Tuesday, May 09, 2017

Mediacom's 1000% Interest Late Payment Fee

It takes a lot of money to survive in this economy if you're an unemployed single mother, trying to raise a couple of kids -- or working multiple jobs at the minimum wage or less. Millions of American men and women of all ages confront similar challenges.

How's that?

Dependent on public transportation, poor folks may end up paying convenience store prices for their groceries, rather than the cheaper prices (for more nutritious food) at Costco or mega-supermarkets. When there's "too much month at the end of the money" they have to borrow, paying interest on the money they use to pay their bills. If the bank won't loan to them, the interest on a "payday loan" to pay off the last payday loan may end up costing hundreds of dollars more than they initially borrow. Annual percentage rates of 400% are not unusual. If they're lucky enough to have a checking account, but unlucky enough to not have enough money in the bank, they may end up owing the bank $30 for each "insufficient funds" check -- plus another $30 to each of the merchants they were trying to pay, depending on merchants' charges for returned checks. [Photo credit: Nick Graham, staff, Dayton Daily News.]

These are expenses with which the wealthy are unfamiliar, because they've never had the experience of dealing with them.

However, there is one more expense analogous to Anatole France's observation that, "La majestueuse égalité des lois, qui interdit au riche comme au pauvre de coucher sous les ponts, de mendier dans les rues et de voler du pain." ("The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.") Le Lys Rouge, ch. 7.

Rich and poor alike are subject to the penalties for late cable bill payments.[fn 1]

Of course, like laws criminalizing the theft of bread, late payment fees fall heavier on some than others. The wealthy don't fail to pay their bills on time because they don't have the money. It's because they were on holiday in Europe when the bill arrived, put it in a pile of paper that they didn't go through in time, someone pays their bills for them, or they just don't care. For their poorer cousins it may mean one more payday loan.

I'm not wealthy. And I didn't major in STEM courses. But I do know enough math to work the numbers.

Here's an example of what I mean. Our City water bill is something less than $60 a month. What would it cost me, I wondered, if I just kept a balance of $60 with the City? These days it's hard to get more than 1% a year return on invested cash. So if I put that $60 in a savings account or CD it would produce 60 cents at the end of the year. That would be my cost, my loss, my "insurance policy" premium, for letting the City hold my $60 for a year. In exchange, I would never have to pay a single late payment fee (5% of the bill, plus unspecified "service fees" plus an additional fee for turning water back on). Such fees would be, in total, for a single offence, multiples of the 60-cent annual cost of avoiding them. And so long as I didn't fail to pay the bill for over two months I wouldn't have to worry about precise due dates.

It worked. No more risk of late payments fees. I started maintaining a balance with others. Except for the cable company, Mediacom. I tried it, but they seemed unable to handle the concept of a positive balance, so I gave up and tried to remember to pay promptly. Until this past month, when their bill got lost in a stack of paper, and they introduced me to their version of a late payments fee.

Now there's a little background you need.
• (1) To the best of my recollection I had a record of prompt cable payments every month for 28 years.

• (2) Very significant in this case, the cable company bills in advance. That is, I was charged a "late payment" fee for not paying in advance promptly enough for service I hadn't yet received (and is of often of unacceptable quality -- a technician is coming this morning to deal with broken signals[fn 2]).

• (3) Not knowing of the late payment fee that had been assessed on April 24, I had paid the amount due when the bill was discovered on April 26, in a check that cleared on April 27.

• (4) Thus, on the assumption that had I paid two or three days earlier the penalty would not have been imposed, what had the company lost? It had lost what it could have earned on $76.19 for (let us be most generous) four days. What would that have been at an annual percentage rate of 1%? Slightly less than one penny.

• (5) And how much was the penalty for this loss of 8/10ths of one cent? $8.50. And what is the annual percentage rate represented by $8.50 for four days use of $76.19? Roughly 1000% per year -- for paying a bill in full, four days late, for services not yet received. Rates like that make the pay-day-loan business look like a public charity.
Thirty years go this year (September 14, 1987), I was asked by an organization of cable company executives (CTAM) to participate in a debate with former FCC Chair Dick Wiley regarding the state of the cable industry. Here is a brief excerpt of my comments on that occasion. Although a bit harsh, they were delivered in good humor and received as such by the executives present. The question today is, just how much better has the industry become during the intervening years? Is it enough that they aren't dragging customers out of their recliners and onto the streets, airline style? Shouldn't we demand a higher standard?



[fn 1] I should make clear that the objection I advance in this post addresses the amount of the penalty for late payment, not the existence of such fees. The value of money, a payment, or a debt, is always a function of time. I would not deny for a moment that creditors are entitled to that value. I would strongly disagree that they are entitled to 400% (payday loan) or 1000% (cable company fee) returns during that time.

[fn 2] In fairness I should report that the two techs who came (and resolved the problems) were excellent in every way. They arrived at 10:00 for a 10:00 appointment, combined a friendly demeanor with a professional, experienced, serious approach to the challenges at hand, diagnosed more difficulties than they anticipated. Stuck with it until the problems were resolved, and left me a happy customer.

# # #

No comments: