Beginning January 1, 2023, commercial co-venture and other types of cause marketing activities in the state of California will become a bit more complicated.
Back in October 2021, Governor Newsom signed Assembly Act 488 amending the Supervision of Trustees and Charitable Fundraising Act (“Act”). The law is CA’s effort to regulate online platforms that advertise or allow others to advertise for charities. At first glance it seems reasonable enough and you must be wondering what this has to do with your business and its marketing activities, right? As with almost everything in advertising law, the devil is in the details.
The law creates two new regulated classes – “non-profit fundraising platforms” and “platform charities”. This post will focus on charitable fundraising platforms. California defines a “nonprofit fundraising platform” 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 conducts so.” , authorizes, or otherwise facilitates solicitation actions that include the following and similar activities…”, then the activities are listed.
A business is considered a “nonprofit fundraising platform” in California if it:
“(A) Lists or refers by name to one or more recipient charities to receive donations or grants of referral donations from donors using the Platform.
(B) allows individuals using the Platform to solicit or recommend donations to one or more recipient nonprofit organizations through peer-to-peer fundraising.
(C) Allow individuals using the Platform to select one or more recipient charities to receive donations or grants from recommended donations made by a Platform, Platform Charity or other third party based on purchases made or other activities of people using the platform.
(D) Naming or referring to one or more recipient charities in order to receive donations or grants of recommended donations made by the Platform based on purchases made or other activities by individuals using the Platform.
(E) provides nonprofit organizations with a customizable internet-based website, software as a service, or other platform that enables nonprofit organizations to solicit or receive donations on or through the Platform, including through peer-to-peer charitable fundraising efforts purposes. The customizable platform provided by the charity donation platform does not include the nonprofit’s own platform, but can be integrated with the nonprofit’s platform.”
Under these definitions, a business is running a collection-and-donation-at-the-checkout program on an e-commerce website, as well as a co-venture commercial campaign (e.g., if you buy this product or comment on our post, $1 is donated CHARITY) if conducted at least partially online and with more than six (6) different charities in a year would qualify as a “charity fundraising platform.”
Similarly, a business that allows consumers who make a purchase or complete an activity on its website to direct the business to make a donation to a charity of their choice from a list provided on the website could now also be called non-profit fundraising platform (it does not fall under the donor recommended fund exemption). With the inclusion of these activities in the definition of a “charity platform,” companies that engage in community marketing may need to change their compliance practices, at least in California, to meet a new set of requirements.
So what does it mean to be a “nonprofit fundraising platform” in California, and what are these new requirements? The answer is still some TBD as regulations are still being finalized. However, based on the latest draft of the rules, in addition to making all required disclosures in its charity campaign advertising and meeting other requirements, a company would need to register with the Attorney General, pay an annual registration fee of $625, and meet specific reporting requirements at the end of each calendar year.
The bottom line, of course, is that businesses should start thinking about their current charity-related activities to determine if they could be considered a charitable fundraising platform in California in the new year. As soon as the regulations are finalized and published, we will update them accordingly. It is to be hoped that the new requirements will not reduce companies’ appetite for commercial activities in favor of charities.
This warning provides general information on its subject. We agree that Frankfurt Kurnit Klein & Selz is not providing legal advice herein and shall not be liable for any damages resulting from any errors, inaccuracies or omissions. Our attorneys practice only in jurisdictions where they are authorized to practice. We do not seek to represent clients in other jurisdictions.