Do MLGW payments act as bait for area payday lenders?
For the past three years, Memphis, Light, Gas and Water has provided ACE Cash Express, a payday lender that has faced penalties from the federal government for deceptive lending practices, with free foot traffic by the thousands. More than 133,000 MLGW bills have been paid at 30 Memphis ACE Cash Express stores since late 2016, MLGW records show. And those bills have provided MLGW, the City of Memphis-owned utility, with $22 million in revenue. City government has also received solid waste and trash fees from payments made at these stores.
It is unclear how the thousands of MLGW customers who have used an ACE Cash Express paid their bill. Some could have taken out a loan, a financial product that can have interest rates of more than 300%.
Samuel Hardiman
Others could have paid their bill with their own cash. MLGW has no way of knowing if those paying their bills at an ACE store are taking out a loan.
“We don’t know if customers are taking loans from ACE to pay their bills…,” Gale Jones Carson, vice president of external and community affairs for MLGW. “We would not encourage our customers to take high-interest loans to pay their bills. That’s not what we would like. … We have payment plans to help them pay...”
The National Consumer Law Center, a consumer watchdog group for low-income people, says payday lenders clamor to partner with utilities, directly or indirectly, to get access to those paying their bills.
MLGW is among many utilities across the South, public and private, that offer payment locations in a payday lender. “The whole reason the payday lenders want these locations there is because it gets people into the store where they can pitch them on their loans,” Lauren Saunders, associate director of the NCLC, said in an interview with The Commercial Appeal.
‘They’re going where their customers are’
In mid-november 2016, MLGW hired a third-party company, Firstech, to set up and administer 93 authorized payment locations across the city. At one time, the utility had as many as 125. Most of these locations are grocery stores, but 30 are ACE locations.
The utility says it chose locations with the goal of providing convenience.
“What we’re trying to do here ... is make as many locations available to our customers as possible. We want it to be convenient for our customers to pay their bills,” said Jones Carson. “If someone really wants to take out a loan, they don’t have to go to an ACE to take out a loan to pay their bill. They can go anywhere.”
Saunders, with the consumer law center, said that by providing payday lenders as an option, utilities such as MLGW, are providing the lenders with what at least amounts to free advertising.
“They are sending business to the payday lender. I assume if you go to the utility’s website and ask where these locations are, they’re going to give you a list and that is a form of advertising…,” Saunders said. “The danger is when someone goes to their bill and they’re strapped for cash and they’re worried about how they’re going to buy food. … It really encourages them to take out these loans that aren’t affordable, and people get into a cycle where they can’t afford to make the payments.”
MLGW serves a population where an estimated 16.7% of people don’t have any sort of bank account, according to the Federal Deposit Insurance Corp. An additional 30% are underbanked, which means they may have a checking or savings account, but also rely on money orders and payday lenders for financial services.
For Molly Polatty, who oversees the Shelby County Trustee’s Greater Memphis financial empowerment center, which includes a program aimed to combat payday lending, MLGW’S partnership by association reflects Memphis’ poverty and shows how payday lending fills a consumer need.
“It tells me that too many people are cashing their checks there or that’s the only thing that they know about. I don’t think that you can talk to anybody in government that would disagree that there are too many payday lenders,” Polatty said. “They’re going to where their customers are to make it convenient with them.”
She noted the abundance of payday lenders in Shelby County and said they may outstrip banks in terms of number of locations, showing the space in the marketplace the lenders fill.
“You’ve got the generationally poor who don’t typically have bank accounts for a variety of reasons . ... They don’t trust banks. They think banks are too expensive. Or they’ve had trouble in the past with a bank,” Polatty said.
Lender has run afoul of regulators
ACE Cash Express once attracted the scrutiny of federal regulators.
In 2014, the Consumer Finance Protection Bureau announced it had filed a consent order with the firm after it was found that ACE had engaged in deceptive and illegal collection and lending practices that pushed customers into a cycle of debt.
Richard Cordray, then-director of the CFPB, said, “ACE used false threats, intimidation and harassing calls to bully payday borrowers into a cycle of debt. This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”
As part of the order, ACE took what the CFPB described as “corrective action.” ACE also paid $10 million in fines for those practices.
