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How to ask members to cover nonprofit’s card processing fees

Your Business Credit columnist Elaine Pofeldt

Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of 200kfreelancer.com, a website for independent professionals. She writes “Your Business Credit,” a weekly column about small business and credit, for CreditCards.com.

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QuestionDear Your Business Credit,
We are a not-for-profit organization, and our membership renewal is around $800. We hope to try something new this year on our renewal form and want to know if this is allowed. We want to add a sentence that says, “We pay a 2.5 percent processing fee on all credit card transactions. Would you like to increase your membership pledge to cover this fee, so 100 percent of your pledge goes to support our organization?” Then we’ll have a space for “yes” or “no.” Since this is voluntary and not required, can we do this? – Anna

AnswerDear Anna,
Many nonprofits and small businesses find that credit card processing fees can really eat into their budget. You’re smart to be looking for creative solutions to defray them.

James Hsui, a New York City-based business and nonprofit lawyer, and principal of James Hsui, PLLC, said in an email you probably can achieve your goal if you take a slightly different approach than the one you suggest.

As Hsui noted, for your nonprofit to net $800 after processing fees, a member must contribute $820.51. To figure out how much extra you’d need to charge to make up for the fact that you are now receiving 97.5 percent of the $800 someone donates, Hsui divided $800 by 97.5 – the figure left after you subtract the 2.5 percent fee – and multiplied by 100. “Essentially, the proposed addition is a request for an additional gift of $20.51,” he said.

As a result, the question has less to do with laws surrounding credit card surcharges than with laws governing nonprofit fundraising, he wrote. A key objective of fundraising laws is to keep the public from being misled or deceived, Hsui noted. “In this respect, the disclosure of the processing fee is good, but the sentence about increasing the membership pledge and support to the organization adds unnecessary confusion, and could also be somewhat misleading,” he wrote.

“First, the nonprofit would net only 97.5 percent of the pledge (never 100 percent), regardless of whether or not the pledge is increased, due to processing fees. Second, the term \u2018support’ generally refers to the amount received before expenses such as processing fees and thus, technically, 100 percent of the pledge could be considered support regardless of the processing fees.”

In light of these considerations, Hsui said a safer option would be to replace the sentence you suggested with one that asks members if they would like to make an additional gift of a specified figure to help mitigate processing fee costs.

There are a couple of other options you might try. One is to negotiate a better arrangement with your credit card processor, though that could be difficult. “The alternative is to have the donors send checks rather than paying by credit card,” Hsui said in a follow up interview. Some donors will always prefer to pay electronically, and you can’t ignore their preferences, but as Hsui pointed out, “When customers pay by credit card, there will always be a fee.”

See related:Accepting credit cards won’t affect nonprofit’s tax status

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