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California to Regulate ‘Charitable Fundraising Platforms’

California to Regulate ‘Charitable Fundraising Platforms’

Beginning 2023, state will require registration before enabling solicitation of charitable contributions

After years of uncertainty about the registration requirements for GoFundMe pages, Facebook solicitations, or other internet-based crowd-fundraising methods, California has passed amendments to its charitable solicitation registration act to cover what it calls “charitable fundraising platforms” and “platform charities” and to bring them under regulation by the state Attorney General. 

As the first of its kind in the nation, even though many of the details are still to be worked out, the new California law is likely to set standards for other states to follow in getting a grip on these types of fundraising that regulators have not known how to deal with before.  Like charitable organizations that currently have to register before soliciting contributions within the state, the fundraising platforms and platform charities would have to register with the state prior to “soliciting, permitting, or otherwise enabling solicitations” within the state.

The Act defines a charitable fundraising platform to mean “any person, corporation, unincorporated association or other legal 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 use of lists or references by name of charities recommended by donors who use the platform, use of the platform to solicit or recommend donations for peer-to-peer fundraising, use of the platform to select one or more recipient charities to receive donations based on purchases made or other activity performed by persons who use the platform, provision of a customizable internet-based website, software as a service, or other platform that allows charities to solicit or receive donations on or through the platform.

A platform does not include a charity’s own platform that solicits donations only for itself, a vendor that solely provides technical or supportive services to a platform so that it can operate, a sponsor of donor advised funds that solicits DAFs and processes recommendations from donor-advisors, or commercial fundraisers for charitable purposes. 

The Act also defines a “platform charity” to mean a trustee or charitable corporation that solicits through a charitable fundraising platform or grants funds based on purchases made or other activity performed by persons who use a charitable fundraising platform.

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Fundraising platforms will be required to register annually on a form provided by the Attorney General, pay an annual fee, and file annual reports under oath.  The reports shall “enable the Attorney General to ascertain whether charitable funds have been properly solicited, received, held, controlled, or distributed in compliance with [the Act], including, but not limited to, providing information on the number of donations made, the amounts raised, the length of time for distributing donations or grants of recommended donations, the fees charged … and information on recipient [charities] that were sent or were not sent donations or grants of recommended donations.”

Generally, a fundraising platform shall “provide conspicuous disclosures that prevent a likelihood of deception, confusion, or misunderstanding,” including a statement whether the donation is made to the fundraising platform, a platform charity, the recipient charity, or the person engaging in peer-to-peer fundraising, whichever is applicable, a statement that a recipient may not receive donations and why, a statement of the maximum length of time it takes to send the donation to a recipient organization (unless the donation is sent contemporaneously when the donation is made), a statement of “the fees or other amounts, if any, deducted from or added to the donation” and a statement as to the tax-deductibility of the donation.  Some of the statements may be made by conspicuous hyperlinks.

A fundraising platform must remove any charity from the platform on request by the charity.

The Attorney General is authorized and directed to “establish rules and regulations necessary for the administration” of the new rules.

This Act has been a long time in coming and a lot of details still need to be worked out.  But it seems to have general support from many players in the field and is likely to improve the disclosure and practices in using such platforms in the future.

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