Utilities charge more to consumers who take on credit card debt

According to a new report in the New York Times, many large utility companies charge consumers for the convenience of taking on credit card debt to pay their bills rather than using other payment methods, including paying by debit card. For example, Con Edison charges people who use their credit cards to pay their electric bill $4.75 a month. National Grid, likewise, charges $2.25 for the transaction.

The report said the additional fees are related to the price credit card companies charge them to process every transaction. A Con Ed spokesman told the newspaper that if it didn't charge those who take on credit card debt when paying their bills, they would have to pass the costs onto every customer instead. And because that company is a public utility, it has to keep its prices as low as possible.

A few years ago, Visa and MasterCard agreed to reduce the cost of interchange fees they charged utility companies to process a transaction whenever a consumer took on credit card debt to pay their bill, the report said.

However, even the reduced costs can present problems because Visa's rules often prohibit them from charging more to cover these fees, the report said. Meanwhile, MasterCard allows educational and government institutions, including public utilities, to charge the convenience fee with no third party involved. As a result utilities that engage in this practice typically have to hire a third-party company to process payments involving credit card debt, the report said. It did so instead of raising rates.

In recent months, more businesses have begun complaining about the interchange fees lenders charge them to process transactions that result in credit card debt. Even small businesses can see their costs rise by thousands of dollars a year by allowing customers to pay by credit card. However, recent laws allowed merchants to begin instituting minimum payment amounts that allowed them to mitigate the cost of these transactions, which typically range between 2 and 4 percent of the total price of the purchase.