Wednesday, May 14

Will the ticking credit card time bomb impact donations?

For the past few years fundraisers have been aggressively pushing donors to give by credit card instead of by check... especially when it comes to the increase in online fundraising and/or monthly giving programs.

But there is a growing sense of dread that a pending tsunami of credit card defaults is creating a ticking time bomb in this country... and I am going to go out on a limb (just like I did early last December when I warned about the looming recession) and predict that fundraisers will need to grapple with serious concerns about donors who are charging their donations.

Do we have any ethical concerns about donors putting a $100 donation that they can't afford on a credit card where it will eventually cost them $130 in interest? Do fundraisers benefit by getting donors to give more when they use a credit card than they would if they had to use cash?
I read some alarming statistics last week:

"According to Equifax, a credit card analysis firm, people have been buying more with their credit cards but paying down less. As a result average balances jumped nearly 9% in 2007 and delinquency rates recently hit a 4-year high of 4.5%.

Also, the reliance on credit cards is preventing some of the markets salutary forces from working. With credit always an option, domestic demand remains strong despite rising prices. Absent the option of putting more costly gasoline on their credit cards, Americans might have actually been forced to cut back on their consumption, taking some of the upward pressure off gas prices.

It should be painfully obvious that expanded consumer credit is not evidence of improvement, but simply, deterioration. Unfortunately, when it comes to understanding the economy, there is little common sense on display. By going even deeper into debt just to make ends meet, American consumers are digging themselves, and our entire economy, into an even greater economic hole and laying the foundation for the next major credit debacle."
I'm sure people have been warning about credit card debt since the first person used their Diner's Club card to buy a dinner for friends that he/she couldn't afford... but with the reality of the housing implosion hitting home now - many people think a credit card default crisis is closer than we think.

So, what should we do? Continue to ask donors to put their gift on credit cards... but only if they promise to be responsible and pay off the card balance every month?

I'm going to talk about this more in the next couple weeks... but in the meantime, I think nonprofit fundraisers should start to truly understand the real cost of processing donations on credit cards. Start by reading this article about how the organizations that handle Internet contributions and related services for the presidential campaigns have already collected more than $11 million in fees!


Anonymous said...

yet Visa and Mastercard are recording record profits despite the pain on american families.

Bill Huddleston said...

I absolutely agree with your point about encouraging donations via credit card. If the non-profit sector is truly supposed to take the higher moral ground, why in the world does it want to make the credit card companies richer?

A better question is “What is the most donor friendly that our donors can support us?” There will be multiple answers, and one that many non-profits have forgotten about is payroll deduction in workplace giving campaigns, such as the Combined Federal Campaign (CFC).

The following excerpt is from my CFC Special report, available at

CFC is the Most Donor Friendly Means of Giving

If you stop and truly consider the charitable giving process from the donor’s perspective, not just your own non-profit’s perspective, the CFC is the most donor friendly means of donating to any non-profit.

The Federal public servant donor, with one pledge card and one transaction:

● Can donate to multiple charities with just one pledge.

● Gives money to the non-profit before it ever hits their checkbook.

● Accrues no interest charges from credit card donations.

● Is secure—their personal information is never on the Web, and government payroll systems are secure.

● Receives a consolidated year end statement about all charitable donations for tax purposes.

Bill Huddleston, CFC Expert

$1 billion in unrestricted donations in the past five years, less red tape than any grant.

How much did your non-profit receive?

— Bill Huddleston

"a fundraiser" said...

I think the Chronicle of Philanthropy linked to this article yesterday and that said that I was emphetically stating that nonprofits should NOT accept credit card donations.

That is not the case. I simply want us to understand that sometimes donors are giving donations that they cannot afford. I think we need to understand the implications when some of our donors are using high interest debt to finance their chartiable giving.

Sandy Rees said...

I agree that it's not good to ask for donations that donors can't afford to give. Unfortunately, there's no way we can know who can afford what.

This is certainly good food for thought!

Melissa Tooley said...

I'd love to hear if anyone has any data supporting the "giving donations you can't afford because it's not real money" hypothesis. Maybe I'm naive, but I have a hard time believing that the people who have outstanding credit card balances are the same people making donations to nonprofit organizations. Is there any research out there that would indicate that this is happening on a regular basis?

While I agree that credit card companies obviously do not occupy the same moral ground as non-profits, the fact remains that many people prefer to use them for charitable giving, either to receive some "points" or "rewards" from the CC company or just because it's easier for them than writing a check.

Melissa Tooley
Director of Research & Analytics, Donordigital

Jillian said...

I'm curious about whether or not you can tell the difference between debit and credit cards. My debit card looks and acts just like a credit card (no pin # required). We can obtain data that shows how many donors uses credit vs. a check pledge - but debit vs credit? I think that's impossible for us, or anyone on the back end, to know.

Barbara Ruth Saunders said...

I favor treating people like adults. It's really none of the nonprofit's business.

Some adults are wise and responsible; others are not. There are all sorts of reasons for using credit cards for donations -- convenience, safety, personal organization, earning miles or rewards on the card.

It is also within the discretion of an adult to feel that donating to a particular cause at a particular moment is more important to them than their credit status.

Also, I disagree that credit card companies by default don't share the "moral high ground" of nonprofits. Credit card companies are businesses that adopt some unfortunate practices and some neutral ones. Nonprofits are businesses, too. They pursue good work, and many of them engage in some questionable conduct including paying employees poorly as a matter of principle, treating people like children, and failing to adopt sound business practices.

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