Business as Usual

Making money off of misery . . . 

As Wallets Open For Haiti, Credit Card Companies Take A Big Cut

First Posted: 01-14-10 12:34 PM   |   Updated: 01-14-10 01:31 PM

As a massive human tragedy unfolds in Haiti, relief organizations are soliciting credit-card donations through their hotlines and websites. 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.

Those profits rise sharply after major disasters, when humanitarian relief organizations such as Oxfam and Operation USA take in more than 85 percent of their donations via credit card -- and the credit card providers, with only a few exceptions, refuse to waive their fees.

Credit card companies have only been willing to waive their processing fee for charity once, Richard Walden, the CEO of Operation USA, tells the Huffington Post, and that was for the tsunami disaster of 2004.

"After the tsunami, we had thousands of donations, and American Express and I think one other company temporarily waived their fees. So if this thing ramps up, we'll try to get in touch with these banks and see if they'll waive the fee again for us."

Bowing to enormous public pressure in the United Kingdom after the tsunami, British credit card companies have pledged to "waiv[e] interchange fees for all cross-charity and disaster or emergency appeals," according to the UK Card Association website.

One notable exception to the rule in this country is Capital One bank. Through its "No Hassle Giving Site", the bank waives transaction costs for holders of its Visa or MasterCard cards, so that 100 percent of people's donations goes to their chosen charity.

"We are pleased to be able to donate these costs, and we believe this will generate customer loyalty and an enduring customer franchise," said Pam Girardo, a spokesperson for Capital One.

Ben Woolsey, director of marketing and consumer research at Creditcards.com, says the hidden processing fees tacked onto all credit card donations cover far more than the transaction costs, allowing the issuing banks, as well as companies like Visa, MasterCard and American Express, to generate significant profits off of online charitable donations.

"They certainly profit off of these fees," Woolsey said. "Charities are treated like any other merchant. The credit card company bleeds a few percentage points off each transaction; that's central to their business model."

Non-profits are reluctant to criticize the credit card companies that are providing them a crucial service because there is too much money at stake, and they have no lower-cost options because the four major credit card companies have a small monopoly on the industry.

Peter Larson, director of annual giving at the Washington Humane Society, said: "It's unfortunate that a portion of our individual contributions are eaten up by processing fees, but that's the nature of business. We have no choice but to use credit cards because without them, we would lose a great deal of money in donations."

Some charities are able to negotiate a lower processing fee than regular merchants, whose rates can run as high as 5 percent. Habitat for Humanity reports that it pays about 2.15 percent of its donations to credit card processing companies, St. Jude's pays about 2.5 percent, and all charitable organizations that qualify for American Express's "Giving Express" program get a 2.25 percent processing rate. But even these fees are far greater than the marginal cost of the online transaction.

"I have no doubt that millions and millions of dollars are being made off of people's donations, and it's extremely inefficient and wasteful," said Ken Berger, President and CEO of Charity Navigator, an independent charity evaluator. "It would be great if credit card companies could reduce their profit knowing its going to an organization with a mission to help people. They need to step up to the plate and take a lead role in voluntarily cutting their fees."

Spokespersons for Visa and American Express declined to say whether they would consider waiving their fees for the Haiti disaster, or for all charitable donations. But Bill Strathmann, CEO of the online charity portal Network for Good, says they won't: "The reason credit card companies don't waive fees for charities is that they have so many corporate partners who drive high volume through their system. A company like Walmart could say, 'Hey, you're giving them a bettter rate? Last I looked I was passing billions of dollars through your company.'"

According to Strathmann, whose company partners with Capital One to encourage cost-free donating, legislators may have to take the issue into their own hands.

"I've always wanted to take this to Capitol Hill," said Strathmann. "There was legislation that made charitable donations tax-deductible, and there's going to have to be similar legislation that either subsidizes those credit card fees for non-profits or bars the fees altogether. There's got to be a better model for encouraging donations."

Right now, the government's only role is to actually subsidize the credit-card skim; charitable donations are 100 percent tax deductible, even when only, say, 97 percent of the donation goes to charity.

Without a legislative solution, the only option for charities is to petition banks to voluntarily waive their fees.

