UniSource Energy Services, the electricity provider in Nogales, has announced plans to eliminate the option for customers to pay in cash at ACE Cash Express locations. The decision has nothing to do with economics, convenience or cost cutting. Instead, the company is trying to protect its most vulnerable clients, said Joe Salkowski, the public information officer for the utility company.

"We've had conversations with our friends in the low-income advocacy group about directing our customers to make payments where extremely high-interest loans are available," Salkowski said. "In recognition of those concerns we're going to look for another way, (in which customers may pay.)"

While the majority of customers pay online or with checks, some people do not have bank accounts and can pay only in cash. In Nogales, those people can go directly to the UniSource office, but for those who live elsewhere the only option was to pay at an ACE Cash Express.

What they provide

ACE Cash Express is a payday loan establishment that also provides check-cashing services and bill payments and while the company bills itself as a solution to short-term money matters, low-income advocacy groups say the company preys on those with nowhere else to turn.

Regardless of whether payday loan places hurt or enable their clients, Salkowski said that UniSource has decided to discontinue its relationship with ACE and similar companies.

He said that although a definite close date has not been decided, the company is trying to remove its dependence from ACE as soon as possible.

"It won't be such a big deal in Nogales because we have an office there," Salkowski said. "It's the rest of the county we're worried about. We're still investigating our options."

A June 2007 report from the National Consumer Law Center, "Utilities and Payday Lenders: Convenient Payments, Killer Loans," highlights how those treading near the poverty line drown in debt after a successful soft sell.

Payday lending agencies carry mammoth interest rates, the report says. Typical annual interest rates start at 390 percent.

They can also charge 15 percent on the face value of the loan, said District 30 state Rep. Marian McClure (R-Ariz), who has tackled the matter.

"For someone who gets a $575 loan and pays back $100, the interest has already raised the principal to $548," she said.

The vulnerable

Unfortunately, the people who find themselves in such a predicament are generally the most vulnerable to begin with.

When UniSource officials initially closed branch offices, they did so to save money and preserve the safety of staff members, said Michelle Scheier, when she testified Feb. 7 on behalf of the Arizona Community Action Association at an Arizona Corporate Commission hearing. Customers were sent to ACE Cash Express locations.

"This causes us a great deal of concern for the following reasons," Scheier said. "Cash-paying customers are in all likelihood, low-income customers who pay at the last minute and as indicated earlier, are living pay check to pay check. The typical payday borrower pays back $793 for a $325 loan."

What may exacerbate the issue is the possibility that sellers at payday loan places are paid a commission for each loan. The National Consumer Law Center report cites ACE's Form 10k files with the Securities and Exchange Commission, which states that employees are compensated based partially on achievement of operational goals that include "increase the number of daily transactions."

In resposnse

In response, the company sent a press release on July 17. It begins, "A recent report by the National Consumer Law Center is absent what should be a critical element to any report: the facts."

The company processed 6.3 million utility and bill payment transactions during the 2006-07 fiscal year, the report said. In a sample of about 10 percent, ACE identified only 5,823 customers - about 1 percent - who also became short-term loan customers on the same day they paid their bill.

The report quoted ACE CEO James B. Shipowitz lambasting the National Consumer Law Center report.

"The report fails to present the facts about payday loans and utility payments, and consists of erroneous arguments and false conclusions," he was quoted as saying. "The fact of the matter is that these are two separate customer groups with minimal crossover. Our bill payment service is a tremendous convenience and usually a lower-cost option to our customers. It is shocking to us that anyone would want to eliminate this convenient and economical service."

Octavio Garcia Von Borstel, the owner of several ACE locations in Nogales and also a Nogales City Council member, said that his clerks are not paid a commission.

"They might push a loan to get business, but they don't get commission," he said.

Signature drive

Although UniSource plans to stop using payday loan establishments, McClure is sponsoring an initiative to repeal payday loans and will soon be gathering signatures in Nogales.

"Out of the last 75 people I've talked with (about the repeal) only two have said no," she said. McClure said that when she was elected in 2000, she decided to observe the legislative process before she threw herself in. At the time, lawmakers were debating a measure to condone payday lending.

"I thought that there was no way it would pass," she said. "But if I've ever seen a bipartisan effort to get something passed, it was that."

The justification was this: If a person writes a couple of checks for $50 a piece, the bank will charge $50 for each check if they bounce. Wouldn't it be better to pay $15 to a payday loan establishment? The problem is, McClure said, that this justification doesn't take into account the interest or the likelihood that a clerk's gentle assurances won't lead someone to take out a loan regardless of whether they have the money to pay off a utility bill.

Paying double

Adding to the situation is that a client who defaults on a payday loan may end up paying double, McClure said.

"If checks bounce, they take it into small claims court and in many instances, the JP (justice of the peace) will allow them to double the amount of the check," she said. The irony is, the problem is not as urgent as it seems. McClure said her days as a bill collector taught her the intricacies of managing credit and cajoling utility companies into listening.

"If you call in and you can't make payments, they'll typically work with you," she said. "But if you ignore them, that's when you have trouble. If they (clients) listened to me, I helped get them out of debt."