downsides of a cashless economy, as we just discussed, but at
the same time, we know the benefits of getting our neighbors
access to banking services.
Earlier this year, our committee discussed what we could do
to drive down the underbanked rate. So, based off of your
experiences, to the two ladies, how do you think Congress can
be most helpful in ensuring that our underbanked neighbors get
access to those critical services?
Ms. Ruggia. Go ahead.
Ms. Garcia. Thank you. One way we can do this is by looking
at alternative models for banking. So, perhaps Congress can
look at public banking as an option.
Another idea is considering the notion of postal banking.
This is something that has been under discussion for years,
because the infrastructure is already there in neighborhoods
that don't have banks, and it may be a way to keep postal
workers potentially working, and keep those jobs alive. Thank
you.
Ms. Adams. Okay.
Ms. Ruggia. I would say exactly that. First of all, the
postal banking pilot has already taken off. It would be great
to see that expanded and made permanent so that communities
where they don't have banks, would have access to at least
retail banking.
And that moves me to say, also, that Congress is already
considering a number of policies that would help get more
people banked. Number one, all of the human infrastructure
policies that are being debated right now would lead to greater
financial security, which, of course, we know is the number-one
reason that people can't get bank accounts. So, human
infrastructure is critical.
Also, expanding and enforcing the Community Reinvestment
Act (CRA) would hold banks to their obligation to provide
access to banking services in the communities where they do
business.
And finally, making sure that we have the consumer finance
protection policies in place, so that we restore trust in the
banking system, so that we make sure that people are not
victims of unfair, deceptive, and abusive practices in banks
and nonbanks.
We could start with making sure that we have, for instance,
I would say a rate cap for consumer loans, so that we don't
have usurious practices like payday lending that continue. I
think all of those things would help get more people banked.
Ms. Adams. Great. Thank you very much.
Mr. Chairman, I only have a few seconds left, so I will
yield back.
Chairman Green. The gentlelady yields back.
The Chair now recognizes Mr. Timmons of South Carolina for
5 minutes.
Mr. Timmons. Thank you, Mr. Chairman.
I must say I am a bit perplexed by all this. We want to
help the unbanked and underbanked become more banked, but this
proposal wants to make it easier to stay underbanked and
unbanked by removing an incentive to increase Americans'
participation in the banking system.
Some of my colleagues across the aisle want to track
everyone's bank accounts that have $600 or more a year in an
attempt to get people to pay more taxes, but we also want to
make it easier to use cash.
And I guess the last thing is, as a small business owner,
some of the biggest challenges that we faced were with cash.
There was one night--I have a CrossFit gym, Swamp Rabbit
CrossFit. And we have one coach coaching the class. There is a
class with, I don't know, 10 or 15 people in it. And I came by
one night and there was around $5,700 in the cash register.
Normally, we keep around $100, but that night, two couples had
paid their entire annual membership in cash.
Theoretically, if that was going to happen on a regular
basis, I would have had to have hired a new person to sit out
there. I would have had to maintain security over it. That was
a one-off thing and we made sure it never happened again. But,
again, businesses make their own decisions.
So, here we are trying to make it easier for people to stay
unbanked. We are going into the small business owner's
decisions on how to survive as a small business owner, which is
extremely challenging, by the way. And we want to track
people's money to get more taxes, but we also want to let them
use cash to avoid taxes.
There are just a lot of things. And honestly, maybe the
most shocking thing about all of this, which is the most
confusing, is that this is a bipartisan proposal.
I guess I am going to start with Professor Zywicki. Help me
understand this.
Mr. Zywicki. I am not sure what I can say other than that I
think a sensible policy would be one that eliminates barriers
to people getting bank accounts who want bank accounts. I think
a sensible policy means creating regulatory reform to expand
access to bank accounts for those who want it.
And I think that we should be aware of these tradeoffs that
you are talking about with cash involving tax evasion, the cost
it imposes on businesses, and the risk of crime and the like.
And I think this is one of those situations, Representative,
where one-size-fits-all doesn't seem to fit very well for a lot
of businesses, and for a lot of consumers.
Mr. Timmons. Let's just talk about the origins of this
issue. What is the single biggest factor that has led to
businesses deciding to stop accepting cash payments?
Mr. Zywicki. The pandemic, quite clearly.
Mr. Timmons. Sure. And I just find it ironic that the party
of government-mandated lockdowns that forced businesses to
adapt or die, now want to tell businesses what form of payment
they can and cannot accept.