In 2019, ACE rebranded as Populus Financial Group. It did not return a request for comment for this story. In some of its Memphis locations, flyers are available that ask customers to tell the CFPB how “you use small-dollar loans in your daily life.”
Most of MLGW’S payment agents are grocery stores. Kroger, Superlo and Gordin’s Butcher Shoppe locations across Shelby County have been used to pay tens of millions in MLGW bills since 2016. The utility has collected $190 million from its payment agents since November 2016, according to records obtained by The CA through an Open Records Act request. Of that $190 million, about 12% has been collected in an ACE location. Firstech chose payment providers based on location, service and reputation, MLGW said.
That criteria included, “An image that is consistent with their clients’ reputations. Examples: reputable chains, small stores, grocery stores, check cashing stores, convenience stores, town administration offices, banks, and independent retailers. (No liquor stores, bars, restaurants or companies associated with gambling are considered.)”
At one point this fall, it seemed that MLGW could be leaning a lot more on those authorized payment agents, including ACE Cash Express.
Most people who pay their MLGW bills do so online or through the utility’s mobile phone app. Thousands more rely on MLGW community centers. There are five in Shelby County.
Late in 2019, the utility caught political flak after a consultant suggested it should close its community centers.
After receiving the report from the consultant, Baker Tilly, MLGW CEO J.T. Young said the utility planned to close the community centers, citing the ability to rely on the 93 authorized payment providers.
Concern over closing those community centers came fast. Members of the Memphis City Council, many of whose constituents rely on the payment centers for bill payment and as a means of getting on a payment plan, expressed disapproval for the potential closures.
In response, MLGW has paused those plans. At present, it is studying how to keep them open and find other cost-saving measures elsewhere.
That consultant also advocated for paring back MLGW’S permissive payment policy, described as “more lenient than the industry norm.” That leniency is the subject of frequent praise from members of the Memphis City Council, which oversees in the utility in addition to its board.
During a interview with The CA, Jones Carson called those payment plans an industry standard. The utility has not announced any changes to that part of its service.
In Parkway Village, a reliance on MLGW and payday loans
The ACE Cash Express at 3109 S. Perkins Road sits in a worn shopping center in Parkway Village, a strip mall indistinguishable from those elsewhere in Memphis.
The shopping center resides in a census tract that is 67% black and 25% Hispanic. About 36% of the area’s residents live below the poverty line.
In December, the store handled 94 utility payments worth $15,034, charging at least a $2 fee per transaction. Since Nov. 15, 2016, it has handled $661,027.79 worth of MLGW bills. That puts it in the middle of the pack in terms of bills handled. For example, an ACE Cash Express on South Third Street in South Memphis handled more than $2 million in utility bills over the past three years.
What sets the Parkway Village ACE location apart is its proximity to another authorized MLGW payment provider — the Superlo grocery store that sits less than 100 yards away. That grocery store, which does not charge a fee, has handled 45,947 payments worth $8.5 million.
On Feb. 3 just after 12:30 p.m., several people stood in line at the Superlo clutching their utility bills. Throughout the late morning, a steady trickle of people had entered the ACE Cash Express store just down the shopping center.
Shuntail Taylor sat in her car and waited for her son to cash his paycheck at ACE. She has a bank account, she said. Her son does not and just got his job. The family is looking to set up an account for him, she said.
“They take too much out anyway,” Taylor said of the cut ACE Cash Express takes out of check.
A short time later, Darlene Cowan went into the store to borrow some cash. She said she typically borrows between $100 to $300, depending on what she needs and what bills she is behind on.
In the past, she said, she has borrowed money at ACE and then gone to pay her bill at a MLGW community center on Lamar Avenue about 5 miles away.
Cowan said she didn’t know the payday lender could pay her utility bill. Now that she knows, she might use the service next time, she said.
Samuel Hardiman covers Memphis city government and politics for The Commercial Appeal. He can be reached by email at samuel.hardiman@commercialappeal.com or followed on Twitter at @samhardiman.