On October 7, 2021, Governor Newsom of California signed into law Assembly Bill 488. The law amends The Supervision of Trustees and Fundraisers for Charitable Purposes Act (the Act) to regulate online charitable fundraising platforms that operate in the state and the platform charities with whom they collaborate. The amendment to the Act is the first of its kind that addresses gaps in the existing charitable solicitation law framework as applied to charitable fundraising on internet platforms. The law's operative provisions concerning charitable fundraising platforms and platform charities will go into effect on January 1, 2023.
1. Why Was the Act Amended?
The Act currently regulates third parties who assist charitable organizations with fundraising efforts as "commercial fundraisers for charitable purposes" (e.g., entities that are paid to solicit charitable donations and/or that receive or control donations solicited), "fundraising counsel for charitable purposes" (e.g., entities paid to plan or manage charitable solicitation campaigns, but which do not themselves solicit, receive, or control the donations), or "commercial coventurers" (e.g., commercial actors who advertise that the purchase or use of any goods, services, entertainment, or other thing of value will benefit a charitable organization or purpose).1
Charitable fundraising platforms that sought to comply with the existing regulatory framework of the Act typically self-sorted into one of these three categories, depending on the exact nature of their operations: usually as commercial fundraisers or commercial coventurers, and less frequently as fundraising counsel. In most cases, compliance with each of these classifications required at least annual registration and often reporting on the results of the campaign for a particular charitable organization with which the entity contracted. Charitable fundraising platforms often fundraise for hundreds of charitable partners at a time, making it burdensome—or downright impossible—to comply with letter-of-the-law fundraising requirements applicable to traditional fundraisers. This led platforms to develop creative compromises for compliance, such as by partnering with large charities that often operate donor advised funds (DAFs) and make grants of recommended donations to the beneficiary organizations selected by donors on the platform.
Charitable fundraising platforms were not expressly included within the Act's scope when third-party fundraisers were first included. However, their increasing prevalence, size, and impact on charitable fundraising provided the impetus for the California legislature to revisit its charitable solicitation law to account for new fundraising models. The amended law provides a more streamlined approach to regulation of these online platforms that recognizes and meets the practical realities of how online fundraising efforts have evolved in the years since the law first began regulating commercial fundraisers, commercial coventurers, and fundraising counsel.
2. Who Will the Act Regulate?
The law creates two new regulated classes ("charitable fundraising platforms" and "platform charities") and recognizes a third term ("recipient charitable organization") that rounds out the trifecta of relationships commonly seen in charitable fundraising arrangements occurring on online platforms.
A "charitable fundraising platform" is any entity "that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur." This includes when a charitable platform:
- Lists one or more charitable organizations as receiving donations or grants of recommended donations by donors who use the platform;
- Permits persons to use the platform to solicit donations for or recommend donations be granted to one or more charitable organizations through peer-to-peer fundraising;
- Allows persons to select one or more charitable organizations to receive donations or grants of recommended donations made by the platform, a platform charity, or another third party based on purchases made or other activity performed by persons who use the platform;
- Lists one or more charitable organizations to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform;
- Provides to charitable organizations a customizable internet-based website, software as a service, or other platform that allows charitable organizations to solicit or receive donations on or through the platform, including through peer-to-peer charitable fundraising and features that integrate into the charitable organization's own platform.2
The law also defines a "platform charity" and a "recipient charitable organization." The former "facilitates" solicitation efforts on a charitable fundraising platform, and the latter is the entity "listed or referenced by name on a charitable fundraising platform."3
Notably, in four of the five listed activities that make up a "charitable fundraising platform," the law includes circumstances where a recipient charitable organization may receive "grants of recommended donations." This language, coupled with the aforementioned definitions, regulates one of the most common structures seen with charitable fundraising platforms: where a fundraising platform partners with and files reports on behalf of one charity (the platform charity), which acts as a sponsoring organization for a DAF and has discretion and control over the DAF's funds. The platform charity, as the legal owner of the funds, then may make grants to the charity referenced on the platform as the intended beneficiary of the solicitation (the recipient charitable organization) upon the "recommendation" of the original donor.4
The approach under the new law places charitable fundraising platforms in a category unto themselves; the prior approach of attempting to wrangle online platforms into the existing regulatory frameworks was a bad fit, as these failed to recognize platforms' business models. In most cases, charitable fundraising platforms will no longer need to comply with the more onerous registration, bonding, filing, and reporting provisions applicable to commercial fundraisers, commercial coventurers, and/or fundraising counsel. There are circumstances, however, where an entity may simultaneously meet the definitions of both a commercial fundraiser for charitable purposes and a charitable fundraising platform, or a fundraising counsel and a charitable fundraising platform, or a commercial coventurer and a charitable fundraising platform.5 The law provides clear rules for further activities or metrics that would dispositively classify the entity in one category or another—though, inevitably, the practical application of these rules will be tested once the law goes into effect.
3. What Will the Law Require?
The amended Act will subject charitable fundraising platforms and platform charities to typical regulatory obligations like registration and annual reporting requirements, and penalties for noncompliance. It will also impose other noteworthy obligations on these newly defined entities, such as requiring them to:
- Disclosures: Make "conspicuous disclosures" to prevent a likelihood of donor deception, confusion, or misunderstanding. The disclosures must be provided before a person can complete a donation or select or change a recipient charitable organization on a charitable fundraising platform. Broadly, the disclosures, at a minimum, should include:
- A statement about the entity or individual to whom the donations will be made (the fundraising platform, the platform charity, or the recipient organization).
