For ‘Unbanked’ Californians, Cash Is Still King in an Increasingly Cashless Society

Anneisha Williams in Hawthorne on July 17, 2024. [Photo by Jules Hotz for CalMatters]

By Kate McQuarrie, CalMatters Network
July 23, 2024

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As a mother of six who works in a Los Angeles Jack-in-the-Box, Anneisha Williams can’t afford to pay steep bank fees. For her, every dollar matters, and overdraft fees have left her frustrated and fed up with banks — to the point where she no longer even uses them.

“When you have a big family like I have, those little dollars matter,” Williams told me. “I just had enough with each and every one of those banks because of all the high overdraft fees. It was just too much for me.”

But avoiding banks limits Williams’ options for managing her money. She has to use check cashing services, which take a percentage of her income, and relies mostly on cash, making saving extremely difficult. This is reality for the nearly 1 in 5 Californians who don’t have bank accounts and must often use costlier methods to access their money.

Black, Hispanic and low-income people are the most likely to be unbanked or underbanked, a status that can undercut economic mobility. Other populations, such as the elderly, noncitizens and unhoused people also are acutely affected by a lack of access to banking services.

For these people, cash is still king. The problem is many businesses have moved away from using cash — some are going entirely cashless — which was only hastened by the coronavirus pandemic.

This leaves folks who are already locked out of the banking system further shut out of the economy. An estimated 2 million Californians are unbanked with no access to banking institutions and 5.5 million more are underbanked — meaning that someone in the household has a bank account, but they still use higher fee financial services such as money orders, check cashers, money transfers or payday lenders.

Some cities, including San Francisco, have attempted a solution: forbidding retail businesses from going cashless, because that excludes too many people from participating in the economy.

But keeping cash in circulation is just a band aid — getting people banked is much harder. State legislators are starting to tackle that issue, too, through a new government banking program called CalAccount — although there is no guarantee the program will become law, and the earliest it could be implemented is not until January 2026.

California needs to find a way to keep low-income people engaged in an increasingly cashless economy. Besides, every dollar clearly states it is “legal tender for all debts public and private.”

The unbanked problem is deeper than your pockets

The top reason Californians report for being unbanked is that they don’t have enough money to meet banks’ minimum account balance requirements. Steep and unpredictable bank fees? Forget it. With rising costs, many people just can’t afford to pay a $10 monthly service fee for a checking account or $25 to $35 per overdraft transaction.

Other people avoid banks to maintain their privacy or because they simply don’t trust banks.

Most of those households are low-income; 61% make less than $30,000 annually. Without a viable way to keep track of and save money, many Californians can’t improve their economic situation. They rely on cash and online payment services like CashApp to make purchases.

Williams used to have trouble making purchases at cashless businesses until she got her CashApp card, she said. Still, it frustrates her to have to pay small fees whenever she loads money onto the card or accesses her paychecks.

“My job doesn’t offer direct deposit, so that’s a big old fail, right there. So I have no other way but to just cash my check,” Williams said. “Somebody always taking from me, so I don’t know what to do.”

Check cashing fees usually scale up with the value of a check: It can cost $1 to $10 to cash a $100 check and up to $50 to cash a $500 check. Money order fees range from 60 cents to $4 per order, and money orders have a maximum amount of $500 to $1000. Buying multiple money orders a month for rent can add up.

Vulnerable faces of a cash economy

Groups of people have their own reasons for preferring cash: Some elderly people struggle with the technology of online financial services. Advocacy groups point out, people fleeing domestic violence rely on cash for safety, because electronic payments can easily be tracked.

Unhoused people commonly used to [panhandle] for cash, but many pedestrians don’t carry it anymore. Zac Clark, founder and executive director of the nonprofit The HomeMore Project, says unhoused people tell him that keeping cash poses a risk of theft for them, so many are trying to use digital systems. At the same time, without a home address, proper identification and enough money for minimum balances, people experiencing homelessness often can’t get bank accounts.

Mayra Rios, 43, says that without the help of a local women’s organization, she would still be unbanked. Rios, a street vendor in South Central Los Angeles, told me her children helped her set up online payment accounts like Venmo and Zelle for her business.

“It was hard in the past because I didn’t have credit, I didn’t have a bank account, I couldn’t buy anything like, for example, buying a TV,” Rios said through a Spanish translator.

Rios is grateful for the ability to accept cash and online payments at her business. While electronic payments account for more than half of her transactions, she said, at least another 40% still use cash.

Most people take for granted the ability to pay with a credit card, build enough credit to apply for loans or even have a secure way to save money and track expenses. These common privileges become insurmountable burdens for unbanked and underbanked Californians, intruding daily in their lives, making it more difficult to engage in the economy.

California has a responsibility to protect them.

Two-part solution for Californians

In recent years, government officials have begun to notice the struggle impoverished people face when buying goods or paying for services. One approach to solving the issue began in 2019 when San Francisco banned cashless brick-and-mortar businesses in an effort to keep retail accessible for all residents.

The ban sparked a statewide conversation about the effect of cashless businesses on customers who rely on cash. Former State Sen. Jerry Hill, a Democrat from San Mateo, introduced a bill in 2020 to require all brick-and-mortar businesses to accept cash statewide, but the proposal died in a committee.

More recently, the L.A City Council unanimously approved a ban on cashless retail in November, but it has yet to go into effect as city officials hammer out the language. Councilmember Heather Hutt, who introduced the ban, did not respond to requests for comment on its status or timeline for implementation.

While some business owners and residents have opposed these bans for various reasons — such as the cleanliness, ease and theft protection provided by electronic payments — the benefits of accepting cash, especially for those facing poverty, far outweigh the problems.

But banning cashless businesses only addresses one aspect of being unbanked or underbanked.

Assemblymember Miguel Santiago of Los Angeles three years ago reflected on his parents’ trouble accessing banking, telling me about his early memories of his parents storing cash beneath a mattress. He made it a goal to help other Californians access affordable banking.

In 2021, the California Legislature passed a law Santiago authored creating a commission to explore CalAccount, a proposed public, state-run banking system. Earlier this month, a resulting report validated Santiago’s belief in CalAccount’s potential but found that the largest feasibility questions remain: will enough banks and residents want to participate?

If California adopts the recommended program, it would offer zero-fee, zero-penalty, zero-cost and federally insured debit accounts to residents. But without those fees, there is little incentive for banks to promote CalAccount because it likely would not be profitable for them.

However, Santiago believes that CalAccount would allow banks to build trust with a massive untapped group of customers and that could lead them to use other bank services CalAccount wouldn’t offer. If just one federally insured bank is willing to participate, the program could begin helping people access banking.

Since most unbanked people don’t trust financial institutions, participation is a legitimate concern. Perhaps the report underestimates the allure of its zero-fee attributes: Both Rios and Williams said they would be interested in learning more about and potentially using the program.

“I just want something with no bank fees. That’s what I’m looking for,” Williams told me. “I want to be able to trust somebody with my money, to know that it’s okay.”

It’s a simple ask.

Unfortunately, with the government it’s never a simple answer. Even after the commission issues the CalAccount report to the Senate and Assembly banking committees later this year, a legislator would have to introduce a new bill to implement CalAccount.

But Santiago emphasized that these things take time. Even in the face of budget deficits, he is optimistic that CalAccount will become a key social safety net for Californians weathering economic storms.

In the meantime, business owners should keep unbanked and underbanked Californians plugged into the economy by simply allowing cash purchases.

No one should be turned away from a register simply because they only have cash, and no one should be locked out of opportunities to better their economic situation. The freedom and opportunity to attain a better life is, after all, the so-called American dream.