Crowdfunding and Charitable Compliance: An Overview of California’s New(-ish) Law
Greetings, readers!
I'm thrilled to join the Mill Law Center as the newest attorney and to add extensive experience in the highly regulated charitable fundraising space. Having worked for several years in this specialized field, I've had the privilege of navigating complex legal requirements, ensuring nonprofit organizations comply with regulations, and helping them make a lasting impact.
Throughout my career, I've witnessed the transformative power of philanthropy in changing lives. By closely collaborating with charitable organizations, I've become familiar with the challenges they face in raising funds ethically and transparently while abiding by strict rules across multiple jurisdictions.
I'm here to share insights, practical tips, and thought-provoking discussions on the legal aspects of charitable fundraising. I thought the first topic could be new California fundraising laws regulating charitable crowdfunding.
Charitable organizations, fundraisers, and especially fundraising platforms in California (either by operating there or perhaps just by being on the internet and getting significant traffic there) are now navigating a new landscape with the passage of California Assembly Bill 488 and its related regulations that are currently being promulgated. Like existing charitable fundraising laws, this new bill is aimed at enhancing transparency and accountability in the nonprofit sector. These changes have significant implications for charities and fundraisers, but the most significant impact is on charitable fundraising platforms (think your friend using Facebook to direct donations to an animal shelter for their birthday). Every impacted entity must adapt their practices to comply with the evolving legal framework in this highly regulated industry. In this post, we will explore some of the key aspects of California's new charitable fundraising laws and regulations and discuss how they impact fundraising platforms.
If you are familiar with professional fundraising rules and regulations much of this will sound familiar. But now we have a group of entities (“charitable fundraising platforms”) that have to learn about them, comply with the aspects in effect now, and get ready for the Attorney General registration regime that will kick in January 1, 2024.
1. Background and Purpose of the Law.
Charitable fundraising platforms play a vital role in connecting nonprofits with donors and facilitating giving. In California, recent changes in charitable solicitation laws have introduced new requirements for these platforms - aiming to enhance transparency, accountability, and donor protection.
2. What is a Charitable Fundraising Platform?
The new law has a robust definition of what is a charitable fundraising platform, but, to oversimplify, it encompasses any legal entity that uses the internet to provide a service, or other platform to persons in California, that enables acts of charitable solicitation to occur (See Cal. Gov. Code Sec. 12599.9(a)(1) for more specific language and exemptions).
3. Registration and Reporting Obligations.
Under Section 315 of the latest proposed regulations, charitable fundraising platforms operating in California will have to register with the state's Attorney General's Registry of Charitable Trusts before allowing acts of solicitation to occur on their platform. This registration process includes providing detailed information about the platform's structure, operations, and financial practices, with the goal of fostering transparency and accountability within the charitable crowdfunding world.
4. Fundraising Campaign Reporting.
Charitable fundraising platforms will be required to report specific information about each fundraising campaign they host on their annual fundraising report. These reporting requirements ensure that donors have access to accurate information and can make informed contributions.
5. Fee and Compensation Disclosure.
To increase transparency in the charitable crowdfunding process, the new regulations mandate that charitable fundraising platforms disclose certain fees or charges associated with their services. This disclosure helps potential donors understand how much of their contribution will go directly to the charitable cause versus covering administrative costs or platform fees. Clear communication regarding fees builds trust and allows donors to assess the impact of their donations accurately.
6. Good Standing.
Ensuring a partnering charity’s standing with the California Attorney General's Registry of Charitable Trusts is also a new requirement for charitable fundraising platforms. This rule aims to enhance transparency and accountability within the nonprofit sector by ensuring that partnering charities meet the necessary legal and regulatory requirements. As a result, charitable platforms must conduct due diligence to verify the status of potential partner organizations and confirm their compliance with the California Attorney General's guidelines. The Attorney General’s Registry of Charitable Trusts maintains a list of charities that may not operate or solicit in California. For information on using this list, see Section 316 in the latest proposed regulations.
7. Contract Requirements and Consent of Charities.
The new rules regarding charitable platforms in California also emphasize the importance of obtaining written consent of the charities they partner with. Charitable platforms must ensure that they have obtained the explicit consent of the partnering charities, otherwise there are several steps a platform must undertake to use a non-consenting charity’s name pursuant to Section 318 of the latest proposed regulations. This consent requirement aims to protect the reputation and integrity of the charities and their brand.
8. Penalties for Non-Compliance.
Non-compliance with the new requirements for charitable fundraising platforms can result in penalties, fines, or legal action. Platforms must adhere to registration deadlines, reporting obligations, and disclosure requirements to maintain compliance with the law. By prioritizing adherence to the regulations, platforms can maintain their credibility, safeguard their reputation, and continue to facilitate charitable giving.
Conclusion
California's new charitable fundraising laws and regulations mark a significant step toward continuing to create a more transparent and accountable nonprofit sector. The increased requirements for registration, reporting, and disclosure ensure that all stakeholders operate with integrity, benefiting both the public and the organizations themselves.