Utilities shouldn’t use payday lenders as collection agents.
Photo by Candiche via Flickr.com
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.
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. (Telephone companies have filed responses here and here.)
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 loan sharks.
Som people dont have a checking account. This is where they cash their checks. The banks wont cash a check unless you have an accoun and peoper I.D. Some dont have i.D. Plus if they were to pay at a utility and they are 50 bucks short is the utility going to loan them the money? Plus they may get money for food too.
Whats the difference between people that charge their utility bill with a credit card and get a 30 percent interest fee on their card. The credit card companies are predatory too.
Check cashing stores provide an instant source where people can cash a check with lilllte or no I.D. and help them get extra money for their kids lunches. If you want to write about check stores go hang out in one for a month and see what goes on their.
Moneywise; the answer to your statement is not predatory moneylenders, the answer is better financial services in these neighborhoods. It’s not like there’s no examples in this country and elsewhere, and its not like banks don’t do well in poor neighborhoods: there are and they do. It’s an unwillingness to make a little extra effort.
It stems from the difference between ‘making a profit’ and ‘maximizing profit’; the two get confused in this country.
Do the utility companies still take payment via mail? For .44 people can avoid Payday Loan shops and still pay the bills……
I know…….Too easy and then the Ed board wouldn’t have anything to complain about……
If you had to ban all types of businesses which make money off of customers, then you’d have to ban business, including the utilities. The government regulates banks and should have free checking accounts required with a minimum balance of $1 so that even the poor can use them and also float on checks should be eliminated so that any check written and deposited on a US bank will clear in 1 business day. Float is what can destroy bank accounts and lead to overdraft fees. If you know everything clears in a day, it’s easier to plan than to play the game with float since you don’t really know which day checks will clear. No one is forced to use a check cashing place, no one is forced to use a credit card, and no one is forced to go to a casino.
> Moneywise; the answer to your statement is not predatory moneylenders, the
> answer is better financial services in these neighborhoods.
“Reality Check”, I have a reality check for you. Supposed a stranger walked up and rang your doorbell. You know nothing about this stranger, except that he has a spotty work history, a bunch of delinquent bills, maybe even a judgment or two. His only phone number is a throwaway cell, and he has lived at several addresses over the past few years. He wants to borrow $100 today, and will pay you $120 a week from now. Would you do it?
My guess is that, excluding those who would consider it a gift instead of a loan, 99.9% of us would say no. And that’s smart, because the default rate on payday loans is astronomical, and recovering defaulted payday loans through collections is extremely costly and difficult. And for the very same reason most of us would say no, traditional banks, who must loan at very reasonable interest rates, are not interested in making loans to people with horrible credit.
The Post-Dispatch has issued one broadside after another against the payday loan industry. Today’s editorial is as thoughtless as prior ones. You say that payday loan shops shouldn’t be able to accept utility payments. But there’s only two possible scenarios: First, that the payer has the money, in which case he will not be obtaining a loan, just going to the most convenient payment location. Second, the person does need a loan to pay his bill, in which case your prohibition would simply mean that he’d have to go one place to get the loan, then another to pay the bill, costing him time and bus fare. In one scenario, you’ve made no difference, and in the other, you’ve made his situation worse.
To justify this prohibition, you have to assume that poor people are idiots. Specifically, you must assume that a person who does not need a payday loan, but just happens to be in a loan shop to pay his electric bill, will take out one of these very costly loans just because he is there. Personally, I believe that people use payday loan shops as lenders of last resort - that is, to keep their utilities from being shut off, or to buy a bus pass so they can get to work. Yes, there are some few who use it to buy liquor and cigarettes, and that’s bad. But is it any worse than the middle class people who took out home equity loans to finance sports cars and vacations? Yet I don’t remember an editorial advocating banning home equity loans.
No one is forced to use a check cashing place, no one is forced to use a credit card, and no one is forced to go to a casino.
— Dano
8:55 am September 1st, 2009
Then why are you advocating that banks be “forced” to participate in unsound business practices? A check is held to make sure it clears. If you deposit a check in the bank, then write a bunch of checks on it, and the deposited check bounces, who is gonna eat those charges? The bank? The customer? The government?
Your idea just doesn’t fly.
Why should we put up with banking if we are forced to go to payday lenders. I think one never needs money in that big a hurry. Bankers are funding these places in order to rip off small borrowers. These people will never get out of the hole they are being forced to dig. People claim that they are free in the United States but nothing if further from the truth for the less affluent. They are forced to work and get nothing in return. This type of activity is spreading along with lower paying jobs. It is high time the government stepped in and outlawed these loan sharks.
> It is high time the government stepped in and outlawed these loan sharks.
And if they do, where will the clients of these establishments turn? The only thing worse than paying a $30 service fee on a $100 loan is missing 3 days of work (3 days x 8 hours x $8/hour = $192) because you couldn’t get your car fixed. Or having a refrigerator full of food spoil because your electricity got cut off. How do you propose to deal with such situations?
Based on those rules you published a couple of months ago, shouldn’t Tim Hogan’s post be deleted? Not only does he refer to other commenters as “Lunatic and Kiss-off”, he also accused them of being “far right wing fascist corporatist necons that have screwed America.” His post has been there for well over 24 hours now … is Mr. Hogan exempt from the rules?
Rules, read the post.
The are no allegations of any fact, merely an entreaty from the posters for further clarification of their relative work situations and political positions.
Besides, you’re just “dr. bebunk” using another isp to spew your balderdash, why haven’t you been banned everywhere?