Firms skirt credit-card billing fee ban in state

Some utility customers saddled with surcharge

By Bruce Mohl, Globe Staff, 8/27/2003

NStar Corp. and a handful of other utilities are using outside vendors to sidestep a Massachusetts law that prohibits surcharges if a customer pays a bill with a credit card. The utilities started allowing payments by credit card last fall, as a customer convenience. But rather than absorb the costs, they farm out the handling of the credit card transactions to third parties, which charge fees to cover their costs. Under the law, the vendors can charge the fees because they are merely processing the transactions, not selling anything.NStar's outside vendor, for example, uses a sliding scale, with the fee based on the size of the payment. A typical bill of $70 incurs a charge of $4.10. Bay State Gas's outside vendor charges a flat fee of $5.95 for a credit card payment from a residential customer, and $25 for a commercial customer.

Massachusetts Electric, which plans to offer a credit card payment option this fall, hasn't selected a vendor.

The third-party arrangement allows the utilities to get around a truth-in-lending law that says "no seller in any sales transaction may impose a surcharge on a cardholder who elects to use a credit card in lieu of payment by cash, check, or similar means."

As NStar spokesman Michael Durand said, "We are the seller, but we're not imposing the convenience fee."

Deirdre K. Manning, the consumer commissioner at the state Department of Telecommunications and Energy, said the agency's legal department is satisfied that the utilities are complying with the law, and with a similar directive from the agency. "In terms of the letter of the law, they think it complies with the statute," Manning said.

She said the agency has made sure that the utilities also offer other payment options that cost nothing and has barred them from offering the credit card option to customers scheduled for termination for nonpayment, unless the customer specifically asks for that option.

Colman Herman, a Dorchester resident and consumer activist who raised questions about the legality of the credit card surcharges, said the utilities are merely using vendors to circumvent the law.

"Consumers aren't used to paying extra to use their credit cards," he said. "This seems to be an ominous trend."

A spokeswoman for Visa International said the fees may violate the company's rules prohibiting surcharges imposed solely on credit card transactions.

Many consumers like to pay their bills with credit cards because of the convenience and to build up card benefits, such as frequent flier miles. And many companies prefer a credit card payment because it assures a quick, guaranteed cash flow.

Two Massachusetts utilities, Blackstone Gas and Unitil/Fitchburg Gas & Electric, allow customers to pay by credit card with no extra fees.

George Gantz, senior vice president of customer services and communications at Unitil, said the company handles the credit card transactions internally, to keep costs as low as possible. "We just decided it's a lot easier and more acceptable for our customers and probably is a wash for us, too," he said.

Verizon Corp. allows customers in Massachusetts, Delaware, New Jersey, New York, and Pennsylvania to pay their bills by credit card with no extra charge, and is looking at expanding the service elsewhere.

Spokesman Jack Hoey said Verizon pays a third party to handle the transactions. Verizon pays the fees, ranging from 1.5 to 4 percent of the transaction.

"We are still trying to quantify whether the benefits offset the added expense," Hoey said. "The main benefit is customer satisfaction. We are currently evaluating whether this satisfaction actually results in greater customer retention and spending."

Between January and July, about 7,200 monthly payments were made by NStar customers using credit cards, Durand said. That's a relatively small number, given the utility's 1 million Massachusetts customers, but it's still significant for a service that's relatively inconvenient and costly to use.

To pay by credit card, NStar customers have to call a toll-free number every month to arrange the payment. They cannot arrange to have the payment automatically charged to their credit card, although Durand said the utility is looking into offering such an option. Keyspan Energy Delivery, Western Massachusetts Electric, New England Gas, and Berkshire Gas don't accept credit card payments.

Bruce Mohl can be reached at mohl@globe.com.