AB 488 – Enacts California’s First Attempt At Regulating Online Crowdfunding And Other Online Charitable Fundraising Platforms

CATEGORY: Nonprofit News, Private Education Matters
CLIENT TYPE: Nonprofit, Private Education
DATE: Oct 29, 2021

Assembly Bill 488 (AB 488) amends the California Supervision of Trustees and Fundraisers for Charitable Purposes Act (Act).  Broadly speaking, the Act requires any person or entity that holds charitable property or solicits donations for charitable purposes in California to register with the California Attorney General (AG) and to annually file certain disclosures and other reports with the AG, subject to some exceptions from registration and reporting; for example, for religious organizations or educational institutions.  The AG uses these reports to investigate and litigate cases of charity fraud and mismanagement of charities.  However, the Act does not explicitly address whether and how the AG may oversee online and website based fundraising platforms that have exploded in use and popularity.  AB 488 is intended to address that lack of oversight by creating a legal framework that regulates “charitable fundraising platforms” and “platform charities.”

This new regulatory framework goes into effect on January 1, 2022.  In the meantime, schools working with fundraisers who have significant online or web-based practices should confirm that the fundraisers are aware of AB 488 and are taking steps to determine if it applies to their operations and, if so, how to comply with AB 488’s new requirements.

What are “charitable fundraising platforms” and “platform charities”?

AB 488 defines a “charitable fundraising platform” (CFPs) as “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.”  A “platform charity” (PC) is a charitable organization that facilitates acts of solicitation on a charitable fundraising platform.  These broad definitions encompass most consumer-facing websites that facilitate the receipt of online donations, as well as websites advertising that a portion of the purchase price from the sale of goods or services will be donated to specified charities.  Also covered are websites that invite customers to add a donation during check-out or take other actions to trigger donations.  According to one legislative analysis, examples include Amazon, Benevity, Charity Navigator, CrowdRise, eBay, Facebook, GoFundMe, Google, GuideStar (Candid), Lyft, Overstock, and PayPal.

Notably excluded from the definition of CFPs is “a charitable organization’s own platform that solicits donations only for itself.”  Accordingly, a nonprofit/educational institution’s own website would not fall within this definition.

The drafters of AB 488 were aware that these definitions could encompass other types of fundraisers, already covered by the Act, such as commercial co-venturers (e.g., for-profits that partner with nonprofits to provide a portion of a sale to a charity).  Accordingly, there are extensive provisions of the law carving out and explaining, for example, when a fundraiser will be treated as a CFP or as a co-venture.

What are the new rules governing charitable fundraising platforms and platform charities?

AB 488 goes into effect on January 1, 2022.  In the meantime, the AG is charged with preparing regulations to implement the following key provisions of AB 488:

  • Registration and Reporting. CFPs and PCs must register with the AG and then annually submit reports to the AG.  The reports will include information, as specified in the AG’s coming regulations, sufficient for the AG to determine whether charitable funds have been properly solicited, received, held, controlled, or distributed in compliance with the Act.
  • Required Disclosures. CFPs must disclose to potential donors: (1) who will receive the donations; (2) if applicable, explanation identifying the circumstances under which a recipient charity may not receive certain funds; (3) the length of time it takes for the CFP to send the donation to a recipient charity; (4) the fees or other amounts (if any) deducted from or added to the donation; and (5) whether or not the donation is tax-deductible.
  • Written Consent from Charity Slated to Receive Donations. AB 488 requires CFPs and PCs to obtain the written consent of any recipient charity before using its name in a solicitation, unless the following circumstances are met: (1) the platform only includes certain information about the recipient charity (e.g., the recipient charity’s name, contact information, website, EIN, and publicly available information from the recipient’s informational tax returns); (2) the platform conspicuously discloses, before persons can complete a donation, that the recipient charity has not provided consent and has not reviewed or approved the content generated by individuals engaging in peer-to-peer charitable fundraising; (3) the platform promptly removes any recipient charity from its list upon written request from the charity; and (4) the platform does not require that a recipient charity consent as a condition of accepting donated funds.
  • Segregation of Fund & Accounting for Fees. CFPs and PCs must hold charitable funds raised in a separate account or accounts from other funds belonging to the CFP or PC and must promptly send the donations to recipient charities with an accounting of any fees imposed for processing the funds.
  • Soliciting Only for Charities in Good Standing. CFPs and PCs may only facilitate solicitations or receive donations for charitable organizations in good standing.  “Good standing” means charitable organization’s state or federal tax-exempt statuses have not been revoked and the organization is permitted to operate by the AG.
  • Prompt Distribution of Donations. For CFPs and PCs that make donations based on purchases or other activity performed on the platform, the donations must be sent out at least quarterly, subject to a requirement that the CFPs and PCs receive a minimum amount of donations (which may not exceed ten dollars).  Donations or grants must be sent after four consecutive quarters regardless of any established minimum amount.  AB 488 also authorizes the AG to establish regulations regarding the maximum length of time CFPs and PCs may take to send the donated funds to a charity.

(AB 488 amends Sections 12581, 12586.1, 12587, 12598, 12599, and 12599.1 of the Government Code and adds Section 12599.9 and 12599.10 to the Government Code.)

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