This Huffington Post article puts a big spotlight on all of the money that credit card companies and banks are making by being the broker of donations to charities that support rescue and aid over in Haiti:
About 97 percent of these donations will actually make it to the designated organizations — but the other 3 percent will be skimmed off by banks and credit card companies to cover their “transaction costs.” Thanks to this hidden fee, American banks and credit card companies are making huge profits — somewhere in the neighborhood of $250 million a year — off of people's charitable donations, according to a Huffington Post analysis.
Oh, please. Spare me.
First of all, $250 million per year isn't that much. This is only about one-half of one percent of the total processing fees collected from credit card transactions (if the number on TrueCostOfCredit.com is to be believed). This does not include all of the other fees that can be collected from the consumer side, like late fees and interest fees. So, calling $250 million “huge profits” is stretching it.
Next, these fees aren't “hidden.” They're well-known to every merchant (and most charities) that accept payments by credit card. If consumers don't know about these fees, then it's probably because it doesn't affect them directly. In fact, merchant account agreements typically forbid merchants from refusing credit card transactions or tacking on “service fees” for the transaction, as it is a cost to be borne by the merchant, not the consumer. The consumer need not care about it.
Next, the only reason that people can put their donations to a particular charity on a credit card is because the charity agreed to accept donations by credit card. Furthermore, the charities are very wise to do so: according to the article, Oxfam and Operation USA pull in over 85% of their donations by credit cards. Some of those donations could have been paid by check, but some of them just wouldn't have been made at all. Additionally, just as people are likely to buy more if they have a credit card as opposed to cash or check, people are likely to donate more if they donate with a credit card.
Charities aren't profit-seeking like businesses are, of course, but there is competition among charities for a finite pool of money from donors. Anything that makes it easier for people to donate makes it easier to tap into that scarce resource, and if there are costs associated with doing that, well, that's the way things work.
Why should credit card companies and banks be compelled to do all of this for free? If I make a donation of $100 and put it on my credit card, it carries exactly the same risk to the credit card company as if I had bought $100 worth of groceries. The issuing bank paid my donation to the charity almost immediately, and now they're left with collecting it from me, which I could choose to not pay (granted, at my own peril). Yet, that's exactly what was done: the credit card companies have bowed to pressure and will waive transaction fees for donations to selected charities for a few months.
If businesses want to contribute to rescue, repair, and aid efforts, that's great. You rock! But if not, hey, you've counted the cost, and it's your business. I don't fault airlines for profiting from transporting aid workers to and from Haiti. I don't fault oil refiners for profiting from selling jet fuel to the airlines. I don't fault companies selling first-aid kits, blankets, water, whatever, to charities to distribute to those affected. And I don't fault credit card companies for charging charities to make the donation process smoother so all of this great rescue can happen more quickly, and probably on a grander scale, than without it.
This objection to merchant fee profits is just another day in the credit card provider witch hunt that got the CARD Act through in the name of protecting consumers. This will actually hurt us all in the long run. Now a few more tens of millions of dollars have been shamed away from the credit card providers at a moment of opportunity.
If these transaction costs bother you (they might) the solution is pretty easy: Write a check, mail it in, and bear all of the transaction costs yourself. (Which actually isn't true either: workers have to open your envelope, record the check, take it to the bank, etc.) Or charge it to a credit card that's currently waiving its fees for donations to your chosen charity.
I donate through Capital One’s no Hassle Giving Site. Its partnered with the network for Good and they eat the interchange fees giving 100% to the charity. Plus I get my rewards points on top of it.
My church is there – along with my Alma Mater and the local foodbank. For Haiti I was deciding between the Red Cross and UNICEF which are also both there. Plus I tell them they can’t give the charity any of my personal info which means I can’t get on SPAM lists.
I personally wouldn’t give through this kind of form because I like 100% of my proceeds to go to the cause but I understand the points that you make. And you’re right-$250 million isn’t that much to them but it could’ve been a lot to the relief efforts of Haiti.
Great points and I wholeheartedly agree. I wrote something on the subject as well: http://www.creditcardchaser.com/are-credit-card-companies-evil-if-they-dont-waive-fees-on-haiti-donations/
Two things:
First, all of the major credit card companies have agreed to waive the fee for donations made for Haiti relief, so it’s a null issue for the current efforts.
Second, one of the things not mentioned in the article is that the “profit” banks make on these fees is not actually profit. It’s revenue. But there are costs and risks associated with making foreign transactions (which is what the fee is for – I notice the Huffington article never actually states the fee name – it’s not a “charity fee” as implied by the article) above and beyond domestic transactions. Foreign transactions means foreign currency trading, which have commissions and carry the risk of unfavorable arbitrage. The actual profit banks get from these fees is likely much less than the 3% they take in.
Very good article. I wonder if the people who were angry about credit companies charging their normal fees (now waived) for charitable transactions would be willing to give up their rewards from the cards for those same transactions.
I have to say I’m very disappointed with the culture of credit cards charging fees for charities.
Credit card companies make PROFITS from these transactions – they make millions of pounds for themselves. I once spoke to a charity representative who was trying to persuade me to subscribe to his charity. One of the things I asked is whether it is true that significantly less than the money donated actually makes its way to its orginal purpose – at least a quarter will be lost in the receiving countrys due to ‘admininstration fees’ for this and ‘admin fees’ for that and ‘tax’ for this – essentially, bribes. So I think to myself, what is the difference? Credit cards should make nor lose money for charity donations, but they make an absolute buckloads. Think about it – the charity donaters are paying for aid, and they are also filling the pockets of directors, chairmen, presidents, etc of credit cards.