What Church Treasurers Should Know about Church Credit Cards

We have come a long way since the first plastic credit card was issued by

We have come a long way since the first plastic credit card was issued by American Express back in 1958. Today there are more than 640 million of them in circulation in the United States with a total credit card debt approaching $1 trillion. Many churches have succumbed to the appeal of credit cards. Whether your church has a credit card, or is considering getting one, there are several things you should consider.

1. Does our church need a credit card?

That depends. Church credit cards can have a number of benefits, including the following:

  • They eliminate the need for employees to use personal credit cards or funds to pay for authorized business expenses.
  • They make it convenient for staff members to purchase items for the church without using their own credit card or cash, and then seeking reimbursement.
  • They make it convenient for staff members to purchase items for the church without using their own credit card or cash, and then seeking reimbursement.
  • They can save money by limiting costly and time-consuming cash advance transactions.

If one or more of these benefits would apply to your church, then a credit card may be right for you.

2. What is the difference between a credit card and a debit card?

Here is how a National Consumers League publication explains the difference:

It’s the difference between “debit” and “credit.” Debit means “subtract.” When you use a debit card, you are subtracting your money from your own bank account. Debit cards allow you to spend only what is in your bank account. It is a quick transaction between the merchant and your personal bank account. Credit is money made available to you by the bank or other financial institution, like a loan. The amount the issuer allows you to use is determined by your credit history, income, debts, and ability to pay. You may use the credit with the understanding that you must repay the charges, plus interest, if you do not pay the account in full each month. You will receive a monthly statement detailing your charges and payment requirements.

As we will see later in this article, there are some important differences between these two types of cards.

3. What happens if our card is stolen?

The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) offer procedures to use if a card is lost or stolen. Here are some important guidelines to bear in mind:

  • Report the loss or theft of your credit card or debit card to the card issuer as quickly as possible. Many companies have toll-free numbers and 24-hour service to deal with such emergencies. It’s a good idea to follow up your phone calls with a letter. Include your account number, when you noticed your card was missing, and the date you first reported the loss.
  • If you report the loss before your credit card is used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges.
  • If a thief uses your credit card before you report it missing, the most you will owe for unauthorized charges is $50 per card. If you suspect fraud, you may be asked to sign a statement under oath that you did not make the purchases in question.
  • If the loss involves your credit card number, but not the card itself, you have no liability for unauthorized use.
  • After the loss, review your billing statements carefully. If they show any unauthorized charges, it’s best to send a letter to the card issuer describing each questionable charge. Again, tell the card issuer the date your card was lost or stolen, or when you first noticed unauthorized charges, and when you first reported the problem to them. Be sure to send the letter to the address provided for billing errors. Do not send it with a payment or to the address where you send your payments unless you are directed to do so.
  • Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss. If you report an ATM or debit card missing before it’s used without your permission, the EFTA says the card issuer cannot hold you responsible for any unauthorized transfers. If unauthorized use occurs before you report it, your liability under federal law depends on how quickly you report the loss.

Example. If a church reports the loss of a debit card within two business days after it realizes that its card is missing, it will not be responsible for more than $50 for unauthorized use. However, if the church does not report the loss within two business days after discovering the loss, it could lose up to $500 because of an unauthorized transfer. A church risks an unlimited loss if it fails to report an unauthorized transfer within 60 days after a bank statement containing unauthorized use is mailed to it. That means the church could lose all the money in its bank account and the unused portion of any line of credit established for overdrafts. However, for unauthorized transfers involving only a debit card number (not the loss of the card), a card holder is liable only for transfers that occur after 60 days following the mailing of a bank statement containing the unauthorized use and before the loss was reported.

Tip. If unauthorized transfers show up on your church’s bank statement, report them to the card issuer as quickly as possible. Once you’ve reported the loss of your ATM or debit card, you cannot be held liable for additional unauthorized transfers that occur after that time.

Caution. The Federal Trade Commission has warned consumers about an Internet scam targeting credit card holders. The scam promoters inform credit card holders (via the Internet or emails) that they will be held fully responsible for all unauthorized charges made to their credit cards unless they purchase the “protection” services offered by the scam promoters. In reality, under federal law, consumers are only liable for up to $50 in unauthorized charges, with that amount often waived by the credit card companies. The FTC has obtained court orders barring the scam promoters from engaging in the “advertising, promoting, offering for sale, or sale” of credit card loss protection or any other credit-related goods or services.

