Credit card interchange fees paid by charities

Thursday, November 20, 2014

In our most recent pre-budget submission to the House of Commons Standing Committee on Finance, Imagine Canada recommended that the federal government take action - either through regulation or a voluntary agreement - to reduce fees paid by registered charities when they accept donations or payments for good and services by credit card. These fees divert significant dollars away from the cause, and add to charities’ administrative costs.

Latest developments on this file

On November 4, the federal government announced a voluntary agreement with MasterCard and Visa for the reduction of interchange fees paid by merchants when they accept payments by credit card. On average, these fees for all merchants will now be reduced to 1.5% of the transaction value. The new rates take effect on April 1, 2015.

Charities will benefit from steeper reductions than other categories of merchant. This means that charities will keep a greater proportion of donations made by credit card, as well as the proceeds of selling goods and services where payment is made by credit card. Details of these changes have just been announced.

In the case of MasterCard, a new merchant category has been created for charities. The current interchange fees paid by charities range from 1.59% to 2.65% of the transaction value. As of April 1, the interchange fees that MasterCard charges charities will fall to between 1.0% and 1.5%. This represents, in effect, an almost 40% reduction in these fees for charities.

Visa has opted to include charities within its “emerging segments” merchant category. The new interchange fees, as of April 1, will be 0.98% for transactions using Classic, Gold, or Platinum cards (a 40% reduction), 1.17% for transactions using Infinite cards (a 35% reduction), and 1.95% for transactions involving Visa Infinite Privilege cards (a 25% reduction).

Previous action on this file

In 2010 and on a number of occasions thereafter, Imagine Canada brought together a group of charities to gain a better understanding of the effect of credit card fees on charities. We obtained illustrative data from a number of charities that allowed us to start building a case regarding the financial cost to charities, and we held initial discussions with credit card company representatives. We also, with the assistance of our Chief Economist, carried out research on the experience in a number of key comparator countries, to learn about the impact on charities in other jurisdictions and to inform our advocacy efforts.

Since then, we have regularly raised the issue in meetings with key decision-makers, and in particular, staff in the Minister of Finance’s office and the Prime Minister’s Office. We were able to point out the scale of the issue, the impact it has on charities’ finances, and the inappropriateness of treating transactions with charities as if they were in the same risk categories as other transactions.

The introduction of Bill S-202 in the Senate, which proposes to regulate these fees across the board (including a zero rate for charities), provided us with another opportunity to press for action on behalf of charities, and we may yet be invited to testify before the Committee currently studying the bill. Our pre-budget submission to the House of Commons Finance Committee recommended that the federal government work to achieve – either through regulation or a voluntary agreement – a significant reduction in the fees paid by charities.

The reduction in interchange fees for charities is a significant victory. The Finance Minister’s office has informed us that Imagine Canada’s efforts led the Minister to seek steeper discounts for charities from MasterCard and Visa in their voluntary arrangement.

Next steps

The reforms announced by the credit card providers, at the urging of the federal government, provide us the opportunity to open a new dialogue with MasterCard and Visa. Our hope is to develop solutions that recognize the legitimate cost of services provided by those companies, but do not impose unreasonable costs on charities.

We look forward to ongoing discussions with the credit card companies about other unintended consequences of the current rate structure and other opportunities to reduce costs for charities. For example, we will pursue the surcharge for “card not present” transactions – that is, transactions made online or over the telephone. While we understand the rationale behind this surcharge – such transactions are more susceptible to fraud – we are not aware of instances in which credit cards have been used to fraudulently make donations to or purchases from charities. We do not believe that charities – and their donors – should be forced to pay a premium for such a highly unlikely risk. We also look forward to exploring ways to mitigate the impact on charities when cards are reissued with new account numbers.

We invite charities to share information with us about the anticipated impact of this announcement on their finances, as well as other issues pertaining to credit card fees that we should be aware of as we pursue the conversation with MasterCard and Visa.

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