Laclede Gas: Rate Case Settlement Near

St. Louis Post-Dispatch, May 20, 2013

Laclede Gas Co. has an agreement in principle with the Missouri Public Service Commission staff and Office of Public Counsel to settle its request to boost natural gas rates by $48.4 million.

The utility filed notice of the agreement with the PSC on Monday, and said it would “resolve all outstanding matters” in the case. Terms were not disclosed.

A formal stipulation and agreement or an update on the status of negotiations with PSC staff and Office of Public Counsel will be filed by June 3, Laclede said.

That is the same date as the first of three scheduled public hearings on Laclede’s proposed rate increase. It is anticipated the hearings will be held as planned.

The St. Louis-based utility filed for a rate increase on Dec. 21 to recover investments in its 16,000-mile gas pipeline system.

As proposed, the average monthly bill for residential customers would increase by $4.93.

In a related Securities and Exchange Commission filing, Laclede said prompt resolution of the rate case would allow parties to focus attention on the company’s proposed $1.04 billion purchase of Missouri Gas Energy — a transaction that will almost double its presence in the state.

PSC approval of the transaction is required.

Separately, Laclede’s parent company, Laclede Group Inc., on Monday announced the planned public offering of up to 8.7 million common shares of stock to help fund the Missouri Gas Energy purchase.

Laclede also expects to grant underwriters a 30-day option to purchase up to 1.3 million additional shares.

The company, which had 22.7 million shares outstanding as of April 26, had said it would issue a combination of debt and equity to finance the Missouri Gas Energy purchase.

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Senators File Bill Banning Rental of Recalled Cars

McCaskill Will Hold Hearing

Washington, D.C., May 9, 2013

A bipartisan group of U.S. senators, including Claire McCaskill (D-MO), has introduced a bill banning rental car companies from renting recalled vehicles that have not been repaired to consumers.

The bill, the Raechel and Jacqueline Houck Safe Rental Car Act of 2013, would close a dangerous loophole that allows rental car companies to rent or sell unrepaired recalled vehicles that are unlawful for car dealers to sell.  The legislation is named for two young women in California who were killed when their rental car caught fire.  The bill has the support of the rental car industry and will receive a hearing by a subcommittee of the Commerce Committee.

In addition to McCaskill, the sponsors of the bill are Senators Charles E.  Schumer (D-NY), Lisa Murkowski (R-AK) and Barbara Boxer (D-CA).  Supporting the bill are all the major car rental companies – Hertz, Enterprise, Avis Budget, Dollar Thrifty and National – as well as the American Car Rental Association, which together represent virtually 100 percent of the rental car market.

While current law prohibits car dealerships from selling recalled vehicles to consumers, no law bans rental car companies from doing the same or renting them to unsuspecting consumers.  The Raechel and Jacqueline Houck Safe Rental Car Act of 2013 would keep unsafe rental cars that have been recalled off the road.

Later this month, Senator Claire McCaskill, chair of the Senate Commerce Committee’s Consumer Protection Subcommittee, intends to hold a hearing on the bill.  She said, “Our goals for this legislation are twofold — to protect families, and to prevent undue burdens for employers — and this agreement succeeds on both fronts.  Neither side got everything they wanted, but by everybody giving a little, we’re getting a lot — and that’s what compromise is all about.”

Schumer noted, “Rental car companies are rolling the dice with passengers’ lives each and every time they rent a car that’s under a recall.  This practice has already proved tragic.  Most rental companies have now changed their policies, but we need a law to ensure that recalled cars are never again driven off of rental lots.  This bipartisan bill is a common sense safety measure, and I’m very grateful that Senator McCaskill has agreed to hold a hearing on it.”

Boxer said, “This legislation honors the memory of Raechel and Jacqueline Houck – two beautiful girls who lost their lives in a senseless tragedy – by ensuring that no other family will have to fear that the rental car they are driving is unsafe.  Because of the tireless work of their mother, Cally [Houck], we are able to introduce this bipartisan bill today that will make sure that vehicles rented or sold by rental car companies are safe and sound.”

“No other family should have to endure such horrific losses just because a rental car company didn’t bother to ensure that their cars are not being recalled due to safety defects,” said Houck.
Rosemary Shahan, president of Consumers for Auto Reliability and Safety added, “We’re optimistic that Congress will act to stop all rental car companies from playing ‘rental car roulette’ with their customers’ lives.”

