Utilites And Payday Lending: Why Does AT&T Have 206 Payday Lenders Collecting Bill Payments?

One in four utilities bills is paid in person, and often the transaction takes place within a payday lending establishment, according to a new report by the National Consumer Law Center. The report finds that there are over 650 licensed payday lenders serving as bill paying facilities for 21 public utilities companies, including 206 working for AT&T alone.

So, what’s the problem? According to the NCLC, locating bill pay centers in payday loan shops expose the most vulnerable consumers to heavy doses of payday lending “marketing” as well as high-pressure commission-based loan salespeople. And, despite the fact that utilities are closing down payment centers in favor of outsourcing and encouraging consumers to use electronic bill payment, the demand for in-person bill payment is growing by 5% per year.

So who are these mysterious consumers who like to pay their bills in person? According to the report they are also the sort of consumers who are most likely to take out a payday loan.

There is evidence that demand for in-person bill payment is strongest among low-income, minority and female customers. A 2004 study by Pacific Gas & Electric Co., a California utility with 5 million customers, described the company’s in-person bill payers as “lower income types, and credit averse individuals who have no other means of payment than cash.”

These are also the customers that are targeted by predatory payday lenders:

Or, as CheckFree tells prospective bill payment agents, collecting payments “offers the opportunity to turn a bill payer into a loyal customer.”

Utility walk-in customers make especially good prospects for payday lenders, check cashers and other high-cost lenders. Expansion of the market for high cost financial services has been fueled by population growth and “declining to stagnant growth in household income of lower- and middle-income people,” payday lender ACE Cash Express said recently. The company described its primary market as “the nation’s approximately 60 million unbanked and underbanked individuals.”

What does a payday lender mean by a loyal customer?

To a payday lender, a loyal customer is one who rolls their first payday loan over into a second, a third, even a forth and fifth loan, racking up fees and interest that can be double or triple the amount of the original loan. Far from being the exception to the rule, this sort of “loyalty” is the norm for payday lending customers. In fact, 9 out of 10 payday loans go to consumers who take out more than 5 such loans a year. The interest rate on a typical payday loan can be 400%.

From the report:

For retailers slow to make the connection, CheckFree has a pitch ready. “You have the stores. You want more customers. We have the solutions.” CheckFree says it acts as an intermediary between 11,000 third-party bill payment collection sites and 150 billers, including 50 utility companies, who farm out collection services. “Walk-in Bill Payment Services offers retail locations an easy and inexpensive way to generate foot traffic, retain more customers and grow your business,” the web site adds. “In fact, it costs you nothing and it even pays you a commission.” CheckFree, a company 10 percent owned by software giant Microsoft Corp. handles PG&E’s bill payment outsourcing.

CheckFree posted 2006 revenue of $879 million, recently had a market capitalization above $3 billion and includes on its board the former chairman of Visa International and former high-ranking executives of Bank of America and State Street Research. CheckFree also lists Progress Energy, Southern California Edison, AT&T, BellSouth and Verizon as customers for its outsourced bill payment services.

If CheckFree and other payday lenders like it can’t get a deal with the utility companies, they become “unauthorized” bill pay centers, collecting payments on behalf of the utility companies and charging a fee for the service directly to the consumer. Fees range from a few cents to $12.95 per bill paid.

Although payday lending is skyrocketing in “popularity” (the total amount of payday loan outlets grew from 2,000 in 1995 to 24,000 in 2007) the report argues that it’s not a reflection of consumer choice that bill pay centers are so often located in payday lenders. Only 7% surveyed said they prefer a payday lender as the location of a bill pay center. 4 out of 5 chose a grocery store as their preferred location.

So why are utilities sending their most vulnerable customers to locations where they will be subjected to a high-pressure commission-based predatory lending sales force? Simple. It saves them money. —MEGHANN MARCO

UTILITIES AND PAYDAY LENDERS: CONVENIENT PAYMENTS, KILLER LOANS (PDF) [National Consumer Law Center]
(Photo: NCLC)

Comments

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  1. anatak says:

    I knew grocery stores where your could pay your SBC or Time Warner bills. Thought it was weird at first too.

