Interest rate ripoff for overdue bills

I recently recieved a reminder for a water rates bill (Hunter Water) I had forgot to pay. iT informed me that the unpaid account was accrueing daily interest of 8.1%. I paid the account but how can they be allowed to charge 4% above the going rate, given the cost of living crisis and the fact that many families are struggling to pay bills such as utilities and rates. A quick check of my local council (lake macquarie) reveals they charge 7.9% on unpaid rates as set by the state government.
How is this not unfair and a ripoff of the struggling. Time to contact my local member on this. Anyone agree?

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Welcome @brian.burgess to the Community.

I assume the daily rate you quote is really a yearly rate calculated daily. If a truly daily rate it would be 2956% per annum.

But 8.1% seems about right for what one would be charged for the very lowest of personal loans or unsecured loans. I don’t see how you consider that rate to be unreasonable to be charged for late payments.

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Welcome @brian.burgess

Assuming that is the only penalty and applied equally across all services supplied in NSW it’s better than how it is in QLD.

The Brisbane City Council rates notices, QLD motor vehicle registration to mention two apply what is effectively a lump sum penalty for late payment. The payment notices issued have a pay by the due date discount. Over due payments incur a lump sum increase through loss of the discount and rates also accrue interest charges!

Added note:
Telstra charge a $15 late payment fee for any overdue amount greater than $70.

It will be interesting to hear what any local MP says about the way late payments accrue added charges.

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Hi @brian.burgess, welcome to the community.

Hunter Water Standard Interest Rates on Customer Accounts states:

Interest is charged on overdue account balances at a rate which is effective from 1 July each year. The interest rate is 4% above the cash rate last published by the Reserve Bank of Australia before 1 July of that year.

The RBA rate isn’t the rate that money is loaned by financial institutions. It is higher as the loan rate includes margins which incorporate the cost of providing the loan monies. The rates quoted by Hunter Water are at the lower end of interest rates for unsecured business loans/overdrafts.

It is fair as businesses can accrue additional costs associated with late bill payments. This can include paying interest on the amount at business loan rates, additional administration time and resources and costs associated with issuing reminders and managing unpaid accounts.

It is also fair that the additional cost of unpaid bills are borne by those who didn’t pay the bill on time, rather than everyone paying the cost for late paid bill. If everyone paid, there would be no incentive to pay a bill on time.

The current 8.1% annualised rate is less than interest rates which would be paid by the late bill payer, should they borrow money such as using a credit card.

Most utilities also can assist in those in financial hardship. Hunter water is no different:

It is also fair that (from Hunter Water):

Interest charges are waived for residential customers that are receiving support due under Hunter Water’s Account Assistance Program (AAP) for customers experiencing financial hardship. Interest charges are waived whilst the customer’s complying with the requirements of the AAP, which includes meeting agreed scheduled payments.

Noting that:

Interest charges are not waived if a customer is granted a short payment extension and they are not part of the AAP.

If one had contacted Hunter Water it is possible, should one qualify, that any interest rates are waivered.

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These late payment charges are supposed to reflect their increased costs of late payment.

The LUMP SUM , late payment charge seems excessive to me

RE "…additional administration time and resources and costs associated with issuing reminders and managing unpaid accounts… " In a lot if cases its all automated. So I can ot see how these charges would justify a LUMP sum charge of cira $50 for QLD vehicle (car) registration - for example …

Yes, some organisations have a fixed fee. This is particularly the case when the service terminates when not paid, and restarted when paid at a later date. For your example, when rego isn’t paid on time, the vehicle is unregistered and can’t be driven until is paid. Rego is paid upfront. In some jurisdiction, if rego is very late, it can’t be renewed and one has to go through full roadworthy process to gain registration. An potentially costly and time consuming exercise.

Water is different, it is post paid. One pays water after it is used. This means the water utility has already incurred costs associated with the delivery of the water. The costs incurred may need to be borrowed to ensure the water utility doesn’t default on its payments for costs incurred. Hence, interest incurred is the approach as the water utility wants to recoup the interest it otherwise would not have paid. The Australian Tax Office uses similar approach for unpaid taxes.

Interest payment is reasonable.

Some parts will be automated, but, a significant proportion will still be manual. If automated reconciliation of payments shows an unpaid account, often this is checked and confirmed manually before late notices are issued. Automated systems aren’t 100% perfect and a business doesn’t want to send out late notices when a payment has been made…best way to become front page news.

There is also management of the payment when it is received… and potential discussion with late payees should contact be made to discuss a program/process to make the payment - such as a payment plan.

All the manual components have labour components.

It is worth also noting that automated component also has additional costs. The cost includes developing automated systems to identify when a payment hasn’t been made. These systems are a business cost and cost recovery can be reasonably required by those who don’t make payments by the due date.

These costs are incurred by businesses when late payments are made, and it is reasonable for these costs to be recouped by those who pay late.

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Council is a ripoff
Financial Hardship to most Councils including BHSC- NSW has got a lot of consideration for Pensioners with Financial Hardship by charging Interest and on cost of late payment fees - The Diplomatic way of Assistance fo Financial Hardship for Pensioners even on request for waver:The Mayor, Councillors & Financial in charge/I was promised during Covid Pandemic times for waver of interest & other charges.Blank No Today so just wondering how do you pay it offf after keeping repayments