In 2004, sisters Raechel and Jacqueline Houck were killed driving a rental car that had been recalled for a power steering hose defect but had not been repaired.  The car caught fire because of the defect while traveling on the highway, causing a loss of steering and a head-on collision with a semi-trailer truck.  The young women died in the crash.

The Raechel and Jacqueline Houck Safe Rental Car Act of 2013 is needed to ensure this tragedy is not repeated.  Getting unsafe vehicles off the road is integral to improving safety and saving lives.  This is why current law requires manufacturers to recall vehicles that have safety-related defects or do not meet federal safety standards.  Current law also prohibits auto dealers from selling a new car under recall unless the defect has been remedied.  The legislation would, for the first time, hold rental companies to the same standard as auto dealers.

Specifically, the bill:

  • Prohibits Rental or Sale of Vehicles Subject to a Safety Recall  Under the senators’ plan, vehicles may not be rented or sold until the vehicles are fixed, consistent with existing law for new car dealers, who have been prohibited from selling or leasing recalled vehicles for decades.  Rental companies would be permitted to sell a damaged vehicle subject to recall for parts or scrap with a junk title.
  • Requires Rental Companies to Ground Vehicles Under a Safety Recall The bill would ensure that vehicles under a safety recall will be grounded as soon as possible but no later than 24 hours after the rental company gets the safety recall notice.  Rental companies will have up to 48 hours for recalls that include more than 5,000 vehicles in their fleet.
  • Permits Rental Companies to Rely on Temporary Measures Identified by Manufacturers  If a manufacturer’s recall notice specifies steps that can be taken to eliminate the safety risk until parts are available, a rental company may continue to rent the vehicle if those measures are put in place but must ground and repair the vehicle once parts become available.
  • Ensures NHTSA Has Tools Necessary to Protect Consumers  The National Highway Traffic Safety Administration will have authority to investigate and police rental companies’ recall safety practices.

The Raechel and Jacqueline Houck Safe Rental Car Act of 2013 is supported by Carol (Cally) Houck – mother of Raechel and Jacqueline Houck, Consumers for Auto Reliability and Safety, Advocates for Highway and Auto Safety, Center for Auto Safety, Consumers Union, Consumer Federation of America, Consumer Action, National Association of Consumer Advocates, and Trauma Foundation.  The bill has been endorsed by all the major car rental companies – Hertz, Enterprise, Avis Budget, Dollar Thrifty and National – as well as the American Car Rental Association. The bill also is supported by the Truck Renting and Leasing Association, representing the vast majority of truck renting and leasing operations in the United States, as well as AAA and State Farm.

 “Although most of the car rental industry already prohibits renting or selling recalled cars if they haven’t been repaired, lawmakers can further reassure car rental customers across the board by supporting and voting in favor of this important federal legislation.  As a result, we will continue advocating on behalf of this bill and working diligently with consumer advocates, the American Car Rental Association and other key stakeholders to help get it passed.”

The American Car Rental Association: 
“The American Car Rental Association (ACRA) is pleased to join with consumer advocates in support of this legislation, which prohibits the rental of any vehicle that has an unrepaired safety recall and addresses certain practical implementation issues of our industry.  It is critically important that Congress codify what most of the car rental industry voluntarily enacted last year.  By formally creating a uniform standard, both car-rental and car-sharing customers will have even greater confidence going forward no matter where they rent their vehicles.”

 “Hertz supports efforts to prohibit car rental companies from renting or selling recalled cars if they haven’t been repaired.  The major companies do an excellent job handling recalls, and consumers should have confidence that the cars they drive are safe; this legislation will help improve the public’s perception of our industry’s commitment to safety.”

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‘Car-title Loans’ a Road to Deep Debt

Legislators Weigh Capping High-interest ‘Car-title Loans’

San Franciso Chronicle, May 4, 2013

The pitches sound enticing. “Need cash? Have bad credit? No problem. You can get a loan today by using your car as collateral – and you get to keep driving it.”

These “car-title loans,” also called “pink-slip loans” and “auto-equity loans,” are a booming industry in California, where 38,000 people took out $134 million worth in 2011, according to the Department of Corporations.