  2. SkyeBlue says:

    I also pay my telephone bill at a local check cashing store. To me it is just a matter of convienence. I don’t use checks (so being “tempted” to pre-date a check with them at some 495% interest rate) isn’t even a worry. I used to pay my telephone bill by mail which meant a $.41 cent stamp on top of the $1.05 money order from the Post Office. Then worrying about IF it would ever arrive. When I pay my bill at the check casing center they charge me $1.00 and I have the receipt in hand and it is usually posted the next day. I have never had an problem with a payment not being recorded.

    I also pay my electric bill (free of charge) at a local Rent to Own store and my satellite TV bill at a convienence store for a $1.50 charge.

    This has helped me make sure none of my payments are ever late and helps me avoid any late payment fees because a money order fails to arrive on time.

  3. orielbean says:

    I still hew to the online bill pay model of my credit union. They will sign up with the biller to get you your monthly balance and due date each month. They will email you a reminder before it’s due. If they send the electronic payment and something happens, the bank/union goes to bat for you with the biller and will pay late/missed payment fees if appropriate.

    All your bill payment history is in one place. Only one login for the bank site. You can also set up automatic payments without giving that outside biller your sensitive checking account data that is stolen easily.

    If you have a bank and you are reading my comment on a computer, there is no excuse for not doing this. Seriously.

    My bank doesn’t charge at all for the service and you can add any company or even a person to a monthly billpay system.

    No stamps, none of those payment fees like Skyeblue is paying. None of it. You don’t need any sort of credit or score – my union has you put 5 bucks in a savings account as the startup deposit, and the rest is free if you get direct deposit on your paycheck into your normal checking account.

    No danger, no worries, no issues, nothing. I even get my direct deposit EARLY. Normally the paydate is the 10th, so the company sends the electronic fee 3-4 days before, so it posts on the 10th. When my DCU gets the initial feed on the 6th or 7th, they credit my account THAT DAY.

  4. jeffislouie says:

    Wow.
    I didn’t know there were people out there that didn’t use checks at all.
    Odd behavior, but to each his own….
    My mom almost started one of these shady loan places. I’m glad she didn’t. It wasn’t a payday loan, but it was an auto title loan. You bring the title, they issue you a loan at 29%.
    She chose not to go that route because 90% of the loans weren’t paid back, which would give the title holder the ability to repo the car.
    Shady deals.
    If you don’t like checks, harness the power of teh interwebs. Stay away from these payday loan places.

  5. raybury says:

    Yes, utility payment centers for low-income types should be in the gourmet supermarkets and luxury department stores, so many of which are located in slums. Oh, wait, they’re not. This is just a matter of being where the customer is, whether it’s a clean rent-to-own store or payday loan store or in Shady’s Bodega where they sell crack pipes.

  6. Techguy1138 says:

    @raybury: Your comment is offensive AND sensical. Perhaps you are from the northeast?

  7. kerry says:

    @jeffislouie: It’s not odd behavior for people who don’t have checking accounts. Many, many lower-income and “old-fashioned” folks don’t have the means or desire to open a checking account, and pay their bills in person. There aren’t many banks in the lower income parts of town, either. The barriers to opening a checking account aren’t as high as they used to be, but not many people know that, and still believe they’ll need to lay down a large sum of money (which will then be frozen in their account) and pay fees every month to write checks.
    People without checking accounts can’t pay for anything online, either.

  8. juri squared says:

    My dad used to accept ComEd payments at his hardware store. It was a small, long-lived mom and pop type of store, so I think a lot of people just paid there out of habit.

  9. jeffislouie says:

    @kerry:
    “It’s not odd behavior for people who don’t have checking accounts. Many, many lower-income and “old-fashioned” folks don’t have the means or desire to open a checking account, and pay their bills in person. “

    Okay.
    But all you need to open a checking account is a minimum deposit. That’s it.
    My bank offered me 250 checks for free and has no fees associated with it.
    So I’m not buying it, no offense intended of course.
    There really aren’t many hurdles at all to opening a checking account, unless of course you are unduly afraid of what is a routine and simple process.
    If you earn enough money to live, you can open a checking account.
    Even in the poor parts of town.
    An example? Sure.
    My pleasure.
    In one of the poorer parts of Chicago, there is a local bank that offers fee free checking, checks for life, free atm withdrawals and more.
    The only catch? A minimum daily balance of $50.
    Pretty scary stuff….
    I still think it’s pretty odd that people don’t have checking accounts.
    How do you pay rent? Cash? That leaves you with zero protection against an unscroupulous landlord.
    I have a friend who lives in an apartment that never bothered to set up a lease. That’s pretty weird to me too – his landlord can, legally speaking, break down the door, sell all his stuff, and walk away, claiming the ‘tenant’ was a squatter. Sure, he pays rent. But does he have legal protection? Not so much.
    Get yourself a checking account.
    Really, it’s no big deal.

