September 23, 2016—Missouri has joined several other states, including Arizona and Nevada, in banning payments to utility companies from payday lenders. The amendment to the Missouri Public Service Commission (PSC)’s Code of State Regulations went into effect August 31, 2016.
In its comments on the amendment, Empower Missouri, an advocacy organization, described the social ills that befall low-income households who participate in payday loans and the cycle of debt created by such high-interest loans. These words were echoed in the written comments submitted by the Legal Services of Eastern Missouri. AARP and the Consumers Council of Missouri also supported the amendment.
Payday lenders, according to a report by the National Consumer Law Center (NCLC), typically offer their borrowers unsecured, short-term, high-interest loans and market them as a “quick fix” in household financial emergencies. The cost usually ranges from $15 to $30 for every $100 borrowed. The typical loan amount is $350. On the payment due date, the borrower can either let the lending company deposit the pre-written check the borrower provided them, or they can allow the debt to roll over and pay an additional fee. In the end, the typical annual percentage rate on such a storefront payday loan can, if the loan is rolled over each month, come out to 391 percent. According to the Center for Responsible Lending, roll-over of payday loans accounts for 75 percent of all payday loan volume.
Laclede Gas commented at the Public Hearing held by the PSC in April and expressed its concern about the effectiveness of the rule and the burden it places on utility providers. Laclede representatives stated that it was difficult to identify payday lenders by names alone. They feared that Laclede may inadvertently contract with a payday lender unknowingly. Kansas City Power and Light Company also expressed its concerns that the amendment would create uncertainties and risk of non-compliance for the utilities.
The PSC, however, stated that utility company’s concerns were outweighed by the need to protect utility customers, echoing the arguments of several low-income and consumer rights advocates in attendance. Commission staff made the comment that Laclede’s concerns could be alleviated by removing a list of examples from the proposed rule. That list included pawn-shops, auto title loan companies, payday loan companies, and other short-term lending entities “engaged in the business of making unsecured loans.” Instead, PSC staff suggested that the list could be replaced with the verbiage—“any entity engaged in the business of making unsecured loans.” The PSC agreed with the suggestion and decided to remove the list for clarity’s sake in the adopted amendment.
The 4 CSR 240-13.020 Billing and Payment Standards now state that:
“No utility may enter into any contractual or authorized pay agent relationship with any entity engaged in the business of making unsecured loans of five hundred dollars ($500) or less, with original payment terms of thirty-one (31) days, or less, or where repayment of the loan is secured by the borrower’s postdated check. This restriction shall not apply if the lending entity offers such loans at an aggregate, effective annual percentage interest rate of less than thirty-six percent (36%).
Utilities have until the end of October to terminate any such contractual or authorized pay agent relationships that fall under these categories. Payday lenders will be required to remove all utility company logos from their marketing materials.