The Federal Trade Commission (FTC) continues its oversight of charitable fundraising conduct. This month, the FTC issued guidance for both donors who donate to charities through online giving portals and businesses that offer such portals. The agency also warned consumers to be wary of potential charity scams in the wake of recent natural disasters that trigger solicitations for money to help victims of those disasters. Earlier this year, we noted that the U.S. Department of Justice, at the FTC's behest, filed a law enforcement action against a national charity fundraiser for allegedly violating telemarketing laws.
Although the FTC lacks jurisdiction to regulate legitimate charitable organizations directly, it can—and does—regulate the activities of for-profit entities that help charities with their fundraising activities, such as professional fundraisers, fundraising counsel, and commercial co-venturers. The FTC's attention to online giving portals reflects its recognition that charity fundraising is gravitating toward the use of newer platforms that may raise consumer protection issues similar to those that arise with traditional fundraising methods (e.g., telemarketing and direct mail). Tracy Thorleifson, the lead FTC attorney for charitable fundraising issues, tells Venable that "the FTC's guidance underscores the Commission's desire to encourage businesses to be transparent with donors and make compliance a priority."
Nonprofit organizations that have turned to online giving portals as a fundraising option, or are considering doing so, should note the FTC's compliance expectations as they vet potential online platforms with whom to partner. In addition, nonprofits should be aware that the receipt of charitable donations through online giving portals may raise tax issues as well.
Consumer Protection Issues
- Basic truth-in-advertising rules apply. Online platforms are expected to comply with FTC rules that prohibit misleading or deceptive representations, and require clear, truthful information disclosures to donors. Donors should be told where their contributions will go and how the money will be distributed, how long it will take for the designated charity to receive the donated funds, and what happens in the event that the giving portal cannot get the donation to the charity. The FTC also advises the giving portal to "[b]e clear about the total amount or percentage of a donor's contribution that will go to the designated charity." While it is not clear that online giving portals can be required to disclose what percentage of a donor's contribution will go to the designated charity under the First Amendment, it is indisputable that if the portal volunteers this information to donors, the information must be truthful and accurate.
- Follow privacy best practices. In addition to its role as the nation's leading advertising regulator, the FTC is also the chief federal agency protecting consumer privacy. Online portals should clearly and conspicuously tell donors whether the donors' personal information will be shared with the receiving charity, or with any other third parties. Donors should be given the ability to choose whether their personal information is shared, preferably by "opting in" rather than having to "opt out."
- Don't forget state law. The FTC reminds online portals that many states have their own rules about what a third party can say about a designated charity. Indeed, state charity regulators remain highly active and are increasingly coordinating with each other and with the FTC. Moreover, most states also enforce their own consumer protection, or "baby FTC" laws that prohibit deceptive or misleading donor solicitations. Furthermore, as is always the case, proper registration and reporting by charities and others involved in the solicitation process is required in most states.
Charities using vendors to assist with online receipt of contributions should consider carefully the terms of the applicable agreement, in terms of both fees and matters related to tax-exemption compliance, like ensuring that proper acknowledgments are given to donors. Note that engaging third parties to collect contributions on behalf of a charity could jeopardize a donor's ability to take a charitable tax deduction if the relationship with the service provider is not properly structured. Furthermore, donors should be aware that not all online portals that appear to be soliciting for charities are actually doing so. Donations made through third parties to help, for example, offset an individual's healthcare bills are likely not deductible as charitable contributions.