Each year American banks and credit card companies make huge profits on your charitable donations. The Huffington Post estimates that amount to be in the neighborhood of $250 million a year, because credit card companies charge on average a 3 percent processing fee for most donations.
Another way to avoid adding to the millions credit card companies are making when people donate is to send your donation via text message; most donation codes should work on any cellular carrier. You type a designated word and send it to a designated number. Your cellular company will then reply with a confirmation message. The donation is recorded and added to your monthly bill.
Here are the five charities getting donations through text message:
- Text "Yele" to 501501 to donate $5 on behalf of the Yéle Foundation, the leading contributor to rebuilding Haiti founded by Wyclef Jean.
- Text "Haiti" to 90999 to donate $10 on behalf of the Red Cross in the U.S.
- Text "Haiti" to 20222 to donate $10 on behalf of the Clinton Foundation (former President Clinton is Special Envoy to Haiti.
- Text "Haiti" to 85944 to donate $5 on behalf of the Rescue Union Mission and MedCorp International.
- Text "Haiti" to 25383 to donate $5 on behalf of the International Rescue Committee.
British banks no longer charge fees during disaster or emergency appeals. In fact, their position on charitable donations is, "The card industry as a whole shows its support for charitable causes by waiving interchange fees for cross-charity and disaster or emergency appeals."
The U.S. credit card industry should follow suit. Right now, only Capital One pledges that 100 percent of your donation will go to the charity. They do this for 1.2 million charities as long as you use the Capital One web site.
Ben Woolsey, director of marketing and consumer research at Creditcards.com, told the Huffington Post that hidden processing fees tacked onto all credit card donations cover far more than the transaction costs, so banks, Visa, Mastercard and American Express generate significant profits on your donations.
Nonprofits don't say much about the problem because so much of their money comes from donations using credit cards. People like the convenience of using a nonprofit's Web site to make a donation rather than writing out and mailing a check. The nonprofits have no cheaper alternative to facilitate donations.
Some charities can negotiate lower processing fees than regular merchants, whose rates can run as high as 5 percent. For example, Habitat for Humanity says it pays 2.15 percent of its donations to credit card processing companies. St. Jude's pays about 2.5 percent. If you use American Express's Giving Express Online, it charges 2.25 percent for processing of the donation. But even these lower fees are much higher than what it costs the credit card companies to process the donation.
Without action by the government, I doubt you'll see the credit card companies give up the profits they're making on processing your credit card donations. In fact, the government even sanctions the move by allowing you to write off 100 percent of your donation even though about 3 percent does not go to the charity.
Take the time to send a check and forgo using your credit card. It will only cost you a postage stamp and an envelope. A lot more of your money will actually get to the charity you support.
Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score.