Give and Take: Consumers, Contributions, and Charity

Last week, the Federal Trade Commission (FTC) and the National Association of State Charity Officials (NASCO) hosted Give & Take: Consumers, Contributions, and Charity, a conference exploring consumer protection issues in the changing landscape of charitable giving. The conference featured panelists from the FTC, state attorney general offices, academic and research institutions, and private sector representatives and advisors.

Two key takeaways for charitable organizations and their fundraisers emerged:

  1. Law enforcement against perceived charitable solicitations fraud using traditional telemarketing and direct mail methods remains top of mind for the FTC and state attorneys general. These regulators still consider the FTC and multi-state action against Cancer Fund of America, which we have reported on previously, to be the crown jewel of cooperative law enforcement in this sector, and are building on that effort.
  2. Regulators acknowledge the emergence of newer forms of charitable solicitations, such as Internet appeals, social media campaigns, and crowdfunding. Users of these newer platforms are less formally regulated right now, but the gap between regulation of traditional and that of newer methods of fundraising appears to be closing.

Regulation Struggles to Keep Pace with Emerging Fundraising Platforms

As we noted last fall, charity regulators have observed the increasing popularity of nontraditional methods of philanthropy. Moreover, they continue to grapple with how to apply existing laws and regulations (or whether to implement new ones) to the constantly evolving fundraising landscape.

While the regulatory aims of protecting donors and preventing fraud are the same regardless of the solicitation methodology, newer forms of fundraising present unique challenges. Panelists addressed several examples—viral social media fundraising campaigns (which often lack the participation of a professional fundraiser or other third party with custody or control over the funds), crowdfunding scandals (e.g., the creation of a fraudulent GoFundMe webpage that raises money under false pretenses), and hybrid businesses that market their social mission to attract customers—and left open the question of whether and how consumer protection and charitable solicitations laws reach these types of conduct.

Encouraging Donors to Make Smart Contributions

As regulators attempt to adapt existing policies to new fundraising methods, they are at the same time encouraging prospective donors to engage in "self-help" by conducting research on the charities that seek donations. The conference panelists offered several suggested resources that donors can consult to educate themselves and guard against fraud:

  • Charity's Website. A charity's website can offer a wealth of information to donors about its mission, programmatic activities and achievements, financial performance, governance structure, and policies, knowledge of which will help donors to make more confident and informed donation decisions.
  • IRS Form 990. A charity's Internal Revenue Service (IRS) Form 990 continues to be a great source of information for both donors and regulators, but it is important to remember that the data therein has certain limitations. For example, IRS Form 990 data depicting that a charity spends a large amount of revenue on administrative or fundraising overhead might pique regulators' interest (some regulators believe high fundraising expenses to be indicative of fraud, even though the courts disagree), but this same information may not accurately portray the overall quality of a charity to a potential donor. To that end, websites such as GuideStar and Charity Navigator can be helpful in distilling the information from those forms.
  • BBB Wise Giving Alliance. The Better Business Bureau Wise Giving Alliance (BBB WGA) has developed Standards for Charity Accountability, which not only look to a charity's IRS Form 990, but also consider a host of additional qualitative factors in order to gauge philanthropic organizations' overall performance, effectiveness, finances, and fundraising efforts. In looking beyond numerical metrics, the BBB WGA is able to compile reports that provide potential donors with easily digestible information meant to inform their giving.
  • BBB Scam Tracker. To the extent that third-party charity-reviewing entities (such as those named above) have not yet issued a review for a donor's charity of choice, the BBB's Scam Tracker provides a backstop. This tool alerts prospective donors to disreputable schemes that have been reported by others (whether related to charitable solicitations or generally fraudulent endeavors).

Oversight Is Increasing as Regulators Maximize Resources

Historically, charity officials' oversight of charitable organizations and for-profit charity fundraisers have suffered from a dearth of resources and difficulty in coordinating enforcement across state lines. This is clearly changing. As mentioned above, the Cancer Fund of America multi-state litigation continues to be placed on a regulatory pedestal as evidence that law enforcers can coordinate a massive investigation of alleged charity fraud, using both state and federal resources.

As charities engage with their donor bases through online, mobile, and even virtual interactions, state charity regulators also are considering new ways to partner for multi-state actions and push their efforts into the twenty-first century. That effort may involve the much anticipated single-portal charity registration system, greater sharing of information through informal communications or more formal task forces, utilization of searchable IRS Form 990 filings, or simply more frequent regulator conferences, such as this one. It is now more important than ever that charities and their fundraisers compel compliance with state charitable solicitation laws, state consumer protection laws, and applicable federal laws (e.g., the FTC's Telemarketing Sales Rule or Section 5 of the FTC Act) by ensuring that representations made during telemarketing pitches, during social media campaigns, on websites, and in regulatory filings are accurate and not misleading.

Videos from the conference are available on the FTC website.