I appreciate that in-person payments have declined, but I
have never been anywhere in my life that does not accept cash.
I guess this could be a challenge in certain areas, and maybe
that is a State issue. Maybe the States should start addressing
it.
The thought of somebody not being able to buy groceries
with cash is insane. If that is currently going on somewhere,
we need to take measures to make sure that is not happening,
because people need to be able to buy groceries.
But the other side of it is that this one-size-fits-all
approach is going to create an enormous burden on all
businesses, not just grocery stores and gas stations. As a
business owner, I would prefer cash or, honestly, the ACH
payments, because I don't have to pay the 2- or 3-percent fee.
So, I think the free market is working here. If States want
to address certain areas--again, it is absolutely ridiculous
that somebody would not be able to buy groceries with cash, and
we need to take steps to make sure that the basic necessities
are provided and made available.
But I just think this is a solution in search of a problem
at the Federal level, and maybe if we drill down to the State
level or maybe make this much more targeted, we could move it
in the right direction.
Mr. Zywicki. I would agree with you, Representative. I have
not been able to find any evidence that businesses, the small
number of businesses who have chosen to do this--as you said,
it is very profitable for them to take cash. So, I see no
evidence that there is any ill intent here. It is situations
where people have been subject to robbery repeatedly, crime. It
is situations in which they made investments after the pandemic
and it is very expensive to accept cash. It is new startups. I
haven't seen any reason to believe that there is anything--
Mr. Timmons. Professor, I'm sorry. We are out of time.
I appreciate it, Mr. Chairman, and I yield back.
Thank you.
Chairman Green. Thank you. The gentleman yields back.
The Chair now recognizes the gentlewoman from Michigan, Ms.
Tlaib, for 5 minutes.
Ms. Tlaib. Thank you so much, Chairman Green, for always
being so incredibly thoughtful in bringing, especially many of
my neighbors who are talking about this issue to Washington, to
Congress, so that we can remain connected to, again, the
struggles and challenges of our families.
I represent the third-poorest congressional district in the
country, so this is something that I think is at the forefront
of some of the struggles. It is not free to bank in our
country.
The Federal Reserve has found that 6 percent of adults are
unbanked, and another 16 percent are underbanked. I know that
one out of four people in Detroit, an 85-percent Black city,
don't have access to a savings account or a checking account.
Many of these unbanked or underbanked individuals are
experiencing economic distress. They are living paycheck to
paycheck. Their lack of access to banking compounds the
difficulties they have in accessing housing, credit, and other
essential services.
What we need to understand is there aren't structures in
place right now to support working-class individuals, again,
the majority being my neighbors, in that regard. And I
understand the struggle of trying to figure out what we are
doing here.
I think just talking about this issue and figuring out, how
do we fix it, because as a result, even though the pandemic has
accelerated the trend towards digital payments, cash remains
the primary payment method for 35 million Americans, and that
is 14 percent of our population.
We know that it is expensive to be poor in our country.
Even as financial institutions offer so-called low-cost bank
accounts, so-called free checking, it is rarely free,
particularly for low-income families and individuals who may
struggle to maintain a balance. Banks recoup that cost of
maintaining an account through other fees, like overdraft
penalties and so much more.
Ms. Ruggia, how does the shift to a cashless economy
compound the effects of penalties like overdraft fees, and do
you think we have adequate overdraft protections in place for
many of our neighbors, again, low-income neighbors who are
experiencing this?
Ms. Ruggia. Thank you, Congresswoman. I think that
certainly, in the case of cashless retail, where people are
required to have some kind of credit or consumer credit card,
definitely widens the field for the kinds of abuses that you
are talking about, the kinds of hidden fees, and overdraft
charges.
We have a coaching program, and we have a housing
counseling program, and people are struggling to manage their
budgets and make sure that they are not doing things to make
their credit worse.
So, to force people to move into situations where they are
in danger of going into overdraft more often, and subjecting
them to cybersecurity problems such as identity theft, would
exacerbate the problem.
Ms. Tlaib. Ms. Ruggia, I can tell you, it could be the
littlest things--one day, not being able to get your child to
school and having to spend a little bit more on gas or having a
flat tire. So many different emergencies can really impact a
family just automatically and set them back even 2 months.
Ms. Garcia, what role can the creation of a public banking
infrastructure play here, such as postal banking--I know you
talked about that, offering debit cards automatically tied to
individual Fed accounts--play in mitigating the effects of a
cashless economy and bridging that gap between the banked and
the underbanked?
Ms. Garcia. Yes, you definitely cited a very important
element of one of the benefits of public banks. Certainly,
greater accessibility and creation of banks that are using
community input into what the community really needs, is really
important. We need to make sure that whatever structures we
create, those structures are created with community input.
And another concept of public banking is that there is an
understanding that exclusion is not economically efficient,
right? That is a really important underlying precept around the
creation of a public bank for the people.
Access is so important. And I think there are so many
neighborhoods that have been cut out of banking, in part,
because banks just are not there or they have left.
Ms. Tlaib. Absolutely. I agree.
I am also really concerned--and, Mr. Chairman, as I think
you know, I am very concerned that the shift towards a cashless
economy is placing more power and more data in the hands of
unaccountable technology companies.
For example, Google now has access to 70 percent of the
nation's credit and debit card transactions via data-sharing
agreements. That is very scary. And in 2019, Amazon integrated
with Worldpay, a company that had already processed more than
$1.7 trillion in payments annually.
These are companies that then sell the biometric payment
data they have collected to other third parties with little to
no regulation. And as corporations leverage their market power
to keep consumers within their ecosystem, consumers deserve
public alternatives to big--
Chairman Green. The gentlelady's time has expired.
Ms. Tlaib. Thank you, Mr. Chairman. I am so sorry I ran out
of time.
Chairman Green. You may place your comments in the record,
of course.
Ms. Tlaib. Thank you, sir.
Chairman Green. The gentlelady's time having expired, the
Chair will now recognize the gentlelady from Texas, Ms. Garcia,
for 5 minutes of questions.
Ms. Garcia of Texas. Thank you, Mr. Chairman. And thank you
so much for bringing this topic forward. I can tell you that
just listening to some of the comments that are being made
has--I share Mr. Timmons' frustration but for a different
reason, because I just don't see why some of the remarks that
are being made are being made, because it seems to me that some
people aren't getting it.
There are poor people who are not going to be able to
access those basic necessities of life, even something as
simple as just handing cash to a child to get their meal at
school, being able to pay a cash bond when one of their friends
or loved ones may be in jail, or even being able to just put
cash in an offertory basket at church. Those things cannot be
done with credit cards. Not everybody has a credit card.
To me, this sense of frustration peaked when someone called
this, ``attacks.'' Let's put ourselves in the shoes of someone
who can't get to a bank, can't get to a credit union, doesn't
have an account, and may not even have the capacity, the
literacy capacity, the language capacity to understand and to
be able to manage an account.
So yes, this is about making sure that we have financial
inclusion, and our economic banking system needs it. It needs
choices, choices for the consumer to make.
And, Mr. Timmons, I am surprised you have not been to a
place that says, ``No cash taken.'' I think probably about half
of the vendors in most of the airports that I have been in, in
the last year, will simply not take cash. And I have been to
drive-throughs that will not either.
My personal rule is, if it is less than $20, I don't put it
on a credit card. I carry cash. But I carry cash more to be
able to give people cash tips, because merchants not only don't
give them their tips daily or monthly, sometimes they even
charge back the merchant fee to the wait staff. And I don't
want them to do that, so I do my tips in cash to make sure
people can put that money in their pocket the same day.
And to put $8 on a credit card just because you went
through a drive-through to get some chicken--we cannot do that
to people. And I am fortunate. I have a credit card. I have a
debit card. I rarely use the debit card.
But in a recent study on access to banking, the FDIC found
that in 2019, 12.2 percent of Hispanic households and 13.8
percent of Black households were unbanked, but only 2.5 percent
of White households were unbanked. The banking industry has
made great strides to reach out to many of our communities, but
they still have a long way to go, particularly when it comes to
financial literacy and access to banking and inclusion in a
person's own language.
Ms. Garcia, I wanted to ask you a question. We are not
cousins, so this is just an objective, unbiased question. In
your experience in San Francisco, it seems like a lot of what
you talked about also exists in my district. My district is 77-
percent Latino, and the primary language is Spanish for many
people in my community.
What additional challenges does the banking system have
when it comes to financial literacy and access to information
in a person's own language?
Ms. Garcia. Thank you very much for your question. And I am
sorry we are not cousins, though we do share the same last
name.
There are many challenges for individuals such as you have
described when it comes to banking. First of all, there are
potentially cultural issues that arise with trusting banks,
like, is a bank a place I can trust, where I can put my money?
