Credit Card Fees on Contributions

On February 3rd the web site CreditCards.com published an article entitled Charitable Charging Comes Under Scrutiny.

The article indicated that shortly after the earthquake in Haiti the major credit card processors all agreed to waive their interchange fees (ranging from 1% to 3%) on each donation directed to Haitians in need. Some charity watchdog groups and other interested parties called for credit card issuers to waive fees on charitable donations permanently. The political action group MoveOn.org started a petition which it will deliver to the CEOs of the major credit card processors.

This is not the first time that the credit card processors waived or cut their transaction fees. They waived fees in 2004 after the tsunami struck Southeast Asia. Capital One has been waiving transaction fees on charitable donations since the fall of 2008. Capital One operates a website called No Hassle Giving or the Network for Good and it processes transactions to almost any charity without a fee (of course, using your Capital One credit card). I am sure this is part marketing effort and part charitable giving on Capital One’s part and I applaud it.

However, before we all jump on the bandwagon and rush off to sign the MoveOn.org petition, I would like to have you think about a few concepts. We can think of the credit card processing fee as additional fee income for the credit card company and subconsciously think of the millions of dollars that this generates, or we can think of the costs involved in processing credit card transactions and realize that these costs are as low as they are because every transaction is sharing in the payment of those costs. We realize that costs may increase for the remainder if some are exempted.

We could think of the processing fee as a cost the charity is willing to pay to facilitate the receipt of donations from millions of people. The credit card facilitates the donor’s effort (no check writing, mailing, stamp costs, etc.) and facilitates the charity’s donation deposit (no mail opening, endorsing, bank clearing time, internal control issues, etc.) and the charity is more than willing to pay for all this assistance and service.

In certain circumstances and in certain disasters, the credit card industry is willing to take a temporary cut in revenue as their way of contributing to the cause. They do this to provide an added incentive to the donor while assisting the charity at the same time. Added incentives work – think of how often you shop a “sale”.

So I applaud the credit card companies for their processing fee elimination in response to the Haitian crisis. And I applaud Capital One’s marketing/charitable giving plan and wish them success. I am not rushing to sign the MoveOn.org petition. What do you think?


By Frank Monti, CPA
Not-for-Profit Group

Labels: Accounting, Charitable Donations, Credit Card Processing Fees, Haiti Donations, Waved Transaction Fees