Mastercard Softens Chargeback Rules For Nonprofits

Mastercard has reversed course and won’t enforce on most charities a rule that would require them to treat recurring donations as subscriptions, requiring a monthly opt-out notification and electronic receipt.

The rule, which went into effect last month but postponed for charities, now only applies to merchants identified in the Acquirer Chargeback Monitoring Program (ACMP). It will only apply to charities with a high number of chargebacks during a four-month period.

Numerous associations of nonprofit and payment processors for nonprofits have been lobbying Mastercard to rescind the rules for nonprofits.

“The new requirements are recommended but not required for nonprofits. This decision was based in part on nonprofits’ very low chargeback and dispute rates,” explained The Nonprofit Alliance CEO Shannon McCracken. “On a case-by-case basis, a nonprofit organization that consistently has higher chargeback rates (over a threshold that Mastercard defines as “excessive”) will be required to adhere to the requirements and in those instances penalties for non-compliance will apply, as they would for other commercial merchants covered under the subscription requirements.”

According to information from Mastercard, the requirements were put in place to help ensure a more positive cardholder experience, mitigate negative practices associated with using a subscription and recurring billing model, and reduce the number of chargebacks Mastercard would have to handle.

Information in a Mastercard bulletin announced that all of the standards that took effect Sept. 22 are recommended as a best practice for all nonprofit or charity merchants that utilize a recurring payment plan. However, the standards become a requirement when a nonprofit or charity merchant “that utilizes a recurring payment plan is identified for at least four months or more in the ACMP” as an excessive chargeback merchant, a high excessive chargeback merchant or a excessive fraud merchant as defined in Mastercard’s Data Integrity Monitoring Program.

A request for a statement from Mastercard was not immediately returned.

Mastercard classified monthly recurring donations as “subscription services,” but the donor-nonprofit relationship is distinct from that of a consumer and merchant or vendor.

“From the outset, we understood Mastercard’s intent with the new requirements as a means of addressing customer service issues, as measured by chargebacks and disputes. The data that we collected and shared with Mastercard showed that nonprofits overall have very low chargeback rates compared to other sectors,” said McCracken. “Recurring giving is simply not the same consumer behavior as signing up for a subscription product or service. We appreciate that Mastercard listened to nonprofits’ concerns and re-evaluated the new requirements through our specific donor stewardship lens.”