Anyone with equity in a car (meaning they own it outright or owe just a small amount) can get a short-term loan for up to half of the car’s value by pledging their car’s title (and often forking over spare keys) to secure the loan. Borrowers keep possession of their cars while they’re making payments.

But that quick cash comes with a steep price tag: interest rates that can top 100 percent a year, extra fees and the possibility of having the car repossessed.

While 31 states have outlawed car-title loans, a loophole in California law allows unlimited interest on some secured loans for more than $2,500. Now, consumer advocates, who call the loans predatory, are urging state legislators to take action, either to ban the loans outright or cap interest at 36 percent. The federal government implemented that same cap for auto-equity loans to military members.

“Car lenders say they have to charge so much because they’re high-risk loans,” said Rosemary Shahan, president of nonprofit advocacy group Consumers for Auto Reliability and Safety. “There’s no risk. They just show up and take your car if you don’t pay. They can resell it to recoup their costs.”

‘Nasty Attitude’

Shanell White understands the loan pitfalls well. When car repair expenses and the temporary care of her niece cut into her funds, White needed some quick cash for help with her rent.

“I looked on the Internet and came across car-title loans,” said White, who lives in Elk Grove (Sacramento County) and works for the state as an analyst. “I did a quick online questionnaire, and they called me back. I did the application and got the loan.”

Staking her 1996 Lexus, worth about $12,000, as collateral, she borrowed $3,900 at an interest rate of 80 percent a year. Payments came to $290 a month for three years, which she assumed covered interest and principal.

“I knew it was a high interest rate, but I figured as long as I paid what they told me to, I would be fine,” she said.

When she missed some payments, the company repossessed her car and charged her $1,400 to get it back. After three years, she figured she had repaid the loan, but when she asked for a payoff statement, the company said she still owed the original loan amount, she said. “Their attitude was very nasty. Everyone would tell me something different,” she said.

She missed some more payments and then woke up one day to find that the car was missing – the lender had towed it in the middle of the night.

“I called the company and they said there was nothing they could do unless I repaid the full amount” of the original loan, she said. The company sold the car in December and still sent her a bill for the loan amount.

“To me, it’s just modern-day loan sharking,” she said. “People are being taken advantage of.”

Cars as Lifelines

What’s particularly insidious, Shahan said, is that borrowers will make many sacrifices to keep making payments on the high-interest loans.

“People will hang on for dear life to their car because it’s their lifeline to get to work, medical appointments, school,” she said. In many cases, people who took out the loans would have been better off simply selling their cars and buying less-expensive ones, she said.

Assemblyman Roger Dickinson, D-Sacramento, chairman of the Assembly Banking Committee, has been holding hearings on auto-title loans. He introduced a bill last year to cap interest rates, but it failed to gain any traction.

“Next to home loans, they are probably the most secured type of loan one can make to a consumer,” he said. “It seems inconsistent that you have loans made with collateral that is worth well more than the amount of the loan, and yet the interest rates on these loans tend to be extraordinarily high. It’s hard to understand how interest rates that run to 150 percent or 200 percent can be necessary or justified.”

He said he plans to continue investigating the industry and will introduce legislation next year to rein in interest rates and fees, possibly encompassing other types of small loans.

Important Need

Loan companies did not return calls for comment. But in testimony before state legislative committees, Oscar Rodriguez, president of industry trade group Equal Access Auto Lenders of California and CEO of lender LoanMart, said car-title lending fills an important need for people with poor credit who can’t get loans from banks or credit cards because their credit scores are too low.

“We are a source when they need access to credit when the door is shut to them from every other place,” said Joe Lang, a lobbyist for Community Loans of America, which has 20 locations in California.

Dickinson said that outlawing the loans isn’t on the table.

“There is a legitimate need for products in this price range available to people who may not have recourse to other avenues of borrowing,” he said. “Our obligation is to make sure that when people do borrow, in any context, that they are treated fairly and reasonably, particularly in the small-loan category, where you tend to see people who are more desperate.”

Lang and Rodriguez say lenders charge high interest rates because they pay a premium for capital for customers considered risky, and shoulder big expenses for marketing, personnel and the overhead of maintaining storefronts.

“Yes, our interest rates are high, in some cases over 100 percent” a year, Lang said. But the industry’s profit margins are about 21 percent, slightly less than the 23.9 percent return that credit card companies get, he said.

Rodriguez testified that default rates range from the teens to 40 or 50 percent.

