On January 10, 2018, the Federal Trade Commission (FTC) asked the U.S. Department of Justice (DOJ) to file a complaint against Ohio-based charity and political fundraiser InfoCision, Inc., alleging violations of the FTC's Telemarketing Sales Rule (TSR). According to the complaint, InfoCision misrepresented the purpose of calls that it placed to consumers in some of its telemarketing campaigns. The DOJ alleges that InfoCision told consumers at the beginning of the call that the purpose of the call was not to ask for a donation; however, the company's telemarketers would then ask consumers to mail or hand-deliver materials to family, friends, or neighbors asking for money donations to InfoCision's charity client. In some cases, according to the DOJ, telemarketers would also ask the call recipient to make a charitable donation, in contradiction of the initial representation that the purpose of the call was not to seek such a donation.
With the complaint, the DOJ also filed a proposed stipulated order settling the litigation. InfoCision agreed to pay $250,000 in civil penalties. In addition, the fundraiser will be prohibited from making misleading statements to induce a charitable donation, it must comply with the TSR going forward, and it will be bound by record-keeping and compliance reporting obligations commonly found in FTC stipulated judgments. The FTC's investigation, culminating with the DOJ's filings, should reinforce the importance of TSR compliance for telemarketers who call consumers on behalf of charitable organizations.
Vendor Fundraising for Nonprofits and Charities
Whether a nonprofit uses traditional or innovative fundraising tools (or both), transparency and legal compliance should be the hallmarks of any solicitation campaign, a principle that is reinforced by the FTC's recent TSR enforcement action.
Charitable fundraising must comply with both charitable solicitation and consumer protection laws. If a charity lacks a structured approach to fundraising compliance, it risks attracting scrutiny from state and federal regulators, who are increasingly collaborating on enforcement.
And this is just as true for a nonprofit that uses vendors for fundraising. Charities must be vigilant when contracting with other parties for fundraising services, such as professional fundraising firms, online "crowdfunding" platforms, and for-profit commercial co-venture partners who advertise that the sale of goods or services will benefit a charity or a charitable purpose. By controlling these activities, the charity can protect itself (and, potentially, its officers and directors), its mission, its reputation, and its donors. Old and new forms of solicitations need equal attention. In addition to safeguards recommended in other alerts, this recent settlement by the FTC and DOJ provides several important reminders for nonprofits:
- TSR compliance: The TSR requires that charity telemarketers orally disclose the identity of the charitable organization on whose behalf they are calling and that the purpose of the call is to solicit a charitable donation, clearly and promptly in outbound solicitation calls.
- Write compliance into your contracts: Your contracts with fundraisers should contain provisions requiring the vendor to maintain compliance with all applicable federal and state laws. For telemarketing fundraisers, this includes compliance with TSR, and with the federal Telephone Consumer Protection Act (TCPA) and state analogs.
- Indemnification: An ounce of prevention during the contract negotiation phase is worth a pound of medicine later on—nonprofits should seek indemnification provisions that protect them against liability for their vendor's bad acts and omissions.
Knowing and vetting your fundraisers and other vendors is an important part of any nonprofit's compliance program. If you need assistance establishing, or fine-tuning, your fundraising operations, the Venable Nonprofit Organizations Practice can be of assistance.