"We don't want a corporate contribution from the other side of American Express, we want them to say to legitimate NGOs that they're waiving the bank fee," said Walden. "It's probably a good week to ask, because they're about to give out their bonuses."

Comments

[David Cook]

Just another one of the many scary things about our capitalistic society. Why simply allow others to give and try and help the suffering people in Haiti when we can use this opportunity to promote our own agenda and make some money on sales ourselves? Those bonuses that they speak of which are being given out soon, are probably going to be from the processing fees and millions of dollars that would otherwise be going to people who need it.

[quicktype89]

AHHHHHHHHHHHHH!!!!!!!!!!!!!!!!

Sin is a terrible thing.

[Tyler]

When helping other people becomes a profit for a third-party is when capitalism fails. This seems to fail in such situations as these. Along with healthcare, insurance and basically anything with a middle man. I wonder what would happen if a non-profit organization was formed designed to only help people. Oh wait...they have that! ...The church.

[mgn]

After reading this article I am surprised yet at the same time not. I mean credit card companies are always out to get money, but I didn’t think that they could sink this low just to make a profit. When those companies charge hidden fees to generous people who are trying to help those in need is outrageous. The least they could do is take those hidden fee charges which can range up $250 million a year and donate it. If only those credit card companies gave back what they took they wouldn’t just be seen as crooked and corrupt companies.

[JohnEvans]

I can understand how this might seam outrageous at first glance but the really isn't anything deceitful going on here. The credit card companies offer you a service which you pay for and the method of that payment is agreed to upfront. The party receiving the money similarly use the service for a fee. If the CEO of the company feels charitable or like it would be a good marketing campaign he or she can wave this fee. It doesn't matter to the credit card company why you are using your service just that you are. Check writers don't get compensate for the cost of the check and postage. That is the cost of doing business in that way. If you don't like it keep all your money in cash and walk it to the service organization.

[Brandon]

I agree with John, there isn't anything deceitful going on. The credit card company's job is to make money. It would be nice and it might even be the right thing to do to wave the fees, but they do not have to. They are in the business of making money, if they go out of business you have a credit card. If you lose your job and can't pay your electric bill would you expect the electric company to leave your lights on? I wouldn't expect it. I'm not saying that the credit card are right, but that is just the way things are.

[kmcnutt]

I'm not sure the problem is credit companies being deceitful. I think it lays more heavily on the fact that they take so much. I understand that a fee is standard and people agree to it. But when the world has a tragedy like Haiti, I think a part of all of us coming together should include major corporations.
As I read through this article, I thought of a couple reasons this is messed up. One, the fee is more than needed. I think this is the main problem. People have become so greedy. Second, the company could show support and care through donating a portion of that to the charity or charities that were most popular by their customers, or of most need at the moment.
Since Capital One seems to be the more honest and fair company, I think that would be a good selling point for them.

[Sarah Thullbery]

This credit card thing is bad and companies should not be making a profit on the suffering of others. Also, I think another big problem with this is that "authorities" like Rush Limbaugh who are telling people not to give. He's said that we already give - in income tax. His comments have been seriously flawed. The ultra-rightwing conservative media really disturbs me. Of course they don't point out what credit card companies are doing... they seem to be on board with them. It's just greed to an unbelievable degree.

[Sarah Thullbery]

Here's another terrible thing, talk about a blatant lack of compassion:
http://slatest.slate.com/id/2241890

[Julie Jackson]

I hate credit cards. I think they are not a smart thing to have. I agree with Sarah that they should not be making profit with the suffering of others. Well said. They are scammers and it is nonsense. People are greedy and will do anything to get money and make themselves happy.

[Larz]

Well we do need credit cards Julie, they are smart to have....however, I do agree they shouldn't make profit off suffering people.

[Morgan]

Of course credit card companies are using the disaster in Haiti as an oppurtunity to make money. This is just wrong. But it is business. And it is obviously working if the credit card companies are making a hefty profit.

[cdavis17]

This makes me so frustrated with our nation and the companies who use a disaster like this to make money. I know that they are a business, but taking advantage of a situation is another thing. Shame on them.