Capping the Rates

“We would like to see responsible loans, with rigorous underwriting of a borrower’s ability to repay the loan out of their income, taking into account income, debt and expenses,” said Paul Leonard, California director of the Center for Responsible Lending. “We would like to see fair pricing. It seems to me that for a loan that’s fully secured, 36 percent interest is a generous cap.”

Lenders have plenty of tools in their arsenal, he said.

“A lot of lenders put in GPS devices to track the cars,” Leonard said. “They also can install ignition auto locks – a remote-operated kill switch to prevent the borrower from starting the car” if they’re behind on loan payments. If lenders do repossess the car, California law lets them recoup those expenses as well, he said.

Car-title Loans

What: Small-dollar, short-term loans secured by the title to a borrower’s vehicle.

Who: 7,730 car-title lenders operate in 21 states. California had 58 car-title lenders with 781 locations in 2011.

Volume: Nationwide, car-title loans are about $1.6 million, but cost $3.6 billion in interest. Some 38,000 Californians took out $134 million in car-title loans in 2011.

Costs: The average car-title borrower renews a loan eight times, paying $2,142 in interest for $951 of credit. A typical borrower receives cash equal to 26 percent of a car’s value, and pays 300% APR.

More information:

Source: Center for Responsible Lending, Consumer Federation of America, California Department of Corporations

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Editorial: The Utility Shell Game

St. Louis Post-Dispatch, May 6, 2013

A bipartisan group of lawmakers is blocking a bill that would allow Ameren Missouri to raise electric rates on consumers more quickly with less regulatory oversight. Good for them. Now they should also block Senate Bill 240, which expands the ability of regulated gas utilities, such as Laclede Gas and Ameren, to raise rates outside the normal rate-case process. The bill would hit residential and small-business consumers the hardest. It is, quite simply, a money-grab by regulated monopoly utility companies that by all accounts are doing quite well financially.

If it weren’t such a bad bill, we’d have to take our hats off to the utility lobby for their clever shell game. With their right hand, they waved around the shiny object, Ameren’s Senate Bill 207, telling lawmakers they simply wanted an infrastructure just like gas companies had.

Meanwhile, with their left hands, the same coalition of utilities was advancing Senate Bill 240, a bill that completely changes the playing field on the existing gas surcharge.

Either way, consumers lose.

Unfortunately, the bill already passed the Senate and now just needs a final House vote to go to the governor. Majority floor leader Rep. John Diehl, R-Town and Country, would pick the pockets of businesses and homeowners if he lets this bad bill pass with no changes. It would guarantee that consumers would pay more to heat and cool their homes. He and Speaker of the House Tim Jones, R-Eureka, should use their considerable power to slow down this attack on consumers. Failing that, Gov. Jay Nixon should start warming up his veto pen.

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Coalition is Holding Banks Accountable for Meeting Communities’ Needs

The St. Louis Equal Housing and Community Reinvestment Alliance (SLEHCRA) is a coalition of non-profit and community organizations in the St. Louis metropolitan area.  The organization works to increase investment in minority communities, regardless of income, and in low- and moderate-income communities, regardless of race, by ensuring that banks are meeting their obligations under the Community Reinvestment Act and fair lending laws.

Consumers Council of Missouri actively participates in SLEHCRA.

To learn more about the Community Reinvestment Act click here.

To see SLEHCRA’s fair lending reports click here.

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Editorial: Medicaid Defeat Hurts Missourians Who Need Help Most

Columbia Tribune, April 28, 2013

In a number of states, Republican lawmakers are making a stubborn stand against the expansion of Medicare coverage contained in the federal Affordable Care Act.

They laud themselves for having denied a tenet of Obamacare, sticking it to the president whose name is attached.

Trouble is, their main effect is to make life harder for constituents in their own states, not to mention throwing sand in the progress of health care reform.

Republicans in the Missouri General Assembly proudly tell us they will not expand Medicare this year in an effort to gain leverage over the federal government for vague and unlikely concessions next year. This is a fool’s game. Even states whose leaders don’t like the new law are signing up for Medicaid expansion because the consequences of doing otherwise are negative.

