New Mastercard Rules Will Affect Nonprofits that Offer Recurring Donations

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Mastercard is updating its Transaction Processing Rules (TPR) in a way that will affect charitable nonprofits that offer donors the option to make recurring donations using a Mastercard. Originally slated to take effect in March 2022, Mastercard initially postponed implementation until September 22, 2022. Now, Mastercard has directly confirmed with us that it has again extended the effective date of its new requirements for nonprofits, this time until March 21, 2023.

We’re posting our best understanding of the new rules here today, and we’ll update this piece to keep our readers informed as things evolve. We encourage readers to speak with their Constituent Relationship Management (CRM) system or donation app representative / merchant account provider to confirm the requirements.

Summary of the new rules covering recurring donations

The new rules cover what Mastercard calls “subscription billing” in the form of recurring payments. Even though Mastercard’s definition of subscription billing is "the Cardholder has agreed for the Merchant to provide ongoing and/or periodic delivery of physical products or Digital Goods,” Mastercard considers recurring donations to nonprofits to be subscription billing, despite there being no physical products or digital goods involved. See #8 in the FAQs document Mastercard released in March 2022, “If a customer is donating to a charity on a recurring basis, is this considered a subscription?” A: “Yes, this would be considered a subscription service.”

Thus, piecing together and translating the awkward terminology to the nonprofit context, it appears that Mastercard is essentially saying its new rules will apply whenever “the Cardholder [donor] has agreed for the Merchant [nonprofit] to” receive donation payments on a recurring basis.

The new rules have several requirements that nonprofits offering recurring donations by Mastercard should understand, even if the processing is done through a CRM or app.

The new rules require nonprofits to be clear about the terms of the donation payments at the outset, send initial and monthly electronic receipts with instructions on how to cancel the recurring donation online, post clear online instructions on how to cancel such donations, and provide advance notice of a scheduled recurring donation if the frequency is less often than every six months. While these may sound daunting on the technical side, many nonprofits may already have  suitable systems in place to be transparent and communicative with donors.

Summary of the five main requirements

There are five main requirements that will affect recurring donations to nonprofits, as we understand them currently. Note: in this summary, we’ll use the terms “Nonprofit” and “Donor,” instead of Mastercard’s “Merchant” and “Cardholder,” to make these rules easier to understand and apply.

  1. The nonprofit should clearly and prominently display the terms of the recurring donation (amount and frequency) on any screen where the donor enters their credit card information, including an order confirmation/checkout screen. Donors must be allowed to “affirmatively accept” the subscription terms (as opposed to being forced to opt out, for example).
  2. Immediately after the donor signs up for recurring donations, the nonprofit must promptly send an electronic confirmation message to the donor (email or text) that restates the terms and provides clear instructions on how to cancel the recurring transaction.
  3. Each time a recurring donation is charged, the nonprofit must send an electronic receipt to the donor (email or text) that includes clear instructions on how to cancel the recurring donation. Donors may choose to opt out of receiving these notices.
  4. The nonprofit must provide an online or electronic cancellation method or clear instructions on how to cancel that are easily accessible online (such as a “Manage Recurring Donation” or “Cancel Recurring Donation” link on the home page).
  5. For donations that automatically recur less often than every six months (for example, an annual donation), the nonprofit must send an electronic reminder to the donor at least seven days, but no more than 30 days, in advance of the next billing date, including the donation terms and clear instructions on how to cancel the donation. The communication must clearly reference in the subject line that it relates to upcoming charges to the donor, and the message must be distinct from any marketing communications.

For more specific information about the requirements listed above, you can find Mastercard’s actual language in the TPR at pages 185-186, Sections 5.4.1 (1)-(5).

Why these changes are being made

These changes to subscription billing policies are being made globally by Mastercard, in part in response to changes in the law in various countries, including India, and in at least one U.S. state. Another purpose of the changes is to reduce chargebacks, consumer complaints, and outright fraud. We wouldn’t be surprised to see similar changes implemented by other credit card companies in the future.

In our view, questions remain about aspects of the new rules. Yet, the general concepts underlying these five requirements seem reasonable and reflect good stewardship of a nonprofit’s donors. It’s a good practice to communicate frequently with donors, and many nonprofits already have automatic receipting in place for their online donors. Yet nuances can creep in between general concepts and specific new compliance requirements, which is why nonprofits need more clarity from Mastercard ASAP to be able to adapt and adjust their systems going forward.

