Why utilities charge convenience fees to pay by credit card

Companies say they're passing on the cost, though check payments are dwindling

John Egan
Personal Finance Writer
Writes trendy stories about credit cards.

Why are so many utilities still charging us to pay with plastic?

Many utilities in the U.S. continue to charge convenience fees for paying utility bills by credit or debit card, even though the use of checks to pay bills is dwindling. 

And if these convenience fees don’t pop up on your utility bill, they’re likely built into the rates you pay for electricity, water or natural gas. 

That’s unfortunate, as savvy cardholders who otherwise might rack up cash back or miles by charging their utility bills are paying a price – rewards lost to convenience fees. Sure, services such as Plastiq and Tio may let you pay some utility bills with plastic, but it will cost you a fee to do so. In many cases, the convenience fees or service fees cost more than the cash back or points you might have earned. 

E-payments increase, check use dwindles
John Hazen, senior director in the utilities and infrastructure practice at market research company J.D. Power, says paying utility bills electronically – including by credit and debit cards – is on the rise. Nationwide, the share of U.S. utility consumers writing and sending checks to pay their bills fell from 20 percent in 2016 to 17 percent in 2017, according to a J.D. Power study.

But as even more utility customers enjoy the convenience of paying their bills electronically, not all of them are thrilled about the credit and debit card fees that can accompany that convenience, Hazen says. 

Overall, he says, customer satisfaction ratings for utilities that assess those convenience fees are lower than ratings for utilities that fold those convenience fees into their utility rates. 

“No matter what your economic status is,” Hazen says, “there’s just an annoyance – whether you make a lot of money or you don’t make a lot of money – in having to pay the fee.”

Still, he notes, four of the five utilities that rate highest for billing and payment satisfaction in J.D. Power surveys do charge convenience fees for credit and debit card payments. 

“The trend is clearly more utility payments being made by debit and credit card. If credit card companies and third-party payment processors continue to charge a fee for these transactions, utilities will continue to have to recuperate that cost in an equitable manner.”

No statistics are available on just how much money American utility customers cough up in convenience fees, but a back-of-the-envelope estimate shows it could be an electrifying amount. 

If you look solely at electricity providers, the U.S. has roughly 135 million customers. If three-fourths of those electric customers paid their bills by credit or debit card and their monthly convenience fee was $2.50, the charges would add up to $3.3 billion a year.

To be sure, that’s an extreme example, but it illustrates how much money might be at stake. 

A push to make utility payments fee free
In an article published in June by the Electric Light & Power trade publication, Penni McLean-Conner, chief customer officer at East Coast electricity provider Eversource Energy, pressed the case for utility payments made by holders of credit and debit cards to be free of fees. 

While utilities normally accept credit and debit cards as payment methods, McLean-Conner wrote, most investor-owned, municipal and co-op utilities charge a convenience fee to recoup the higher costs incurred for handling those payments compared with more traditional payment methods, like old-fashioned checks. 

In these situations, utilities customarily are passing along fees that they’ve been hit with by companies that process the card payments – namely third-party processors like Western Union’s Speedpay service. Utilities aren’t supposed to turn a profit on those fees. 

Today, more than 30 utilities in the U.S. and Canada provide fee-free credit and debit card processing, according to McLean-Connor. 

“Offering fee-free credit and debit card payments is fundamentally about serving our customers in the manner and channels in which they want to be served,” she wrote. 

The National Association of State Utility Consumer Advocates took a similar stance in 2012. The organization passed a resolution urging utilities to eliminate convenience fees for credit and debit card payments. 

One recommended fix: Handle payments in-house instead of through a card-processing company, thus cutting out the costly middleman. 

The association noted the convenience fees burden low-income utility customers who frequently pay their bills with prepaid debit cards. Furthermore, the group argued, convenience fees unfairly punish utility customers who might make several payments a month. 

Fee-free options for utility payments
For their part, utilities note that they offer card-less options for people seeking to avoid convenience fees, such as making payments by mail or in person, or by using an e-check. 

In California’s Central Valley, the Modesto Irrigation District dropped Western Union’s Speedpay as a third-party payment processor about six years ago and simultaneously dumped its per-payment convenience fee, spokeswoman Melissa Williams says.

“The cost justification for absorbing these fees is that we’re more likely to receive payments if there aren’t additional fees associated with convenient payment methods such as credit and debit cards.”

Since installing an e-billing service supported by outside vendor CyberSource, the district has blended card-processing costs into its utility rates. 

“The cost justification for absorbing these fees is that we’re more likely to receive payments if there aren’t additional fees associated with convenient payment methods such as credit and debit cards,” Williams says. 

“It also helps minimize resources that would have to otherwise be dedicated to debt collection.” 

Passing on the cost to utility customers
Duke Energy, one of the country’s largest for-profit utilities, charges a convenience fee of $1.50 for online or phone payments made by a residential customer. 

“No part of the convenience fee goes to Duke Energy. Other companies are able to add the processing costs of these requests to the overall pricing of their products and services,” spokeswoman Meredith Archie says. 

“Because Duke Energy is a regulated utility, we are unable to do that. Only customers who choose to use this service will be charged the convenience fee.” 

A review of a handful of other U.S. utilities found standard convenience fees for residential customers ranging from $2.25 to $3.95 per payment. At the high end of the range, that would total nearly $48 for 12 monthly payments. 

A 2016 survey by the American Public Power Association, which represents community-owned electric utilities, found that 92 percent of its members took payments by credit card and 89 percent took payments by debit card. 

A little over half of the card-accepting utilities absorbed the convenience fees (like the Modesto district does), while a little less than half required customers to cover them (like Duke Energy does). In many cases, the fees hovered between $3.70 and $4 per payment. 

Fees paid by card-using customers “are charged to cover the cost of the transaction rather than having other customers subsidize the cost," says Ursula Schryver, director of education and customer programs at the American Public Power Association. 

“State and local laws vary, which accounts for the different policies among utilities,” she says. 

‘Somebody’s paying … it’s not charity’
Mark Toney, executive director of The Utility Reform Network (TURN), an advocacy group for utility customers in California, says his organization prefers that a utility not spread the convenience fees among all of its customers, but instead pin the fees only on those customers who pay their bills by credit or debit card. 

Generally, he says, consumer advocacy groups across the country share that view. 

“We come from the standpoint as a consumer advocate that there is no free money,” Toney says. “The truth is, somebody’s paying for that stuff. It’s not charity from anybody’s pocketbook.” 

Toney says a lot of utilities really would rather distribute convenience fees among all their customers. However, he says, it’s not so easy to do, since a utility must gain permission from state regulators or lobby for state legislative changes in order to do that.

As such, Toney says he doesn’t think utilities are “the bad guys” when it comes to charging convenience fees. 

Convenience fees are here to stay, for now
So, what’s ahead for utility customers who pay bills by credit or debit card? Convenience fees are likely to remain an inconvenience for some time. 

“The trend is clearly more utility payments being made by debit and credit card,” the American Gas Association, a trade group for natural gas utilities, says in a statement. 

“If credit card companies and third-party payment processors continue to charge a fee for these transactions, utilities will continue to have to recuperate that cost in an equitable manner.” 

Credit card reward hounds, meanwhile, will have to settle for earning less cash back and points value if they choose to put their utility bills on plastic. 

See related: Convenience fees: When is it OK to charge extra to use a credit card?, How to avoid paying convenience fees on utility bills, Plastiq, Tio: Pros, cons of charging your bills through an onlne service


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Updated: 11-23-2017