The hidden cost of helping Haiti

People are pulling out their credit cards to help the cause in Haiti, and that makes banks and credit card companies smile.

By Kim Peterson Jan 14, 2010 3:02PM
Credit cards online © Chemistry / PhotographerUpdate: Late Thursday, Visa, MasterCard and American Express promised to waive transaction fees for some Haiti donations.

Residents of Haiti have seen an outpouring of donations this week to help them through one of the worst crises in the country's history.

But some people who donate via credit card may not realize the hidden fee involved. Credit card companies and banks generally get a 2% to 3% cut as a service charge.

As a result, these companies are making about $250 million a year from charitable donations, according to an analysis by The Huffington Post.

After major disasters, credit-card companies rake in the money as donations spike. They generally refuse to waive their fees.


A notable exception to this rule is Capital One (COF), which pays the transaction fees from donations to its No Hassle Giving Site. That means 100% of the donation goes to its target.

 

And American Express (AXP) announced this afternoon it would waive any processing fees on donations made to charities listed on this website between Jan. 12 and the end of February.

So how much does a transaction like this truly cost credit card companies? One expert says it's far less than 3%.

"They certainly profit off of these fees," Ben Woolsey of Creditcards.com told the Post. "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."

But without credit card transactions, charities wouldn't be getting nearly the amount of donations that they do. So charities accept the fact that skimming exists.

So what about Haiti? Will others make an exception? We'll see. Many skeptics think that -- particularly in this economic climate -- those transaction fees are just too good to pass up.

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