Your CRM should have ways to automate compliance with these new requirements

CRM or donation apps should be able to automate much of required compliance, although it may take some time and expense to set it up properly. For example, Neon One created new customizable emails and processes to help users comply. Classy is releasing upgrades so that their customers will be in compliance with the new rules by the original deadline of September 22, 2022.

Some CRMs, including Classy and Neon One, allow donors to log in and cancel or change their recurring donation on their own, a feature that can be useful to donors in other ways as well – such as updating the expiration date on their credit card or increasing the amount of the donation.

Some people have interpreted Mastercard’s language, “The Merchant must provide an online or electronic cancellation method (similar to unsubscribing from email messages or any other electronic method)” (in Sec. 5.4.1 (4) of the new rules), to mean that there must be an online portal through which the donor can independently cancel the donation. Others have interpreted this language to mean that the cancellation instructions must be posted online, but an email address or phone call for cancellation is sufficient. For example, Blackbaud’s article on the new requirements states, “A location on the organization's website must explain what a donor or constituent has to do to cancel a recurring or sustaining gift (i.e. call a number, fill out an electronic form, etc.).” Clarity is being sought on this – and other items, and we will update this article when new information is available.

What about donors who sign up for recurring donations on paper?

In response to confusion among nonprofits, especially those with donors that previously signed up for recurring donations only on paper, Mastercard reportedly has clarified that recurring notification (“receipting”) is only required for donors who have provided an email address. Nonprofits will not need to generate frequent receipts by alternate means (such as postal mail) for recurring donors whose email addresses are not available.

The FAQs (#17) state, “For the electronic notifications required for subscription merchants, what happens if the cardholder does not have an email address?” A: “The merchant should make every effort to notify the cardholder by other means.” Our interpretation is that “electronic notifications” refers to the communications required when the donor first signs up, clearly stating the terms and how to cancel, whereas Mastercard refers to recurring receipting as “electronic receipts.”

Of course, if you do have a physical address for these donors, you should be sending an acknowledgement letter with a tax receipt at least once per year anyway, thanking the donor for their recurring donation and ensuring they can contact you with any changes.

If you don’t have a physical address, valid email, or phone number for a donor, one option Mastercard identified is to include your nonprofit’s phone number or web address in the “city” field of the credit card transaction message so that the donor can contact your nonprofit with any questions (see Mastercard FAQs #24).

In the future, make sure that if you’re acquiring new recurring donors other than by electronic means, your nonprofit is collecting email addresses or for those who don’t have email addresses, physical addresses. Mastercard’s FAQs state, in #19: “Q: What are the guidelines for merchants who have already acquired cardholders without the email/electronic notification requirement? Will merchants be exempt from having to send the electronic notices to those cardholders?” A: “Yes, but the merchant is expected to collect this information going forward.”

In all cases, sending a letter or making an annual phone call to recurring donors is just good stewardship. It’s something board members and other volunteers can do. Recurring donors are the best prospects for legacy gifts, so if your nonprofit is automatically processing these gifts without communicating with the donor then you’re missing an important opportunity. It’s nice when doing the right thing also results in more revenue to support your nonprofit’s mission.

Don’t wait to get started

While the new rules don’t take effect for nonprofits until March 21, 2023, it makes sense to start thinking about the processes your nonprofit will need to have in place sooner rather than later. These system changes can take time and might need several rounds of testing and tweaking to get them just right

That said, nonprofits need more clarity. Even Mastercard acknowledges that “there have been a few questions regarding our updated standards for subscription payments.” That’s why, according to Seth Eisen, Mastercard’s Senior Vice President for Communications, the company has extended the effective date for nonprofits until March 2023. He told us, “We have committed to continue our conversations and consultation with the non-profit community around these standards and other topics. And, over the coming weeks, we’ll co-host webinars with a number of organizations to further discuss the standards.”

The National Council of Nonprofits will continue to keep our readers informed to make sure nonprofits are well informed and supported to be in compliance with the new requirements – and stewarding their donors ethically and in the best interest of the organization.

Disclaimer: This article is provided for informational purposes only and is neither intended to be nor should be construed as legal, accounting, tax, investment, or financial advice. Please consult a professional (attorney, accountant, tax advisor) for the latest and most accurate information. The National Council of Nonprofits makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

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