Those consequences are well known to Missourians: a loss of millions in federal health care assistance with associated damage to our state economy, and denial of health care help for hundreds of thousands of Missouri residents. Health care providers and economic development groups universally urge expansion. That General Assembly Republicans deny these traditional support groups is amazing. Either the partisans have imbibed the Kool-Aid by the gallon, or they believe hospitals, doctors and the Missouri Chamber of Commerce will have nowhere else to go with their political allegiance.

Opponents gripe about the requirement that Medicaid coverage must be extended to those at or below 138 percent of the federal poverty level without mentioning that cutoff is about $15,860 for an individual. Apparently they think this is plenty of income to allow people to buy their own insurance. More to the point, they don’t buy the very idea of expanded affordable care, preferring to see hundreds of thousands without.

Obamacare is complicated because it represents a difficult change from a broken system, and to even get started it had to survive total unrelenting opposition from Republicans who fought over every detail of the new law, resulting in a number of compromises that make implementation hard. The ultimate goal is worth the struggle, but as long as the Republican Party is determined to be as obstructionist as possible, we will be in for destructive moves like our own legislative denial of Medicaid expansion.

I think most Americans support a national health care system that will provide affordable basic care for everyone. We can see proof of this thesis everywhere else in the developed world, where health care outcomes are better and costs are lower. Because this requires comprehensive federal oversight, opponents will parrot criticism of government per se, but they forget government is us and their knee-jerk opposition does nothing to improve health care. They should join in an all-out effort to develop the best system rather than try to stymie progress. But, alas, they have staked out such intransigent territory even the slightest relent will be unnecessarily hard.

The current Medicaid flap is possible because the U.S. Supreme Court allowed states to opt out of federal requirements for expansion. If the Affordable Care Act is a valid exercise of federal government prerogative, it’s hard to figure why this particular carve-out was specified, but it helps show what a proper law will look like.

When the system is well developed, no unique Medicaid program will exist. Everyone will receive basic coverage under Medicaid regardless of income, poverty or age status. Coverage and contribution levels will be means-tested, as now is done partially. Basic coverage limits in the universal national health insurance policy will be determined by Congress and available through public or, at the option of providers, through private insurance. Individuals will be able to buy additional coverage with their own money.

Once this legal basic framework of coverage is established, we will continue with an eternal discussion about coverage limits and implications for funding. One salutary result will be the disappearance of employer group insurance, a perverse arrangement that enables coverage based on health characteristics of small particular groups rather than the large national population. The persistence of employer groups complicates reform progress and does nothing to improve potential individual coverage.

Meanwhile, Missouri Republicans deserve sharp rebuke for the harm they are doing. They are imposing pain on local employers and needy citizens and denying the state many millions in federal assistance that will go to other states. It’s a GOP trifecta the party should not be proud of.

Add this to the litany of stances casting the GOP ever more firmly in a political corner, leaving a growing spectrum of the political landscape to others. Being against health care reform is a denial of the future.


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Editorial: Healthcare Issue Too Important to Die; Save Lives – Expand Medicaid

St. Louis Post-Dispatch, April 22, 2013

A brutal form of cynicism lies behind the latest excuse offered by Missouri Senate Republicans for refusing to even discuss an expansion of the state Medicaid program. The proposal would extend health insurance to poor people and bring thousands of jobs to the state by leveraging billions of dollars in federal investment.

Sen. John Lamping, R-Ladue, was one of several senators to use the word “dead” to describe House Bill 700, sponsored by Rep. Jay Barnes, R-Jefferson City. The bill would both revamp the state’s Medicaid program and seek to take advantage of the promised federal money to pay for it.

If it’s dead, why did it die?

In his 2014 budget filed earlier this month, President Barack Obama proposed delaying $500 million in spending cuts called “disproportionate share” payments. These are the federal payments to hospitals that pay for at least some of the health care costs of the millions of Americans who are uninsured, but end up in hospital emergency rooms for care.

It’s a horribly inefficient system that is being phased out under Mr. Obama’s Affordable Care Act. Because millions more Americans will have insurance, the payments will be unnecessary. The spending on the front end saves us all money on the back end.

Mr. Obama is seeking to delay the cuts specifically because of the intransigence of some state lawmakers, like the Republicans in Missouri, who have ignored both the moral and economic imperatives to find a way to provide insurance to more Americans. If states are slow to implement the ACA, then cutting the disproportionate share payments will be devastating to hospitals, specifically those in rural areas, that will still have to spend millions of dollars on uncompensated care. Those proposed cuts have put pressure on reticent rural lawmakers afraid that major employers in their regions could lose jobs.
It’s key to understanding the moral bankruptcy of the Missouri Republican Party that this is the only motivation that might have persuaded them to keep the Medicaid expansion proposal alive.

Senate Republicans weren’t moved by empirical evidence that uninsured people are more likely to die than those with insurance. In 2009, a Harvard Medical School study found that 45,000 Americans die premature deaths every year in part because they lack health insurance. They weren’t moved by several studies showing that the infusion of $2 billion a year in federal funds each of the next three years will create thousands of health care jobs as hospitals and other health-care professionals increase staffing and investment to help serve more than 260,000 newly insured Missourians. They weren’t moved by the fact that if those 260,000 Missourians remain uninsured, an average insured family of four will pay about $1,688 more a year for health care to cover those costs.

They weren’t even moved by an opportunity to reform Missouri’s Medicaid system and leverage the federal money to move more poor people into the private insurance system.

No, what “killed” the Medicaid expansion bill was Mr. Obama’s proposed budget, a budget that Congressional Republicans called dead on arrival. The circular logic is stupendous in its deception.

First Republicans blame Mr. Obama for the ACA, even after he models it after many of their ideas. Then they spend two years doing their best Walter Mondale impersonation, repeating over and over again, “Where’s the budget?” When the budget is released, of course, they declare it dead. But in Missouri, those same Republicans seize one line of the budget and say, “See? Medicaid expansion is unnecessary!”

Meanwhile, they’re spending their time making sure more Missourians will be in poverty. Not only will poor folks continue entering the health-care system through the expensive door of the emergency room, they also face GOP tax-cut legislation that will further shift the costs of nearly everything toward poor people.
Perhaps we enjoy tilting at windmills, but we refuse to believe that the Missouri Legislature is so bereft of people with a moral commitment to their fellow man that this sort of nihilism can continue ad infinitum.

Why, we recall being impressed when Mr. Lamping told us, back when he was running for office in 2010, that he is guided by the principle set down by St. Ignatius Loyola, the founder of the Jesuit order, that those entrusted with power should make “no decision without considering the impact on the least in society.”

The Medicaid expansion effort is too important to allow it to be blocked, particularly for the Senate’s specious reasons. Gov. Jay Nixon, a Democrat, has done his level best traveling the state, hand in hand with business leaders, most of whom have traditionally supported Republicans, to rally support for this important legislation. But it hasn’t been enough.

It’s time for those business leaders to take a stand. Write some big checks for Democrats and see who comes running. Let Republicans like Mr. Lamping know that their careers are over if they don’t get serious. Let Mr. Nixon know you’ll help him round up the votes to beat back overrides if he starts vetoing every bill that comes to his desk.

Medicaid expansion isn’t about Mr. Obama and it’s not about some consultant-driven debate about future electoral success.

The more people in Missouri who have health insurance, the fewer of them will die. This is literally a life-and-death issue.

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PSC Staff Analysis of Legislation Confirms Consumers’ Fears

ST. LOUIS, Mo., April 8, 2013 — An analysis by the staff of the Public Service Commission finds that under legislation pending in the Missouri General Assembly consumers would have to pay higher rates faster for electric utility infrastructure investments and would lose protections afforded under current law.

“These are exactly the points we at Consumers Council of Missouri have been making as we educate the public and legislators about the dangers of piecemeal ratemaking,” said Joan Bray, interim director of the organization.  “In the next four years, consumers across the state could be charged more than $600 million for building or repairing facilities without the utilities having to initially justify the costs.”

Consumers Council asserts that consumers fare better under the general ratemaking process in Missouri, when all revenues and liabilities of a utility are examined, Bray said.  A single-issue surcharge as proposed in Senate Bill 207 and House Bill 398 avoids such scrutiny.

The analysis responded to questions Senator Eric Schmitt (R-Glendale) posed to the PSC staff regarding the two bills.

Bray noted that the PSC staff analysis makes a great case that the current law is doing a good job of providing safe and reliable electric systems that consumers expect and need.  In fact, the report quotes executives of four investor-owned utilities in Missouri boasting about the reliability of their service, she said.

