Credit Cards Profiting From Haiti Disaster

credit-cardsHuffPo’s Laura Bassett reports, under the blaring headline “As Wallets Open For Haiti, Credit Card Companies Take A Big Cut,” that credit cards come with transaction fees.

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.

Yes, you heard right:  credit card companies continue their business model even when the transaction is for charitable purposes.

I suppose that, if people were mailing in their payments, the headline would be “Post Office Takes a Big Cut.”  Because of, you know, their charging for stamps.

As it turns out, both American Express and Visa have announced (as Bassett reports in an update) that they’re waiving their fees in this instance.  Which means they’re losing money on each contribution they process.  That’s a nice gesture — even if it’s presumably to avoid a PR backlash — but it’s an operating cost someone is going to have to pay.  And I’m guessing it’s not coming out of CEO bonuses.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. yetanotherjohn says:

    Somehow I don’t think huffpo has the same thoughts when they compare what happens at Walmart when a customer pays with cash or a credit card.

  2. Crust says:

    [I]t’s an operating cost someone is going to have to pay. And I’m guessing it’s not coming out of CEO bonuses.

    It’s coming out of oligopolistic rents. Sounds like good news to me. Actually, I’d bet dollars to donuts the credit card companies and/or banks are claiming a tax deduction for donating the 3% to 501c3’s. Given how fat their margins are, I’d guess they’re probably still making money on this overall.

  3. Franklin says:

    Well one of my cards gets 3% cashback on the biggest category expenditures. So if I made a big enough donation (to make it my biggest category), it is roughly break even for the credit card company and it’s like I donated 3% less. But I get the tax break for the full amount.

    Yeah, complaining about all of this is pretty dumb (but it’s informative to have a breakdown of where the money goes). It’s nice the AmEx and Visa are waiving the fees, because that effectively means they are donating to the effort.

  4. 11B40 says:

    Greetings:

    Too many times, back in the joy of my youth, my father explained to me that, “There’s a difference between a reason and an excuse; an excuse is a bad reason.”

    Apparently, the Age of Obamaness includes many additions to contract law, or perhaps they’d be better categorized as “d’ruthers”. As unfashionable and as morally unpleasant is seems to some people, they signed a contract with their credit card companies that governs transactions between the providers and their customers. To involve compulsive power, be it that of the government or even just “PR”, to alter the terms of an agreed upon contract, is to me dishonorable.

    Not only have we lost the ability to distinguish between a reason and an excuse, we have more importantly lost our sense of personal honor, our ability to tell ourselves, “No.” There’s an economist by the name of F.A. Hayek who has some interesting things to say about the need for contract law to keep a society free and off “The Road to Serfdom”.

  5. JACK ARMY says:

    I think this is merely another example of selective “outrage”. If I point out that not every cent of a charitable donation goes right to the cause, then I am more caring than the evil corporations who made it possible for more people to contribute more money in a shorter period than ever before. If people were forced to write checks, address an envelope and find a stamp to contribute to just about any charity, do you think they would?

    Also, how big a cause is big enough to draw this sort of ire? Obviously a major natural catastrophe makes the Huffpo crowd cringe, as well it should, but are they (the folks running and reading Huffpo) ensuring that every cent they donate to every charity goes directly to the cause? I mean, two weeks ago when the average Huffpo reader donated to the cause de jure, did they realize that 3% of the credit card transaction went to the credit card company? And if they knew, did they care?