California is leading the way in regulating certain online fundraising activities that have not historically (or explicitly) been addressed in states' charitable solicitation laws. As we wrote last fall, Governor Newsom signed into law Assembly Bill (AB) 488, which amended the Supervision of Trustees and Fundraisers for Charitable Purposes Act to regulate charitable fundraising platforms, platform charities, and persons or entities that use the internet to facilitate, permit, or solicit charitable contributions in California. Although the law's operative provisions will not go into effect until January 1, 2023, persons newly regulated by the Act now have proposed regulations to which they can react and respond.
How Did We Get Here?
Various types of online fundraising efforts for nonprofits, like customer round-up campaigns, charitable sweepstakes, and choose-a-charity fundraising options, have proliferated in recent years, despite lacking a clear regulatory framework to guide them. Although states' charitable solicitation laws have provided a general outline for compliance, in many cases online fundraisers and the nonprofits that contract with them have been left to assume some risk when attempting to conform their efforts to applicable legal requirements. Often online fundraisers' business models could not be categorized neatly as commercial coventurer, professional fundraiser, or fundraising consultant efforts, and the rules for charitable trustees may not always have directly applied. In other cases where businesses have supported hundreds of nonprofit organizations at a time, it might have been practically impossible to comply with the laws applicable to traditional fundraisers.
To date, and in the absence of definitive guidance, online giving platforms have gleaned best practices by learning from the lessons of others and consulting the Federal Trade Commission's nonbinding guidance. Now, though, at least one state will have a codified framework that online charitable fundraising platforms must follow to comply with charitable solicitation requirements. As enacted, AB 488 requires charitable fundraising platforms and platform charities to register with the California Attorney General's Registry of Charitable Trusts, satisfy certain reporting obligations, and publish disclosures in connection with their solicitation activities, among other requirements that we described in more detail in our previous alert.
What Do the Proposed Regulations Require, if Codified as Written?
The proposed regulations attempt to clarify how regulated charitable fundraising platforms and platform charities can satisfy their obligations. While the following is not an exhaustive overview of the scope and effect of the proposed regulations, consider:
- Types of charitable fundraising platforms, distinguished. The proposed regulations give new names to the several sub-types of charitable fundraising platforms that correspond to AB 488's multi-part definition of the term. These are "commercial charitable fundraising platforms," "peer-to-peer charitable fundraising platforms," "marketing charitable fundraising platforms," "coventuring charitable fundraising platforms," and "consulting charitable fundraising platforms."1 The nature of an entity's activities will determine the category the organization will fall into; this, in turn, will affect its obligations under the proposed regulations.
- What it means for a disclosure to be "conspicuous." AB 488 requires a charitable fundraising platform or platform charity to "provide conspicuous disclosures" of certain substantive details (e.g., the maximum time needed to send a donation or make a recommended grant to the recipient charitable organization).
The proposed regulations define "conspicuous."2 Among other details, the regulations would require disclosed information to be adjacent to the content being explained, in the same or a larger type size, with "optional formatting that clearly calls attention to the information," such as bold, italics, and/or capitalization; and, if hyperlinks are employed, these would need to be adjacent to the content being explained, in the same or a larger type size. Additional disclosures would be required for commercial charitable fundraising platforms and peer-to-peer charitable fundraising platforms.3
- What it means to "promptly" transfer donations. AB 488 requires a charitable fundraising platform or platform charity to ensure donations and grants of recommended donations are sent promptly to recipient charitable organizations, with an accounting of any fees imposed for processing the funds.
Under the proposed regulations, timing that is considered "prompt" generally ranges between 5 and 90 days.4 Importantly, the exact timing will depend on the type of charitable fundraising platform (whether commercial, peer-to-peer, marketing, etc.) and the characteristics of the recipient charitable organization. Factors affecting the donation transfer timing requirements include whether the recipient charitable organization consented to its inclusion on the platform; whether the "acts of solicitation" were made concurrently for more or fewer than 100 recipient charitable organizations; and whether minimum donation transfer thresholds apply, among other considerations.
- Other information that must be provided to recipient charitable organizations. AB 488 requires a charitable fundraising platform or platform charity, when it transfers donations to recipient charitable organizations, to provide each of its beneficiaries with an accounting and other details as may be required by regulations.
Per the proposed regulations, these additional reporting obligations again vary, depending on the nature of the charitable fundraising platform—whether it is considered a commercial, peer-to-peer, marketing, coventuring, or consulting charitable fundraising platform.5 A coventuring charitable fundraising platform, for example, would have reporting obligations like those required of true commercial coventurers. It must provide the recipient charitable organization with information about the acts of solicitation that triggered the donation, and the amount of each donation or grant of a recommended donation, together with an accounting of how it was calculated.6
- What it means to be in "good standing"—at least with the California Attorney General. AB 488 requires a charitable fundraising platform or platform charity to verify the "good standing" of recipient charitable organizations for which contributions are solicited. This good standing means the organization's tax-exempt status has not been revoked by the Internal Revenue Service or the Franchise Tax Board, or that the organization is not prohibited from soliciting or operating in California by the state Attorney General. The regulations would allow a platform or platform charity to rely on the state Attorney General's "May Not Operate or Solicit for Charitable Purposes List" to determine whether a charitable organization is in good standing, at least for purposes of confirming the recipient charitable organization's position with the California Attorney General.7
What Happens Next?
The California Department of Justice will hold a public hearing, viewable online, on the proposed regulations on July 13, 2022 at 9 am PT. In addition, any person interested in submitting written comments may do so before 5 pm PT on July 12, 2022. More information on the status of the proposed regulations and how to submit comments is available here.