Consumer advocates in California have challenged a $28-billion utility holding company's use of payday lenders as official bill payment stations.
The challenge, contained in a pair of triennial general rate cases now before the California Public Utilities Commission, charts a course that could be useful to advocates in other states where utility companies use predatory lenders as designated agents.


In filings with the California Public Utilities Commission, the Utility Reform Network (TURN) asks that Southern California Gas Co. break its ties with payday lenders that the utility now pays to act as "authorized payment locations."
Utility Consumers' Action Network (UCAN) sought a similar ruling by the PUC against San Diego Gas & Electric Co., with TURN's concurrence. Both utilities are units of Sempra Energy.

Specifically, TURN asked the PUC to prohibit SoCal Gas from making payment-collection deals with payday lenders, defined as short-term lenders with loans that carry annual percentage rates above 36 percent.

TURN suggested that policy be implemented by prohibiting SoCal Gas from signing any new contracts with payday lenders, and dropping existing arrangements as soon as "suitable alternative" payment locations could be found. Finally, TURN asked that as part of an annual report on service quality the utility disclose the number of payday lenders in its payment network. TURN cited existing federal and state laws that cap at 36 percent the annual percentage rate on loans to military personnel, and noted the danger that utility customers "struggling to pay their utility bills" might resort to ultra-high-cost loans. TURN warned that while a payday loan may seem "convenient" to a customer struggling to afford utility services, financing utility payments in this way ultimately makes these bills less affordable. Adding in the interest and fees paid on those loans would increase consumers' "energy burden," or overall cost of utility bills, and "energy insecurity," or risk that they might be forced to choose between losing utility service or cutting back on other necessities, TURN said. TURN insisted that the PUC's policies should assist SoCal Gas's customers in affording their utility bills, not put them in jeopardy of predatory lending practices.

TURN's filing noted that three Arizona utilities recently committed to drop bill payment deals with payday lenders. Those actions followed the release in June 2007 of "Utilities and Payday Lenders: Convenient Payments, Killer Loans," a report by the National Consumer Law Center
(posted at http://www.consumerlaw.org/reports/content/payday_utility.pdf.)
TURN also noted that employees of payday lenders, with a financial stake in making high-cost loans, were unlikely to tell customers about existing financial aid programs for low-income utility customers. TURN also cited a survey by PG&E Corp., another California utility, that found that its customers preferred to pay bills at supermarkets and only a handful - 7 percent - wanted utility arrangements with check cashers.

SoCal Gas and SDG&E, responding jointly to TURN and UCAN, objected to being forced to end their arrangements with payday lenders, arguing that while payday lending is "an important public policy issue" it should only be addressed by the state Legislature. The utilities also argued that if the PUC chose to take up the issue, it should do so outside the general rate case. But TURN countered that whenever a utility comes before the PUC seeking affirmative rate relief, it fully exposes its operations to the PUC's scrutiny and review. If rates are used to pay
payday lenders to provide billing services for utility customers, these practices are squarely at issue in a general rate case. TURN also pointed out that a witness called by SoCal Gas acknowledged that the utility already discriminates among legal businesses and would exclude from its payment network a strip club or casino.

SoCal Gas, which currently contracts with 24 payday loan locations to serve as official bill payment centers, is seeking permission to close seven branch offices, a move that the utility says would reduce its annual operating costs by $800,000.
More on the payday loan issue can be found on pages 81 to 90 of TURN's opening brief (posted at http://docs.cpuc.ca.gov/EFILE/BRIEF/74082.htm )
and on pages 11 to 13 of TURN's reply brief (posted at
http://docs.cpuc.ca.gov/EFILE/BRIEF/74817.htm). Sempra's response is posted on the web at
http://www.socalgas.com/regulatory/208175_SDGE_SCG_OpBrf_10_11_.pdf.