Do Businesses Have to Accept Cash?

We’ve been talking about society’s transition to a cashless society for a long time, but it begs an important question: Can stores and other retail establishments refuse to take your dollars and cents?  As odd as it sounds, this is not hypothetical anymore as a small number of stores and industries have stopped accepting cash and allow payment only by credit card, debit card or via a smartphone app.

Sweetgreen, a high-end salad restaurant, stopped accepting cash in its New York City stores in January. A Boston restaurant near Fenway Park went cashless this past December. Most airlines stopped taking cash for in-flight purchases of food and beverages around 2010.

While the trend of smaller stores refusing to accept credit cards because of the high fees is more well-established, the opposite trend of refusing to take cash hasn’t been as well-explored. Let’s examine why they do it and if they can get away with it.

Legal tender?

Businesses claim that not accepting cash reduces the chance of stores being robbed, eliminates the temptation for employees to steal money, eliminates the time needed for workers to travel to and from the bank and even reduces expenses by dispensing with the need for bulky cash registers.

Yet eliminating cash is a huge problem for the roughly 10 million U.S. households that have no banking accounts. These “unbanked” families have no direct access to financial services like credit and debit cards. For them, it is a hardship not to use cash.

Furthermore, some customers are quite confused by the policy since the front of every piece of U.S. currency states: “This note is legal tender for all debts public and private.”

Moreover, that statement has been enshrined in federal law in various forms since the late 1800s.

So the question is, why don’t the statements on each piece of currency and the various federal laws backing that up mean that a restaurant, shop or airline has to accept paper money?

When does a Coke become a debt?

The answer might surprise you.

Stores don’t have to accept paper money. Despite the greenback’s apparent claim, the right for a store to refuse cash is supported both by the U.S. Treasury and the Federal Reserve.

There are two reasons that a business can reject cash even if it is “legal tender for all debts public and private.”

First, this statement means that the only circumstance when someone must accept the bill is when a person owes the business a debt. If no debt has been incurred, a person or business is not legally required to take U.S. currency.

Let us say it is very late at night and you need gasoline for your car. Many gas stations in the U.S. do not take large bills late at night to prevent robberies and theft. If the gas station requires customers to pay for gas before pumping it into their car, they have the legal right to refuse US$50 and $100 bills. They do not have to accept large bills because until the customer has put gas into the car, the customer does not owe the station owner anything. However, if the customer is allowed to pump gasoline into the car first and then pay, the owner must accept all types of U.S. bills because the customer has a debt to pay.

The same issue arises on an airplane. If you want to buy a drink for $5, the airline doesn’t have to accept your cash as long as it requires you to pay for the drink first. Until you have drunk your beverage, you owe no debt to the airline.

Should There Be a Law?

The second reason is that while the statement on each piece of currency is enshrined in federal law, there’s no actual federal statute that requires companies to accept it.

As the U.S. Treasury points out:

“There is, however, no federal statute mandating that a private business, a person or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise.”

Massachusetts is one state that actually does have a law on the books that requires all retail establishments to accept cash payments. However, at the present moment this law appears relatively unknown, the exact definition of a retail establishment is unclear, but most importantly the law specifies no penalties for breaking the law.

Airlines taking off from Boston’s airport clearly are not retail establishments, but do parking garages in Boston that take only credit cards fall into the retail category?

The Survey of Consumer Payment Choice, an annual survey by the Boston Federal Reserve, shows that paying bills by cash is still very popular. In 2013, the latest year of data, roughly one-quarter of all payments made by individuals were still done by cash. However, the larger the payment, the lower the chance cash was involved.

What does all this mean? Cash might not be king anymore, especially for large debts.

However, cash is not dead or dying, even if some businesses wish that paper money would disappear.