There are many people who are used to keeping cash on hand as a
matter of security and prefer to do that.
They also know that banks aren't always the best place for
them, in terms of feeling welcome. And it may be hard for
people who don't have that experience to understand what it
feels like to be an outsider, but this is a very real
perception for many members of our community.
We talk a lot about the future here, but we also need to
deal with the present. How do we help people now? And if we are
moving to greater use of electronic means, then how do we help
people adjust to that?
It is not going to be overnight. This is not where we can
just flip the switch and create a cashless economy that
everyone can participate in. So, unless and until we can help
people who are the most vulnerable, we need to make sure that
we make cash an option. It is valid legal tender in this
country. Thank you.
Ms. Garcia of Texas. Thank you. And, Mr. Chairman, I see my
time has expired, but I just wanted to submit for the record a
report on credit card fraud. This report highlights that credit
card fraud is still the second-biggest challenge in our economy
and has the highest numbers. I might add that cash fraud comes
in at about, I think it is number six or number seven.
I know there is a concern about security, but going to
credit cards and debit cards--
Chairman Green. The gentlelady's time has expired.
Ms. Garcia of Texas. --is also a big concern for our
consumers with regard to fraud. Thank you.
Chairman Green. The gentlelady's time has long since
expired.
The Chair now recognizes Ms. Williams of Georgia for 5
minutes.
Ms. Williams of Georgia. Thank you, Mr. Chairman.
We have heard today that there are clear racial disparities
when it comes to who is unbanked or underbanked.
Ms. Garcia, if more of our economy were to go completely
cashless, how would this deepen economic disparities that
already exist for individuals who are disproportionately
unbanked and unable to use digital payment methods?
Ms. Garcia. Thank you very much for your question. I
believe that it would exacerbate an already-huge inequity that
many people of color, that many people in our communities
experience on a daily basis.
And we need to move away from that. That is exactly what is
happening in society, that there is a hue and cry that we move
towards equity and away from exclusion.
So, with this proposal that we move to cashless, we really
need to look at it in that light. And I fully understand your
concerns and Congress' concerns in looking at this very
carefully from an equity perspective.
Ms. Williams of Georgia. Thank you, Ms. Garcia. I am
determined to minimize these kinds of disparities for those
most marginalized, for my constituents and for the younger,
unbanked Nikemas of the world. That is why I have co-sponsored
the Payment Choice Act, which ensures that retail businesses
continue to accept cash for payment.
Representative Valdez, what impact would passing this
legislation have now, while numerous businesses still do accept
cash, to ensure financial inclusion while setting a predictable
standard for businesses?
Mr. Valdez. Thank you, Congresswoman Williams. Since we
have passed it in Colorado, we have heard a lot from
constituents who have been able to shed light on this issue
within their communities at local merchants.
If we don't pass this, I believe people will continue to
move in the direction of excluding cash for a variety of
purposes that we have heard during the hearing today. But most
importantly, you would see people feel more and more
marginalized and embarrassed at being refused the currency that
they have to spend.
So, I think what you have is just a widening gap in kind of
the feeling of the haves and the have-nots of the world. And I
think it is something we are likely to see increase with the
fallout from COVID-19 and some of the financial difficulties
that ordinary Americans are experiencing. As garnishments and
those sorts of things start to happen, you will see more and
more folks who are looking to enter the cash economy. So I
actually think we will start to see things move in the other
direction as well.
Ms. Williams of Georgia. Thank you so much.
Ms. Ruggia, beyond preserving a cash option, what
recommendations do you have to ease the transition to a digital
economy for those who are unbanked and underbanked, to maximize
their financial inclusion and economic prosperity?
Ms. Ruggia. As I said, the factors that keep people from
banking are pretty clear: financial security; access; and also
the trust factor.
I think it is really important to make sure that all of the
protections are in place, so that as the general economy moves
towards less of a cash environment, everybody is protected from
potential abuses and unfair practices.
We know that in the nonbank environment, people are already
being abused with high interest rates and other forms of unfair
practices. So, it is important that all of the protections and
all of the factors are in place to create an environment where
we can move towards implementing more technology into the
banking and finance environment.
As I said before, we need to make sure that people have
access to bank accounts. Even if it is online, they have to be
able to have the internet access. So there is the access
factor, making sure that the Community Reinvestment Act is
expanded and enforced, and making sure that all of the
agencies, like the CFPB and the FTC, have the tools to make
sure that there are not abusive, unfair, and deceptive
practices going on in the world of fintech and technical
financial practices.
