All About: Utility Security Deposits and Credit Policies

Whenever town councils decide to take a fresh look at policies they have in place, one of the things they might look at is utility receivables. Upon closer look, if utility receivables are inflated due to security deposits on accounts, a revamp of security deposit requirements may be considered. The Federal Trade Commission (FTC) along with various state agencies set specific guidelines for utility billing operations, including the management of security deposits. Remember to research these guidelines prior to making final decisions regarding changes to security deposit policies.

Ways to Protect Loss of Receivables in Utility Billing

Require a Security Deposit, and/or Letter of Guarantee. Deposits on accounts are a common way to mitigate potential losses, but other means to determine creditworthiness for an applicant with little or no credit history, or flawed credit, is to require a letter of guarantee endorsed by a third party who agrees to pay the bill if the customer faults. However, if this is the agency’s policy, it must apply to ALL new customers.

Generate Monthly Past-Due Letters for Accounts that are Not Current. Black Mountain Software Utility Billing has many letter generating options including Past Due Notices and Disconnect Notices. Additionally, there are many different reports to choose from that display past due accounts based on aged date, accounting period, and/or target date.

Set a Reminder Code for Past-Due Accounts. Sometimes agents will see an application from someone they know skipped out on a payment previously, left town, and has since come back. Leaving a specific REMINDER CODE on a wayward account in the Black Mountain Software Utility Billing software program will help identify these.

Revamp the Application. Sometimes the utility billing agent might suspect that a new account is actually an old, past-due account under a new or different name. One way to avoid this is to take a fresh look at the application, and request new accounts list the names of all occupants in the household at that service address, allowing for a more thorough credit history check.

What Utilities Can’t Do…

You Can’t Determine an Applicant’s Creditworthiness Based on Their Spouse’s Credit. The FTC also has protections for applicants whose spouse’s utility credit history is questionable when the spouse’s name, but not the applicant’s, was on the account.ECOA-2009-web

You Can’t Discriminate. The FTC also enforces the Equal Credit Opportunity Act of 1974, which prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or enrollment in public assistance.

You Can’t Have Different Policies Based on Creditworthiness. Generally, in the credit world, the determination of creditworthiness impacts fees on the account, such as security deposits. However, in the utility billing world, the FTC requires a utility’s policy to be the same for ALL new customers.

You Can’t Withhold a Deposit (Unless the Account Is In Default). Your deposit policy or rules/ordinances must contain instructions for returning the deposit (or perhaps not) to the customer. Typically the only reason the full deposit amount is not refunded is when the account has current or aged charges and your policy allows the amount to be applied (brought over from its holding place into the designated fund(s) in Utility Billing) against the outstanding charges on the account. Some utility providers will refund the deposit to a customer in (pre-defined) good standing after a period of time, such as twelve months.

You Can’t Make Your Own Determination of How to Handle the Interest Accrued on Deposits. If your policy indicates the held deposit will accrue interest, this is another item requiring setup in your accounting and billing system. State laws generally determine how interest is handled on deposits. Many states require you to provide a written statement addressing where your security deposits are held. Some states also require you to credit the account each year with the interest earned on the deposit.

If applicable, be sure your Utility Billing Calendar includes anticipated times of the month or year which your policy refunds deposits for existing customers in good standing or accrues interest on deposits. In order to consistently apply deposits for customers moving out, be sure to call up the Final Bill Wizard in Black Mountain Software’s Utility Billing program so you don’t miss a step. And remember when you issue a refund to precede the process with an Auto-Distribute.

Securities and deposits are part of the daily life of a Utility Billing Clerk. With so many state and federal guidelines to follow, it is important to review the utilities requirements and obligations before revamping your security deposit process.

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