According to the analysis, the bill proposes two mechanisms that could dramatically affect consumers’ bills: an Infrastructure System Replacement and Addition Surcharge, or ISRS, and a “tracker.”  Regarding the surcharge, the report says, the “Staff is of the opinion that use of the ISRS rate mechanism included in SB 207 will have the impact of charging electric customers in Missouri higher rate levels at any point between general rate proceedings than would be charged to them under traditional rate regulation. … For all electric utilities combined, the amount of total ISRS increases over a four-year period would be approximately $275 million, according to the Staff’s updated estimates.”

The report also says “items … qualifying for the ‘tracker’ have tended to result in increases in a utility’s revenue requirement over time. No significant cost of service items that tend to decrease a utility’s revenue requirement over time … are included…. It is almost a certainty that implementation of this provision will mean higher customer rates in the future than would be authorized under traditional ratemaking regulation.”  The report estimates the tracker could cost Missourians $327 million over four years.

PSC Staff Analysis of SB207

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Federal Regulators to Rein In Payday Lending by Banks

Washington Post, printed in the St. Louis Post-Dispatch, April 24, 2013

WASHINGTON • Banking regulators are set to hand down tough new rules to govern short-term, high-interest loans that have been blamed for trapping some Americans in a cycle of debt, according to people familiar with the matter.

The rules, which are slated to come out Thursday, could radically alter the operations of the small but growing number of banks, including Wells Fargo and U.S. Bancorp, that offer loans tied to anticipated direct deposits of salary, government benefits or other income. Critics say these products carry the same abusive high interest rates and balloon payments as the payday loans provided by storefront vendors.

At least 15 states have banned the service, while several others have imposed strict laws to limit the interest rates and the number of loans that can be made. Federal regulators are taking cues from state authorities by proposing similar limits, but are stopping short of outright banning banks from engaging in the market.

The proposed regulation would institute a “cooling-off” period that limits borrowers from taking more than one deposit advance during a monthly pay cycle, according to the people familiar with the matter. Borrowers must also repay the loan before taking out additional loans and wait a month between loans. The proposal mandates that banks take a borrower’s ability to repay into consideration before making a loan, a standard underwriting practice in all other lending.

Regulators at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. intend the rules to be “very restrictive,” said one person familiar with their thinking. But because a third major regulator — the Federal Reserve, which oversees some 850 banks — is not participating in the effort, the scope of the rules may be limited. Calls to the Fed for comment were not returned Tuesday night.

People with knowledge of the proposal say the OCC and the FDIC are concerned about the misuse of bank payday loans.

Banks market these products, with names such as “Early Access” or “Ready Advance,” as short-term solutions for emergencies. But borrowers often wind up taking multiple loans that keep them mired in debt.

Account holders typically pay up to $10 for every $100 borrowed, with the understanding that the loan will be repaid with their next direct deposit. If the deposited funds are not enough to cover the loan, the bank takes whatever money comes in, then tacks on overdraft fees and additional interest.

The perils of direct-deposit advances were a key focus of a new study conducted by the Consumer Financial Protection Bureau. The report, which will be released Wednesday, found that such loans are creating an expensive burden for consumers.

“Lenders may rely on their ability to directly debit the consumer’s account . . . rather than assessing whether the loan is affordable in light of the borrower’s income and other expenses,” CFPB Director Richard Cordray said Tuesday on a call with reporters.

Bureau researchers looked at more than 15 million payday loans over a 12-month period to analyze consumer behavior.

They found that more than half of direct-deposit borrowers took out advances totaling $3,000 or more. Of these borrowers, well over half paid off one loan and went back for another within 12 days. The average borrower took out 10 loans in a year and paid $458 in fees.

Proponents of alternative financial services welcomed the bureau’s study, but cautioned against using broad brush strokes to define the payday industry.

“It is important to underscore that this preliminary report is a starting point for further conversations rather than a set of definitive conclusions,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, an industry trade group.

The CFPB has supervisory and enforcement authority for storefront and bank payday lenders with more than $10 billion in assets. The report brings the CFPB a step closer to imposing its own rules to govern the industry.

People familiar with the matter say the bureau advised the OCC and the FDIC on the proposed regulations.

The proposed guidance is modeled after rules the OCC issued in 2000 that barred banks from engaging in direct payday lending. Banks circumvented that guidance by tying their short-term loans to direct deposits.