4. Selecting a credit card

There are many factors to consider in selecting a credit card. These include the following:

  • What is the initial APR (annual percentage rate of interest)? How often can it be changed?
  • What is the maximum amount that can be charged to the card?
  • What kinds of insurance coverages are provided (insurance for rental cars, life insurance in the event of accidental death, etc.).
  • What are the card’s protections against fraud? As noted above, this generally is a matter of federal law. But, there may be some minor differences. For example, some credit card issuers waive the $50 maximum liability for card holders.
  • Will frequent flier miles be earned on purchases? If so, in what amount? Is there a maximum number that can be earned in one year? Which airlines participate?
  • Does the card offer rebates back to the card holder?
  • Is there an annual fee? If so, what is it?
  • Are interest and other charges avoided by paying the card’s balance in full within a specified number of days?
  • Be wary of preferential “introductory” terms that will be available for only a limited time. Sometimes such preferential terms are quickly replaced with less desirable terms.
  • Consider having individual cards for select employees. This can make tracking charges easier.
  • Can the church access and manage its credit card account online? This option can be very helpful. For example, individual spending limits can be assigned to each cardholder.
  • Be sure to contact your local bank. Banks do not want to lose your business, and may be willing to negotiate more favorable credit card terms to keep it.
  • When comparing credit and debit card offers, ask issuers if they permit “blocks” (defined later), and if so, for how long, and from what types of merchants. You may want to consider an issuer that uses shorter blocks.

Credit card terms and benefits vary widely, so shop around and do your homework! Also, evaluate your card at least annually to be sure that it remains competitive.

5. What is credit card “blocking”?

Consider the following scenario. Your church’s senior pastor takes the board to dinner. He hands a church credit card to the server at the end of the meal, and is later informed that the card was “declined.” The pastor knows that there is a substantial credit limit remaining on the card. What happened? If this incident occurred shortly after the pastor stayed in a hotel or rented a car, the problem could be card “blocking.”

When you use a credit card to check into a hotel or rent a car, the clerk usually contacts the company that issued your card to give an estimated total. If the transaction is approved, your available credit is reduced by this amount. That’s a “block.” Some companies also call this placing a “hold” on those amounts. In addition, hotels and rental car companies often add anticipated charges for “incidentals” like food, beverages, or gasoline to the blocked amount. These incidental amounts can vary widely among merchants. In some cases, they are significant.

If you pay your bill with the same card you used when you checked in, the final charge on your credit card usually will replace the block in a day or two. However, if you pay your bill with a different card, or with cash or a check, the company that issued the card you used at check-in might hold the block for up to 15 days after you’ve checked out. That’s because they weren’t notified of the final payment and didn’t know you paid another way.

Blocking is used to make sure you don’t exceed your credit line before checking out of a hotel or returning a rental car, leaving the merchant unpaid. If you’re nowhere near your credit limit or don’t have a low balance in your bank account, blocking probably won’t be a problem. But if you’re reaching that point, be careful. Not only can it be embarrassing to have your card declined, it also can be inconvenient, especially if you have an emergency purchase and insufficient credit or money in your bank account.

To avoid the aggravation that blocking can cause, follow these tips:

  • When you check into a hotel or rent a car, or if a restaurant or other business asks for your card in advance of service, ask if the company is “blocking,” how much will be blocked, how the amount is determined, and how long the block will remain in place.
  • Consider paying hotel, motel, rental car, or other “blocked” bills with the same credit or debit card you used at the beginning of the transaction. Ask the clerk when the prior block will be removed.
  • If you pay with a different card, by cash, or by check, remind the clerk you’re using a different form of payment and ask him or her to remove the prior block promptly.
  • If your church uses a debit card, as the card issuer if it permits blocks, for how long, and from what types of merchants. If it does, you may want to consider getting an overdraft line of credit from your bank. Ask about a plan that always automatically covers the overdraft and does not involve a separate bank decision on whether or not to pay it each time. Although you might incur some interest on this plan if you don’t pay off the amount fairly quickly, you would not have an overdraft that is not paid. Ask your bank if it offers an overdraft line of credit, how it would work, and how much it costs.

6. Avoiding credit card fraud

Credit card fraud costs cardholders and issuers hundreds of millions of dollars each year. While theft is the most obvious form of fraud, it can occur in other ways. For example, someone may use your card number without your knowledge.

It’s not always possible to prevent credit or charge card fraud from happening. But there are a few steps you can take to make it more difficult for a crook to capture your card or card numbers and minimize the possibility. Here are some tips offered by the Federal Trade Commission to help protect yourself from credit and charge card fraud.

  • Sign your cards as soon as they arrive.
  • Carry your cards separately from your wallet or purse.
  • Keep a record of your account numbers, their expiration dates, and the phone number and address of each company in a secure place.
  • Keep an eye on your card during the transaction, and get it back as quickly as possible.
  • Void incorrect receipts.
  • Destroy carbons.
  • Save receipts to compare with billing statements.
  • Open bills promptly and reconcile accounts monthly, just as you would for a checking account.
  • Report any questionable charges promptly and in writing to the card issuer.
  • Never sign a blank receipt. When you sign a receipt, draw a line through any blank spaces above the total.

Tip. These safeguards apply not only to church credit cards, but to personal credit cards as well.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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