  10. BillyMumphry says:

    There is no such thing as “predatory lending”. The pay day loan, the subprime loan, etc…in the end is stupid people getting not only what they deserve, but what they agreed to.

  11. Pasketti says:

    My idiot brother-in-law was one of those “loyal customers” they talk about. I can’t really figure out what he was trying to do, other than time-shift his paycheck. He’d get the loan, spend it, then repay it when he got his check. He said he wanted to buy stuff that day, but couldn’t give a reason why he didn’t wait a few days until he got his check and THEN buy it. I guess he wanted the immediate gratification. My in-laws finally had to step in and take over his finances for a few months.

  12. Pasketti says:

    @SkyeBlue: Get a checking account. If you don’t like paying by check, you don’t have to – you can use the computer you obviously have access to to pay bills online. FOR FREE. You save the fees you’re currently being charged, plus the time/gas/bus fare/whatever that you’re spending running around to various places.

  13. kerry says:

    @jeffislouie: I’m aware of the reality of checking accounts, but many people aren’t aware that you can open a checking account without lots of fees, frozen money in your account and egregious minimum balances. My mother, even, was shocked when I told her my checking account had no minimum balance, she assumed her $500 minimum account was still de rigeur. If people have learned their entire lives that only rich people can afford a checking account, they’re not going to bother walking into a bank to open one.

  14. jeffislouie says:

    @kerry:
    That’s a sad statement though, don’t you think?
    Oh well.
    With all the commercials promising no fee, no minimum balance checking accounts, you’d think people would have heard about it by now.
    Personally, I’ve never been one to understand fears like that.
    There is never any harm in asking.

  15. Ponygirl says:

    @jeffislouie

    Regardless of the easiness one can open a checking account, you still need to have a bank in your neightboorhood. Many low income neighborhoods have no banks and using them would require travel, time and money many low income people simply do not have. Additionally some banks review credit reports and deny checking accounts (or debit cards) based on those results. You can not pay online in most cases with out a debit card with a visa (mastercard) logo.

    “Secondary lenders” i.e. Payday Loans and Check Cashing storefronts fill that banking void and are exploitive and harmful to their customers. The option to bill pay in their office is a convience to their clients, but their clients are locked into customer status by the lack of other options and often times the crap hours banks keep.

    When I lived in Pittsburgh, PA and New Orleans, LA there were Payday Loan and Check Cashing on every corner, some even in old former bank fronts. These are both some of the economically hardest off cities in the US. That says something.

  16. rockergal says:

    I pay my phone bill at the local health store in town, and pay the sewer company also in person at the sewer office, heck ive even paid the water company at their local office. This is a small coal crackin town where people believe cash is king. many stores here only accept cash and if you are a good customer they might accept a check.

    thats the small town attitude here in PA

  17. SexCpotatoes says:

    There used to be an Ohio Edison bill pay place at one of their “service depots” just up the road from my house. It was great to be able to swing by on the way to the bank with my paycheck, or on the way back, pay in cash, or cheque, and get a receipt. Took all of 3 minutes or so, max. They shut that fucker down, and now I have to waste money on stamps.

    My natural gas bill has a local payment option, at Morton’s card/gift store there’s a back counter that also does Western Union, but they assess a 50 cent fee. I paid that unscrupulous fee once, because I had waited until the day it was due, and I decided fuck if I was gonna ever pay more than the cost of a stamp (it was 32 or 37 cents for a stamp back then.

    I write cheques for all my monthly bills, because I’d rather cost most of these asshole companies that charge too much a lot more money to open and process my payment. Plus, I’m keeping more jobs in existence. The “bank mails a cheque for you payment” stuff is the same thing in theory, but how long do you think it’ll be before they just email a copy of a cheque to the company they are supposed to be paying, or start sending through “batch” transactions.

    Never ever tried any of the “Auto-bill-pay” scams, and never will. I don’t want to expose myself to the ass-raping financial risk that some people seem to invite upon themselves.