Regulators Weigh Ban on Payday Lenders Collecting Bills for Utility Companies

Kansas City Star, July 18, 2014

Many utilities allow payday lenders to collect utility bill payments from customers, but Missouri regulators are considering whether to stop the practice.

The dispute has simmered for years. Critics say it’s ridiculous to collect utility payments at places they say provide loans at sky-high rates and target cash-strapped consumers. Customers pay off their utility bills but may find it too convenient to take out a loan to do so.

Utilities defend it as the best and most convenient option for some customers. And payday loan companies argue that very few utility customers paying their bills also take out a loan.

The issue erupted at a recent meeting organized by the Missouri Public Service Commission that was attended by payday lenders, utilities and consumer groups. Next month the commission’s staff will deliver a report with a recommendation on whether to proceed with drafting a rule to ban the practice.

“We’ve been fighting this for years, and it’s finally getting some momentum,” said John Coffman, an attorney for the Consumers Council of Missouri.

Most utility customers pay their bill by mail or online. But a small percentage don’t have a bank and have to pay in cash. A couple of decades ago, utilities had storefront locations that accepted payments, but those were closed to cut costs.

KCP&L said 2.6 percent of its customers now use walk-in authorized pay stations, such as grocery and convenience stores. But the utility has an arrangement with eight of those authorized pay stations in Missouri and one in Kansas that offer check-cashing services or payday loans.

“We only use one when we have no other way to have a walk-in payment option,” said Katie McDonald, a KCP&L spokeswoman.

The utility has had no complaints from customers about using payday lenders, McDonald said.

The Missouri Energy Development Association, which represents the state’s investor-owned electric and natural gas utilities, said in a document filed with state regulators that in the absence of a compelling showing of abusive business practices, it would be arbitrary to restrict who can be authorized pay agents.

The payday loan industry is often the target of criticism, especially in Missouri with its lax oversight of the business. Earlier this month, Gov. Jay Nixon vetoed payday loan legislation, saying it fell far short of the serious reform needed and would still allow the lenders to charge 912.5 percent for a 14-day loan.

“Payday lending often perpetuates an endless cycle of debt for consumers who can least afford it,” he said in a statement.

Berta Sailer, co-founder of Operation Breakthrough, a Kansas City social services group, attended the recent PSC meeting and hopes regulators will ban utilities from using payday lenders.

“People who turn to high-interest loans are desperate for money,” she said, “especially if they’ve fallen so far behind on payments that their utilities are turned off.”

QC Holdings, one of the state’s largest payday lenders and speaking on behalf of two others, said in a letter to state regulators that accepting utility bill payments and offering short-term loans were separate transactions.

It contended that very few utility bill payment customers took out payday loans. And it pointed out that the $1 average fee collected for each utility payment doesn’t cover the cost of handling the payments.

“We strongly contest the unsupported opinion that payday loan stores are taking advantage of bill pay customers,” Matt Wiltanger, vice president of QC Holdings, said in the letter.

In 2009, the PSC staff reviewed the issue and didn’t recommend that utilities stop using payday lenders to accept payments. In 2011, regulators said the relationship between the lenders and utilities was a concern, but it wouldn’t seek to ban them.

The Office of the Public Counsel, a state agency that represents consumers on utility issues, has been a critic of the relationship for years. Recently in a regulatory filing, it said its concerns were unabated.

“A bill payment at these locations … becomes an opportunity to solicit the utility customer to borrow money at an extremely high rate,” the Office of Public Counsel said.