Charity Diluted by Affinity Credit Cards

Millions of American consumers are enjoying the satisfying feeling that they are contributing to their favorite causes while they shop with so-called affinity credit cards.

But there are probably better ways to give to charity. Indeed, credit cards issued in the names of charities may be a better deal for the companies issuing the cards than for either the sponsoring organizations or card users.

The affinity cards, which share a portion of charges with not-for-profit groups, may seem a convenient way to give to charity, but they often have some key drawbacks:

* Interest rates and fees tend to be higher than standard credit cards.

* It’s likely that an individual can give more to charity by making a direct donation with the cash saved by using a standard credit card with a lower interest rate.

* Direct donations are tax-deductible, but the money shared with charities from charge revenue is an expense of the card companies, not the cardholder.

Not only that, it’s difficult for the millions of affinity cardholders to know how much their cards provide the thousands of charities that sponsor them. Banks and credit card companies often won’t say--or allow the not-for-profit groups to disclose--the percentage of charges that they share with the organizations.

“It’s a business practice of ours not to disclose that type of information,” said Brian Dalphon, senior executive vice president at MBNA Corp., the largest non-bank credit card company and biggest affinity card issuer. He said consumers aren’t interested in such information. “If it’s not something our customers want to know, we have no reason to provide it,” he said.

As a result, Wilmington, Del.-based MBNA, with affinity cards tied to more than 4,500 groups, rarely discloses how little those organizations get--typically 0.5% of the value of purchases charged.

MBNA requires nonprofit groups, such as Disabled American Veterans, to sign contracts agreeing not to tell what goes to their organization when their cards are used.

“I don’t think they should be able to hide that,” said Tom Keller, until recently the director of donor relations for the 1.1 million-member Disabled American Veterans. “Our members want to know.”

MBNA and the 79-year-old veterans organization are negotiating a new marketing campaign that will tell members exactly what the group gets from the cards.

There is no requirement that card issuers tell holders how much of each charge goes to their cause.

That leads card users to believe the banks are giving up more than they actually are, said Bennett Weiner, director of the Better Business Bureau’s Philanthropy Advisory Service in Washington.

But some affinity card groups, such as the USC Alumni Assn., say card users don’t care about the precise size of their contributions. “For the vast majority of alumni, they’re happy knowing some unknown percentage of the amount they spend comes back to the university,” said Danielle Hinsche, director of membership and marketing for the alumni group.

The association has more than 30,000 cardholders. In 1995, it handed over its database of 175,000 alumni to MBNA for marketing USC-brand cards when it signed a five-year contract with the bank.

USC gets about $1.2 million annually, Hinsche said. The contract forbids telling how much the group gets for every dollar charged. In any case, she added, the question is asked “very rarely.”

Charity cards can be costly for consumers. The average MBNA affinity card carries a 16.5% interest rate, Dalphon said. At that rate, the typical MBNA customer with an average balance of $3,474 would pay an extra $229 a year in nondeductible interest fees than if he were using a credit card that charges 9.9%--a rate often available to good risks in today’s credit card market.

Not only that, a customer using the lower-interest card could donate his $229 in savings directly to the charity--and gain a tax deduction.

Meanwhile, the average MBNA customer--who charged $3,482 on his or her card last year, according to the Nilson Report, an industry newsletter--generated just $17.41 for the affinity group if the bank passed on 0.5% of charges, as is typical.