Tuesday, October 09, 2012

Borrowing at High Interest to Pay Unaffordable Utility Bills

New York's electric rates are among the highest in the nation.  Hundreds of thousands of New Yorkers  cannot afford to pay their utility bills and many fall behind in making payments.  For example, in March 2011, 271,425 Con Edison residential customers – more than 9% o -- had arrears exceeding 60 days. In May 2011, 247,655 National Grid residential customers -- more than 16%  -- were more than 60 days in arrears.

Every month, New York utilities send Final Termination Notices (FTNs) to many thousands of their customers.  For example, in May 2011, National Grid issued Final Termination Notices (“FTNs”) threatening termination to 98,084 customers -- approximately the number of households in the entire cities of Syracuse  and Albany  combined.  Similarly, in March 2011, Con Edison sent notices threatening shutoff sent to 221,177 customers -- more than the entire number of households on Staten Island  and in the cities of New Rochelle  and White Plains,  combined.

To avoid a utility shutoff, many customers turn in desperation to short term small loans in order to make a payment.  "Payday" loans and other short term small loans typically come at a very high cost, for example,  $20 per $100.

The Center for Financial Services Innovation (CFSI) recently conducted a Ford Foundation supported study to examine high interest small-dollar credit (SDC) loans (payday loans, pawn loans, direct deposit advance loans, auto title loans, and non-bank installment loans), and the reasons why they had borrowed. See A Complex Portrait: An Examination Of Small-Dollar Credit Consumers, CFSI, August, 2012.
The survey also asked respondents to indicate why they used a small loan, and paying utility bills was No. 1 on the list at 36 percent. Rounding out the top three were using the loan for living expenses (34 percent) and rent (18 percent). 
Juan Rodriguez and Aundraya Ruse, Who is using small-dollar loans and why?, Yahoo Finance, Sept. 11, 2012.

Payday loan type credit, which is among the most expensive SDC loans, was used by payday loan borrowers 42% of the time to pay utility bills.

These facts underscore the urgent need for improved low-income utility rates and assistance programs to ease the heavy burdens on New York's low income utility customers.


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