Why utilities charge convenience fees to pay by credit card

Many utilities in the U.S. continue to charge convenience fees for paying utility bills by credit or debit card, even though the number of people who use checks to pay bills continues to dwindle. And even 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 PayPal and Plastiq 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 may have earned.

See related: Best credit cards for paying monthly bills

E-payments increase, check use dwindles

John Hazen, managing director of utilities intelligence at market research company J.D. Power, said 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 stood at just 17% in 2020, 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 said.

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

“No matter what your economic status is,” Hazen said, “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 noted, most 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,” Hazen said.

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 a shocking amount.

If you look solely at electricity providers, the U.S. has roughly 150 million customers. If 80% 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 $3.6 billion a year. That’s an extreme example, but it illustrates how much money might be at stake.

In an article published by Powergrid International, Penni McLean-Conner, chief customer officer at East Coast electricity provider Eversource Energy, pressed the case for utility payments to be free of fees to holders of credit and debit cards.

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 – such as third-party processors like Western Union’s SpeedPay service. Utilities aren’t supposed to turn a profit on those fees.

“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,” McLean-Conner wrote.

The National Association of State Utility Consumer Advocates took a similar stance in 2012 – and it’s one that remains in place today. Nine years ago, 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.

“On balance, the fees are still there and still a point of contention,” said David Springe, executive director of the National Association of State Utility Consumer Advocates.

Fee-free options for utility payments

For their part, utilities note that they offer cardless 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 10 years ago and simultaneously dumped its per-payment convenience fee, spokeswoman Melissa Williams said.

Since installing an e-billing service supported by an outside vendor, 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 said.

“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 credit card, debit card and electronic check 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 said.

“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 U.S. utilities found standard convenience fees for residential customers ranging from roughly $1.50 to nearly $4 per payment. At the high end of the range, that would total nearly $48 for 12 monthly payments.

A 2019 survey by Edmunds GovTech, whose services include online payment processing, found that 90% of utilities accepted credit cards and 70% charged convenience fees. Gary Sanders, a senior consultant at Edmunds GovTech, said he expects most utilities to keep charging convenience fees. He notes, however, that some utilities have temporarily suspended convenience fees after the start of the coronavirus pandemic.

“The rationale I hear most often from utilities for charging a convenience fee is that it’s not fair for all customers to pay for a service that’s only used by some customers,” Sanders said.

“My counter to that argument is that there are costs associated with cash and check payments, too, although they aren’t as obvious as a monthly charge from the credit card processor. Cash and check payments are more labor-intensive to process the payment, take more time to balance and close out than credit cards, and require a bank deposit.”

The most recent survey data from the American Public Power Association, which represents community-owned electric utilities, found that 96% of its members accepted credit cards and 93% took debit cards. Sixty-three percent of its member utilities absorbed the credit card fee (like the Modesto district does), while 37% required customers to cover the fee (like Duke Energy does). In many cases, these fees are around $3 to $4 per transaction.

Fees paid by card-using customers “are charged to cover the cost of the transaction rather than having other customers subsidize the cost,” said Ursula Schryver, vice president 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 said.

‘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, said 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 said, 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 said. “The truth is, somebody’s paying for that stuff. It’s not charity from anybody’s pocketbook.”

Charlie Harak, an attorney with the National Consumer Law Center, said the nonprofit doesn’t have a formal position on charging convenience fees for payment of utility bills with plastic. In representing clients in Massachusetts, however, the group did oppose utilities dropping convenience fees for credit card payments.

Why? If the fees were eliminated, he said, more low-income customers might be tempted to pay utility bills with high-interest, high-fee credit cards. Furthermore, Harak’s organization objected to the likelihood that utilities waiving fees might simply pass along the cost of doing business with payment processors to their ratepayers.

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

As such, Toney said 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, said in a statement.

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