- A statement that a recipient charitable organization may not receive donations, grants, or recommended donations (for example, as a result of a DAF's exercise of its discretion and control over the donation) and the reasons this may occur, if at all.
- The maximum time it takes to send the donation or grant of a recommended donation to a recipient charitable organization, together with the reason for the amount of time taken.
- The fees and other amounts charged or retained by the charitable fundraising platform, platform charity, or any other partnership vendor other than digital payment processing fees.
- A statement about the tax deductibility of the donation.6
Note that although these disclosure requirements will be new to the California law, they are broadly consistent with Federal Trade Commission guidance issued to online charitable giving portals several years ago.7
- Good Standing: Verify the "good standing" of recipient charitable organizations or charitable organizations prior to soliciting or allowing others to solicit contributions for them, or before receiving or controlling funds for them or distributing funds for or to them. "Good standing" means that the organization's tax-exempt status has not been revoked with the Internal Revenue Service, or the state Franchise Tax Board, or the state Attorney General has not barred the organization from soliciting or operating in the state.8
- Separate Accounts: Create and hold funds raised through any solicitation on the charitable fundraising platform in an account or accounts separate from their own.9
- Prompt Transfer: Promptly ensure that donations and grants of recommended donations are transferred to the recipient charitable organizations, together with an accounting detailing the fees for processing the funds and other details as may later be required by rule of the state Attorney General.10
It is a staple of states' charitable solicitation laws that the name of a charitable organization cannot be used in another person's solicitation activities unless the charity has given consent in writing for such purposes. Now, however, the amended California law permits some instances of soliciting for a charitable organization to be performed without the ultimate charitable beneficiary's consent if certain criteria are met, including, among other restrictions, disclosures to the public that the beneficiary has not approved the solicitation.11
4. How Does This Affect State Charitable Solicitation Law Compliance Generally?
States are grappling with and paying increased attention to how to regulate online fundraising platforms. Online charitable fundraising has grown exponentially in recent years, and yet the vast majority of states' charitable solicitation laws are silent on the practice. Online fundraising activities are not squarely addressed by most rules for professional fundraisers, commercial coventurers, or fundraising counsel—and the scope of these activities is a far cry from the internet solicitation efforts contemplated by the National Association of State Charity Officials when it finalized its guidance in the Charleston Principles in 2001. This leaves many online fundraising platforms and the charitable beneficiaries of these platforms in legal limbo about how to accurately and completely comply with state laws, such as through the registration and reporting of their relationships.
California's new law sets the stage for the regulation of online fundraising efforts and provides other states with a framework to consider in their own jurisdictions. This new law, coupled with informative guidance provided in state-published guides12 and recent enforcement actions,13 and an ever-growing state interest in overseeing online fundraising efforts, may help pave the way for other states to soon follow suit.
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If your organization would like help with determining its compliance obligations under the new provisions of California's Supervision of Trustees and Fundraisers for Charitable Purposes Act, Venable's Nonprofit Practice and our team of experienced fundraising attorneys are here to help.
[1] See Cal. Gov. Code §§ 12599(a) (commercial fundraiser defined), 12599.1(a) (fundraising counsel defined), 12599.2(a) (commercial coventurer defined).
[2] Cal. Gov. Code § 12599.9(a)(1)(A) – (E).
[3] Cal. Gov. Code § 12599.9(a)(5), (7).
[4] Although platform charities do not always operate DAFs, nor must they, this is one of the prevailing models used with platform charities that operate to facilitate, as a legal intermediary, the donations eventually recommended to or received by the recipient charitable organization.
[5] Cal. Gov. Code §§ 12599.1(b)(7), 12599.9(a)(2)(D), (E).
[6] Cal. Gov. Code § 12599.9(e)(1)-(5).
[7] See FTC, "Online Charitable Giving Portals" (June 2018), available at https://www.ftc.gov/tips-advice/business-center/guidance/online-charitable-giving-portals.
[8] Cal. Gov. Code § 12599.9(a)(3), (d).
[9] Cal. Gov. Code § 12599.9(h).
[10] Id.
[11] Cal. Gov. Code § 12599.9(f)(2)(A)-(D) (exempting organizations from obtaining written consent where, in simplified terms, the platform allows: donations by donors who use the platform; peer-to-peer fundraising; and when donations by a platform, a platform charity, or another third party are based on purchases made or other activity performed by persons who use the platform).
[12] To bridge the gap between the time California recognized the importance of getting ahead of charitable fundraising platform activity and its eventual regulation, the state Department of Justice published the Attorney General's Guide for Online Charitable Giving in the summer of 2019. This publication gave a list of best practices for charitable fundraising platforms to consider and outlined various regulatory obligations that might arise for the companies, depending on the nature of their activities (at least under the prior version of the law).
[13] A cohort of 23 U.S. jurisdictions entered into a multi-state assurance of voluntary compliance with PayPal Charitable Giving Fund, Inc. (PPGF) stemming from the states' concerns that donors were not adequately informed about the nature and circumstances surrounding their donations to charitable beneficiaries identified on PPGF's online platform. This settlement provides a set of guidelines that online fundraising platforms would be wise to consider, including how to ensure website disclosures are "unavoidable and prominent" to mitigate the risk of donor confusion and harm.