Mastercard Rolls Out New Standards for Recurring Billing

Understanding these standards is important for churches and church-run schools with sustainer donor programs.

You may have heard that Mastercard was implementing new required standards for merchants that use subscription or recurring billing, which includes recurring gifts made to nonprofit entities, churches, and church-run schools.

However, after receiving feedback from merchants, Mastercard has now made the new standards best practices—not a requirement—for nonprofit and charity merchants, as long as those entities do not have excessive chargebacks.

Understanding these new standards is crucial for any church or church-run school with a recurring giving program (also known as a sustainer donor program), including which merchants must comply with the standards, what is required, and the potential penalties for noncompliance.

For those who may wonder, these new standards do not stem from a government regulation. They are a contractual matter with Mastercard and only apply to donations that automatically recur. For example, a one-time gift made by using the “donate” button on a church or school’s website would not be considered a subscription payment.

Furthermore, there has been no indication that other payment processors plan to follow Mastercard’s lead and implement similar required standards.

The back story

On June 14, 2022, Mastercard introduced Transaction Processing Rules that include new standards, outlined in Section 5.4.1, for subscription billing.

While the Transaction Processing Rules state that these standards apply to “subscription billing in which the Cardholder has agreed for the Merchant to provide ongoing and/or periodic delivery of physical products or Digital Goods,” Mastercard later clarified that this includes recurring donations made to nonprofit and charitable organizations.

While the new standards went into effect on September 22, 2022, Mastercard extended the effective date to March 21, 2023, for nonprofit organizations.

In October, Mastercard then announced that, effective October 11, 2022, only nonprofits and charity merchants with excessive chargebacks will be required to comply with the new standards.

Noncompliance is costly

Under the modified requirements, all the standards described below that took effect on September 22, 2022, are recommended as a best practice for nonprofit and charity merchants with a recurring payment program.

However, the standards become a requirement if a nonprofit or charity merchant that uses a recurring payment plan is placed into Mastercard’s Acquirer Chargeback Monitoring Program (ACMP) as an Excessive Chargeback Merchant, High Excessive Chargeback Merchant, or Excessive Fraud Merchant for at least four months. (Mastercard offers a “Data Integrity Monitoring Program” module as well as an updated, downloadable rules document.)

Organizations in the ACMP for at least four months or more that do not implement the required standards may be subject to a costly Category A noncompliance assessment each month, in addition to the assessments applicable under the ACMP.

A Category A noncompliance assessment can be up to $25,000 for the first violation and increase with each subsequent violation, up to $100,000 per violation for the fourth and subsequent violations within 12 months. More information about Category A noncompliance assessments is available in Section 2.1.4 of the Mastercard Rules.

The new, recommended standards entail:

  • Disclosing the donor’s selected donation amount and frequency when requesting credit card information as well as on any payment and order summary webpages and asking donors to accept the subscription terms before completing the donation.
  • Sending a subscription confirmation at the time of enrollment in recurring giving. The confirmation should include the terms of the subscription (the recurring donation) and instructions on how to cancel it.
  • Providing an electronic receipt after every successful billing. This should include instructions on how to cancel the subscription (the recurring donation).
  • Providing an online cancellation method or clear instructions on how to cancel that are “easily accessible online,” such as through a “Cancel Subscription” or “Manage Subscription” link on the organization’s home page.
  • For recurring payment plans that bill less frequently than every six months (180 days), sending an electronic reminder outlining the terms of the subscription (the recurring donation) and instructions on how to cancel the subscription or recurring donation 7 to 30 days before the next scheduled billing date. The communication should reference in the subject line that it relates to upcoming charges, and the message should be distinct from marketing communications.

In its statement about the revised standards, Mastercard said that it changed the requirements after engaging with merchants and recognizing that “some of these requirements present unique challenges to merchants that have found other effective ways to manage their subscription and recurring payment model.”

Ted R. Batson Jr. is a CPA and tax attorney, and serves as a partner and Professional Practice Leader – Tax for CapinCrouse LLP, a national CPA and consulting firm. He speaks and teaches frequently for national conferences and organizations on exempt organization and charitable giving matters.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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