Charities and their corporate partners that are engaged in cause marketing and corporate partnerships through online fundraising activations should be aware that California’s new law governing “charitable fundraising platforms” may apply to them. The law, which became effective January 1, 2023, establishes a new regulatory framework that applies to companies providing consumer-facing websites or services that enable acts of solicitation to occur.
You can find an overview of the new requirements in my previous article.
What businesses and activities are affected?
Companies conducting the following online activities to raise funds for charitable causes are subject to the law:
- Online charitable sales promotions benefiting 7+ charities per year.
Prior to the enactment of the new law, companies engaging in charitable sales promotions in California (whether in-store or online) were regulated as a “commercial co-venturer” under the law governing charitable solicitation activities.1 These companies were required to either register with the California Attorney General’s office, or alternatively, comply with certain requirements, including (1) entering into a written agreement with the charity, signed by two officers of the charity; (2) transferring funds to the charity every 90 days throughout the campaign; and (3) providing a written accounting to the charity in connection with each transfer of funds (note that if these requirements were followed, registration was not required).
These longstanding requirements still apply to all charitable sales promotions conducted in brick-and-mortar stores, or to online charitable sales promotions directed at California residents and which benefit six or fewer charities each year. However, any company engaging in online charitable sales promotions benefiting 7+ charities per calendar year must comply with the new requirements applicable to charitable fundraising platforms.
- Inviting customers to donate online at checkout.
Companies inviting customers to donate online during the checkout process are subject to the new law. In the past, customer donation campaigns, whether conducted online or in-stores, were not generally subject to specific regulatory requirements. These campaigns are typically conducted by businesses on a voluntary and uncompensated basis and can raise significant funds for many charitable organizations. Despite the lack of any compensation or profit from the campaign, the new law nevertheless covers businesses conducting these types of campaigns online. As such, any retail business inviting its customers to donate while checking out on its e-commerce site will be considered a charitable fundraising platform.
- Inviting the public to take certain actions online to generate donations.
Several companies have developed online platforms, including mobile apps, that engage the public to take various actions that support positive social impact. The campaigns conducted on these platforms are often sponsored by companies seeking to engage with customers, the broader public, or even their own employees. Online users may be invited to take an action that triggers a donation which is often paid for by a sponsoring for-profit business to a charity. For example, donations might be triggered by taking a free online survey or playing a game on a mobile app. Employees of a company may be invited to make a donation online that will be matched by their employer. Companies operating platforms that engage the public in taking actions online to generate charitable donations are now subject to the charitable fundraising platform regulations. These rules apply even if online charitable activations are just one feature out of many within a technology platform, or an activation is only conducted for a short time period.
In addition, charitable fundraising platforms sometimes partner with a “platform charity” to facilitate the receipt of donations, which are then granted to various other designated charities (defined as “recipient charitable organizations” in the new law). Charities playing this role are defined and regulated as “platform charities,” and therefore are subject to many of the same requirements as charitable fundraising platforms.
What new requirements apply to charitable fundraising platforms?
Charitable fundraising platforms must comply with several new requirements, including (1) annual registration and reporting; (2) required disclosures; (3) obtaining written consent of charity beneficiaries (except in limited circumstances when such consent is not required; (4) soliciting or receiving funds only for charities in good standing; (5) segregation of funds; (6) prompt distribution of donations/grants; and (7) accounting of fees.
The new requirements are more fully summarized in this previously published article. Additional updates regarding which provisions of the new law are effective as of January 1, 2023, and which ones are delayed, are summarized in this article.
What should companies and charities do now?
Here are a few practical tips for companies and charities engaging in online charitable campaigns to think about during the campaign pre-launch period to help ensure compliance with the new requirements.
- Identify which online campaigns and activations are subject to the new regulations.
- Communicate with your partner in advance of the launch to acknowledge the impact of the new law and ensure alignment around the compliance requirements.
- Review sample campaign pages to ensure that the disclosures are properly displayed on the website or within the mobile app.
- If the campaign is powered by a third-party platform through which users will engage in the campaign activation, ensure that the platform is fully aware of the new requirements, and is able to comply with all aspects of the new platform law, including properly displaying the required disclosures, ensuring that the platform charity operates in compliance with the good standing requirements, and scheduling timely donation and grant disbursements.
- Monitor for updates on the final regulations and related registration forms, which will be released later this year. Keep your eye out for the next article once the regulations and forms are finalized. To be sure you are notified, please subscribe to our blog.
1 A commercial coventurer is defined as “any person who, for profit, is regularly and primarily engaged in trade or commerce other than in connection with the raising of funds, assets, or property for charitable organizations or charitable purposes, and who represents to the public that the purchase or use of any goods, services, entertainment, or any other thing of value will benefit a charitable organization or will be used for a charitable purpose.”