Ms. Williams of Georgia. Thank you.
Mr. Chairman, today we have heard that there are clear
racial disparities when it comes to who is unbanked and
underbanked, and we, as Members of Congress, have an obligation
to make sure that our economy works for everyone. With that,
Mr. Chairman, I yield back the balance of my time.
Chairman Green. The gentlelady yields back.
And the Chair now recognizes himself for 5 minutes.
Friends, it really costs to be poor in this country. I know
poor people. I know people who live under overpasses. And,
unfortunately, there is an overpass just outside my office
where people are residing. That is their home. And they are not
persons who can open bank accounts, because, first of all, it
costs money to open a bank account itself.
And then, if you have an overdraft and if you are poor--
having been poor in my life, I know what it is like to write a
check that doesn't have the funds available to cover it. So,
you have the overdraft fees. And then, you have the cost of a
credit card. Credit cards, for me, are cost-free or so they
say, but for most people in this country, they pay some fee to
have a credit card.
But it really costs people to be poor, and it costs
something that they can't afford, is the point that I am trying
to make. So, I am concerned.
Mr. Zywicki, sir, are you still there?
Mr. Zywicki. Yes, sir. Yes, Mr. Chairman.
Chairman Green. Let's you and I engage in a friendly
colloquy, because I appreciate your position. You said you were
neither for nor against it initially.
How do we deal with this if we have some degree of
recalcitrance when it comes to opening up the system such that
there is the equity? There are many who oppose public banking,
but at the same time they would have persons have bank
accounts. So how do we deal with this, in your opinion, having
studied this?
Mr. Zywicki. Thank you. It is a great question. I
appreciate the question. The way I think of this is, first, I
think this dichotomy we have between being banked and unbanked,
I think is something that doesn't really work very well
anymore.
I think that there are a lot of people who really need
access to payments, but don't need all of the bells and
whistles and expense and complications of a bank account. And I
think that there are ways we can facilitate that for simple
online payment platforms. Prepaid cards can sort of merge into
that. I think one of the ways--
Chairman Green. As we do this, I may interrupt from time to
time, but I am going to do so respectfully.
Many persons don't have the technology to engage these
platforms. How do you deal with that?
Mr. Zywicki. And that is obviously the biggest challenge
here, I would agree. I think that one of the things we should
be looking at is expanding who can be a bank. For example, I
think Walmart tried to start a bank about 10 years ago, and the
incumbent banks kept them from doing it. I think Walmart could
go a long way towards providing bank services in rural
communities, for example.
I think that expanding the payment system in general to
nonbanks would also help people get access to payments
without--
Chairman Green. Let me interrupt you again. You mentioned
Walmart. What about the idea that was brought up earlier of a
post office being an institution that engages, allows people to
bank? What are your thoughts on this?
Mr. Zywicki. I have looked at that, and I don't have any
strong view one way or the other on the post office. It is
just, my sense is that the post office--based on the analysis
we did in the task force report, the post office is a solution
to a nonproblem, which is that, according to the FDIC study,
the primary reason why--very few people say that the reason why
they don't have access to a bank account is a lack of physical
access, which is basically what the post office offers. My view
is--
Chairman Green. If I may, isn't that what you are offering
at Walmart? It is similar to Walmart. Why would you think that
Walmart works, but a post office won't work?
Mr. Zywicki. Yes. Walmart provides a whole suite of banking
services, and is also open many more hours than the post office
is, for example.
Chairman Green. Many more hours can be beneficial, but what
about the hours that banks keep now? It is hard to find my bank
open after 3 or 4 o'clock. They are out. And they don't have
the window service that they used to have, the drive-through
service.
Mr. Zywicki. I agree completely with that, and I think we
need more competition in banking. We need better bank account
portability. We need credit unions being able to do more, and
industrial loan banks. We need fintech. I think that it is time
to shake up the banking industry that has gotten too complacent
in the way that they serve a lot of lower-income consumers.
Chairman Green. Thank you for the friendly colloquy.
My time has expired, and I want to be a good Member, and a
good example for my friends on the subcommittee.
My time having expired, friends, I want to thank each of
the witnesses for their testimony and for committing the time
and resources to share their expertise with this subcommittee.
Your testimony today will help to advance the important work of
this subcommittee and of the Congress.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned, and the Chair is grateful to
all who participated.
[Whereupon, at 1:39 p.m., the hearing was adjourned.]
A P P E N D I X
October 14, 2021
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