Mastercard to Exempt Nonprofits in Good Standing From Recurring Donation Regulations

Mastercard announced the recurring donation regulations that took effect Sept. 22 — and were going to kick in March 21, 2023, for nonprofits — will now be deemed best practices and not required for for-profit or nonprofit merchants, as long as they aren’t cited with excessive chargebacks. 

Effective as of Oct. 11, the subscription and recurring donation regulations only apply to merchants that Mastercard places in its Acquirer Chargeback Monitoring Program as an Excessive Chargeback Merchant, High Excessive Chargeback Merchant or Excessive Fraud Merchant within the same audit period for at least four months. 

Only then must the organization send donors electronic transaction receipts via email or another electronic communication method upon receiving approved authorization requests. Those receipts must include or link to instructions for how to manage and stop the recurring donation. 

In addition to Acquirer Chargeback Monitoring Program assessments, those in the program for at least four months that fail to meet this requirement may be subject to Category A noncompliance assessments — Mastercard’s steepest penalties for its “payment system integrity” violations, which could be up to $25,000 for a first violation. 

These subscription and recurring donation regulations, first announced in September 2021, started to receive a lot of attention this summer. By September, Mastercard gave nonprofits a six-month extension — a matter of weeks before the requirements were set to take effect. Now, weeks after the rules went into effect for for-profit merchants, Mastercard has reversed its course for compliant merchants.

In the document announcing the change, Mastercard listed its reasoning for the now reversed regulations. They included allowing Mastercard to:

• Help ensure a more positive cardholder experience 
• Mitigate negative practices associated with the utilization of a subscription and recurring billing model 
• Reduce negative impacts to the ecosystem, such as chargebacks 

Since the regulations went into effect for for-profit merchants, Mastercard recognized that the rules presented challenges to various merchants that already managed subscriptions and recurring payments in unique, but effective ways. Therefore, the company acknowledged the convenience of recurring payments and donations, while allowing the ability to provide stricter regulations for those who have high levels of cardholder disputes and chargebacks. Mastercard noted these disputes and chargebacks commonly happen when a merchant offers a free trial and automatically begins billing once the free trial ends. 

“Merchants that fail to provide the necessary transparency, or do not implement proper controls often provide a poor consumer experience,” the Mastercard document explained.

So instead of enforcing the restrictions across the board, Mastercard is focusing its efforts on the biggest offenders, which typically do not include nonprofits, The Nonprofit Alliance told NonProfit PRO last month after meeting with Mastercard.  

“Through those conversations with Mastercard, they acknowledged that chargeback rates and disputes are extremely low — we even said ‘minuscule’ — looking at the numbers for nonprofits.”