Mandatory EFT is Coming Before You know It! Are You Ready?

By Zachary Reeves, John Hinman and the Hinman & Carmichael LLP Team

We first addressed California’s new mandatory electronic fund transfer requirements in November of 2024 here. Implementation is now a little over 3 months away (January 1, 2026) so the time has come to refresh those licensees subject to the new regulations (primarily retailers, wholesalers and those wineries and importers selling domestic or imported beer, wine or spirits under California Type 17 and 18 licenses). Because of the ambiguity of the underlying statute, and the prohibition on accepting payment from a retailer by legal tender (cash or check, except in limited circumstances), we’ve been getting many questions about the practical implications and interpretation of the new statutory requirements. While this blog post addresses some of the follow up issues, we are sure that as the regulations are implemented there will be more questions, consternation by some and frustration by many.

Summary of Law

As a refresher, starting on January 1, 2026, all “retailer licensees” must pay “wholesaler licensees” by electronic fund transfer for the “delivery” of beer, wine, or distilled spirits. “Electronic funds transfer” or “EFT” means the “electronic transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems.”

Mandatory Election of Third-Party Payment Processor

There have been updates since our last publication. First and foremost is the issue of processor selection. As of July 1, 2025 (two months ago), retailers were permitted to elect a “third-party payment processor” so they could control their funds. Retailers that did not make the statutory election will certainly face additional costs and operational issues because they must now maintain accounts with multiple third-party payment processors based on what processors the wholesalers they work with use. For example, if a retailer works with three different wholesalers, with one using Stripe, another using PayPal, and the last using Square, the retailer must have accounts and facilitate payments with all three.

What the law and the ABC consider a valid third-party payment processor is discussed further below. Note that costs of the payment processor must be borne by the party that incurred the costs, and one party cannot cover the costs of the other.  Therefore, the cost of the transaction cannot, by law, be borne either by the wholesaler or by the retailer.  It is simply an additional cost to build into the party’s balance sheet, cost structure and margin.

ABC Guidance

In April of 2025, the ABC published guidance on the law, found here. While the guidance does clarify some points, it leaves several areas of uncertainty.

Wholesaler Payment Initiation

The most troubling area of concern is that the law requires wholesalers to “initiate the electronic funds transfer by initiating the withdrawal of funds from the retailer licensee’s bank account.” The guidance punts on what “initiating” a transaction means, instead stating that “this is highly technical in nature and electronic payment systems may vary in their functionality.”

Translation, the ABC is not sure what will happen until it does and will probably initially rely on the wholesaler associations (the authors of the legislation) for guidance. It would be prudent for the wine and retail industry associations to carefully parse the statute, develop guidelines that serve the interests of their members and submit them to ABC for approval. As of now we know of no such efforts by the retail or supplier tiers.

Fortunately, the ABC admits “an EFT withdrawal can include, but is not limited to, simply generating an invoice requesting payment.” Retailers can rejoice knowing that the law does not mandate wholesaler access to retailer bank accounts. For retailers dealing with wholesalers attempting to obtain actual bank account access, or the ability to initiate the transfer money from the retailer bank account, retailers should know they can push back and state that generating an invoice is sufficient.

Third-Party Payment Processor

The guidance admits that the law “does not define what constitutes a third-party payment processor” and that “ABC does not approve or sanction payment processor companies nor their systems that facilitate electronic payments,” but states it can be “inferred” that it is “a party other than the wholesaler or retailer that is the payment medium through which the transaction occurs.” This is a broad interpretation and becomes more confusing with the guidance stating that credit cards are not an EFT, but that payments via credit card are otherwise permitted.

The principal restriction the law puts on third-party payment processors is that they cannot require over 30 days’ notice from the wholesaler licensee to terminate the processor’s agreement with the wholesaler licensee. Under this definition, PayPal, Stripe, Square, WePay, and even Venmo should be acceptable third-party payment processors.

Deliveries Under Manufacturing Licenses

The guidance confirms that deliveries made under manufacturing licenses (02, 04, etc.) need not comply with this law. In other words, manufacturers selling direct to retail are not covered and can still accept cash. Caution must also be exercised here because many manufacturers (wineries, breweries and distilleries) also hold wholesale licenses so they may market and sell imported and similar products under their main brand.

Other Commentary

Only Applies to Deliveries and Alcohol

Technically, the law only applies to the “delivery” of “beer, wine, or distilled spirits” by wholesaler licensees. For retailers picking up products from wholesalers or for the delivery of non-alcoholic product, cash is still permitted.

Small Businesses

There is no carve out for small businesses. This is problematic because most third-party payment processors charge high transaction fees and maintaining multiple accounts for multiple distributors can be expensive.

Conclusion – Confused Yet?

It is amazing to see that a piece of legislation originally intended to protect beer delivery drivers from having to accept cash payments (allegedly putting them in harm’s way from robberies according to the authors of the legislation) has morphed into a statewide system of credit control and mandated EFT system management in favor of wholesalers at the expense of retailers.  We will continue to monitor developments as they occur, but we suggest that any industry members on the retail, import or manufacturing tiers affected by this legislation consult with their trade associations to assure that their interests are protected in the process of implementation of the new statute and regulations (to come we suspect).

You can view this blog on our website here.

This blog is dedicated to occasional (and hopefully interesting) reports of state and national alcoholic beverage regulatory developments that we encounter in our practice. Booze Rules (and any comments below) are intended for informational use only and are not to be construed as legal advice. If you need legal advice please consult with your counsel.

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