Consumers Council of Missouri

 

Lenders shouldn’t be utility collectors.

09/01/2009

Sending the poor to pay utility bills at a payday lender is like sending the hungry for a meal in a shark tank.

It’s the worst kind of business synergy. Missouri utility regulators should halt the practice.

Payday lenders make a living off the poverty and lack of financial sophistication of their desperate customers. They charge very high interest rates — an average of 431 percent in Missouri; by law, they can charge as much as 1,950 percent — on short-term loans that often are secured by post-dated checks.

In some poor neighborhoods, those predatory lenders are the only local business where customers can make cash payments toward their electric and phone bills. Utility companies long ago eliminated most of the small neighborhood billing offices where they accepted payments from customers.

Most people today pay utility bills by check or credit card. But once, it was common to pay in person. Those who still do are disproportionately elderly, poor and living paycheck to paycheck without a checking or savings account.

As usual, it’s all about the money.

Utility companies say they got rid of their neighborhood billing offices as a cost savings measure. Re-establishing them would be costly. That expense would be passed on to utility customers, they say. And it could be significant.

FIND MORE EDITORIAL AND OPINION

Read more editorials and commentaries

Take a stand or argue ours in The Platform

Send your letters to the editor

AmerenUE’s service area, for example, covers 25,000 square miles of eastern and central Missouri — much of it rural.

Utilities contract with third-party providers, who set up a network of collection agents. Those providers make money by charging a “convenience fee” for each transaction.

The collection agents can include banks and grocery store courtesy counters. But those are in short supply in poor neighborhoods. There, the most prevalent financial institutions are predators like check-cashing businesses and payday lenders.

Customers, especially those with delinquent bills who face being disconnected, benefit from having convenient places to make payments. But they make easy marks for payday lenders whose high interest rates and easy renewal can leave them trapped until paying off the underlying balance becomes impossible.

The Missouri Public Service Commission, which regulates utilities, has been asked to change its rules so that payday lenders no longer could be used as collection agents.

That request came from the Office of Public Counsel, which represents ratepayers before the PSC. It builds on similar recommendations made nationally by consumer advocacy groups.

Utility regulators in Kansas and Arizona have been asked to issue similar rulings. A bill that would make it illegal for utilities to operate payment centers at payday lenders was introduced by state lawmakers in California.

The “convenience fee” is capped at $1 per transaction, and utilities don’t receive any part of it. But utility companies do collect fees of about $3 for credit and debit card payments by phone. There shouldn’t be an additional fee just to pay your utility bill.

The Missouri Public Counsel alleges that those fees are, in effect, an unapproved rate hike. Their impact is compounded because utilities have fattened their bottom lines by closing neighborhood centers where customers could pay their bills in person.

The Public Counsel is asking that utilities be required to keep a number of locations where customers could pay their bills.

Even if that’s impractical, the PSC should prohibit utilities from operating payment centers in payday lenders.

People living from paycheck to paycheck have enough financial worries without being sent to swim with loansharks.