Officials at Wells Fargo insist that the bank is offering a vital service designed to help customers with unforeseen financial emergencies, such as car repairs.

“It is an expensive form of credit, and we are very clear and upfront with our customers about that. It is not intended to solve long-term financial needs,” Wells Fargo spokeswoman Richele Messick said.

The bank, which debuted the product in 1994, offers an installment plan for customers to avoid balloon payments. But it is offered only to people with at least $300 in outstanding debt who have been hit with balloon payments for three consecutive months. Messick declined to comment on the forthcoming guidance until regulators officially issue them.

Advocacy groups have long been concerned that federally regulated banks can sidestep stricter state laws that govern payday lenders. Last month, the Center for Responsible Lending issued a report urging bank regulators to ban direct-deposit advances before the practice spreads from a few banks to the entire system.

In addition to Wells Fargo and U.S. Bancorp, the other banks that offer such loans are Regions Bank, Fifth Third Bank, Guaranty Bank and Bank of Oklahoma.

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Bank Payday Lending Persists Despite Broad and Growing Opposition

Center for Responsible Lending, printed in the North Dallas Gazette, March 26, 2013

In today’s challenging financial times, the cost of living finds many consumers with an ongoing financial challenge to hold on until their next payday arrives. Even worse, when banks peddle predatory payday loans, they pose serious threats to their customers’ financial well-being. Marketed under names like “direct deposit advance”, these loans are easy to get; but hard to pay off. As consumers get ensnared by the debt trap, banks reap repeating cycles of quick cash.

In its latest report on bank payday lending, the Center for Responsible Lending (CRL) found that although participating banks claim that their payday loan products are only for short-term emergencies and carry marginal risks, the real-life experiences were opposite. Instead, the typical bank payday borrower is charged an annual percentage rate (APR) that averages 225-300 percent; took out 19 loans in 2011, spending at least part of six months a year in bank payday debt; and is twice more likely to incur overdraft fees than bank customers as a whole.  In addition, over one in four bank payday borrowers is a Social Security recipient.

This last finding comes on the heels of a key administrative change for seniors on Social Security. As of March 1, all Social Security payments are issued electronically. And although seniors have specific protections from payday lending on prepaid cards, no comparable protection exists on checking accounts.CRL’s report also calls for regulators to take immediate actions to stop banks now offering payday loans from engaging in this form of predatory lending. Additionally, CRL calls for the following terms on small loan products:

  1. A minimum loan term of 90 days with affordable installments;
  2. An APR of 36 percent or less;
  3. Underwriting based on an ability to repay; and
  4. No mandatory automatic repayment from the consumer’s checking account.

Over a year ago, 250 organizations and individuals sent a letter to federal banking regulators expressing concerns with bank payday lending. Also last year, and in a separate action, over 1,000 consumers and organizations told the Consumer Financial Protection Bureau about elder financial abuse, including bank payday lending.  At that time, CRL advised, “More than 13 million older adults are considered economically insecure, living on $21,800 a year or less. Senior women in particular face diminished incomes because of lower lifetime earnings and therefore lower Social Security and pension benefits.”

As opposition to bank payday and elder financial abuse grows, banking regulators are continuing to hear from advocates, experts and concerned citizens. Fortunately, advocates are determined to press this issue in growing numbers: in a letter dated March 13, 278 organizations and individuals signed a second letter to regulators.  In part, the March 13 letter states, “Payday lending has a particularly adverse impact on African-Americans and Latinos, as a disproportionate share of payday borrowers come from communities of color. High-cost, short-term balloon repayments, and the consequent series of repeat loans, have long been identified by regulators as features of predatory lending.”

“Ultimately, payday loans erode the assets of bank customers” continued the letter, “and, rather than promote savings, make checking accounts unsafe for many customers. They lead to uncollected debt, bank account closures, and greater numbers of unbanked Americans. All of these outcomes are inconsistent with both consumer protection and the safety and soundness of financial institutions.”

Space will not allow for the full 278 signatories to be identified. But they do include many national and statewide organizations including: AARP, AFL-CIO, AFSCME, the Black Leadership Forum, NAACP, the Leadership Conference on Civil and Human Rights and CRL.

In closing the coalition of concern warns, “Please move quickly to ensure that payday lending by banks does not become more widespread and to ensure that those banks currently making payday loans stop offering this inherently dangerous product.”

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