The Missouri Public Service Commission’s new rule on payday lenders at utility pay stations went into effect this month. This is a huge step in protecting utility consumers from predatory payment options.
Starting this month, utility companies will no longer be able to contract with payday lenders to be official pay stations for electric, natural gas, water and sewer bills. Consumer advocates, including the Consumers Council of Missouri, have been advocating for this rule for almost a decade.
Regulated utilities are allowed to function as monopolies, providing essential services to the public. Allowing utility payments at predatory lending locations presents several problems. Utility payment options can be an effective marketing tool to get people in the door. It encourages and facilitates the use of high-interest-rate loans to pay for essential services. Having a logo on the door for a utility that provides a necessary service lends legitimacy to a predatory business.
This is the first instance in Missouri that specifically points to lending entities which offer loans at an effective annual percentage rate (APR) of 36 percent. Advocates across the country have agreed that 36 percent APR is the threshold over which lending becomes predatory. Missouri law allows for up to an effective 1950 percent APR by allowing 75 percent interest on a two-week loan, the highest rate cap in the country. Acknowledgement of the 36 percent threshold for the first time is a big step forward in much-needed consumer protection in the lending industry in our state.
The Consumers Council of Missouri has worked with advocacy groups in the St. Louis area to get banks and credit unions to become pay stations, and we have added several new locations since last year and hope to have more coming across the state online soon.
The Missouri Public Service Commission, in this rule, is taking a preventative and proactive action. This is a huge win for consumer advocate groups, but this is not the end. Missouri has the highest cap in the country on payday loans and has more payday lending stores than McDonalds, Starbucks and Wal-Mart stores combined.
As the Consumer Financial Protection Bureau considers federal rules regarding payday lending, we need to ask U.S. Rep. Wm. Lacy Clay to sign on to the long list of U.S. representatives supporting strong rules. And please consider supporting the Consumers Council of Missouri in our continued efforts to protect consumers from predatory loans. To join us, email cara@moconsumers.org.
Cara Spencer is executive director of Consumers Council of Missouri and 20th Ward alderwoman in St. Louis.
