For all of our credit card products we offer a couple of special cards that have a picture on it that represents the particular charity. The cost for the card with picture on it is $10 annually and the whole $10 goes to that charity. If the customer no longer wanted to carry this card for which the monies is donated, they can go back to the "plain" credit card (which doesn't cost anything). This has no affect on the terms of the credit card product. It is basically a donation that results in the customer being able to have an particular image on the plastic card.

I am reviewing our compliance with 1026.52 - limitations on fees. The vendor has included the $10 fee as one that would be limited in the first year so that the total covered fees are not in excess of 25% of the credit limit.

I don't think this is a covered fee. It is not a fee for issuance or availability of credit. To me it is more of a fee that the consumer is not required to pay with respect to the account, but elect to do so if they chose; much like fees for optional services like travel insurance.

In any case, it benefits the consumer for the vendor to include the annual donation, but I don't think we must include it. What are your thoughts?

I'm no expert but I would agree with your thought process. I'm sure experts here will chime in if they disagree.