The Supervision of Trustees and Fundraisers for Charitable Purposes Act governs charitable corporations, unincorporated associations, trustees, commercial fundraisers, fundraising counsel, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes over which the state or the Attorney General has enforcement and supervisory powers. Under the act, any person who violates any of the acts provisions with intent to deceive or defraud any charity or individual is liable for a specified civil penalty. The act also authorizes the Attorney General to impose other specified civil penalties for related acts and omissions. Additionally, the act requires various written reports to be filed with the Attorney General under oath, in accordance with rules and regulations.

The act prohibits specified acts and practices in the planning, conduct, or execution of any solicitation or charitable sales promotion including misrepresenting or misleading anyone in any manner to believe that another person sponsors, endorses, or approves a charitable solicitation or charitable sales promotion when that person has not given consent in writing to the use of the persons name for these purposes. The act also prohibits representing that any part of the contributions solicited by a charitable organization will be given or donated to any other charitable organization unless that organization has consented in writing to the use of its name prior to the solicitation.

This bill would create an exception from these specific written consent requirements in certain circumstances for a crowdfunding solicitor for charitable purposes, which the bill would define as a person, whether for profit or not, who engages in charitable crowdfunding solicitation and who is not defined as certain other types of fundraisers or persons, as specified. The bill would require a crowdfunding solicitor for charitable purposes to: (1) obtain the written consent of a charitable organization prior to using its name in a solicitation, except as specified, (2) register with the Attorney Generals Register of Charitable Trusts, (3) file an annual registration and financial report, (4) pay specified registration or renewal fees, and (5) disclose other information required by the Attorney General, under oath, punishable under penalty of perjury. The bill would make it unlawful for a crowdfunding solicitor to solicit funds in this state for charitable purposes unless that crowdfunding solicitor has complied with the registration or annual renewal and financial reporting requirements established by the bill. The bill would make a failure to comply with these provisions grounds for injunctive and other civil relief. The bill would also establish that a crowdfunding solicitor for charitable purposes is a constructive trustee for charitable purposes and is required to account to the Attorney General for all funds. By expanding the crime of perjury, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Supervision of Trustees and Fundraisers for Charitable Purposes Act governs charitable corporations, unincorporated associations, trustees, commercial fundraisers, fundraising counsel, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes over which the state or the Attorney General has enforcement and supervisory powers. Under the act, any person who violates any of the acts provisions with intent to deceive or defraud any charity or individual is liable for a specified civil penalty. The act also authorizes the Attorney General to impose other specified civil penalties for related acts and omission. omissions. Additionally, the act requires various written reports to be filed with the Attorney General under oath, in accordance with rules and regulations.

The Supervision of Trustees and Fundraisers for Charitable Purposes Act governs charitable corporations, unincorporated associations, trustees, commercial fundraisers, fundraising counsel, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes over which the state or the Attorney General has enforcement and supervisory powers. Under the act, any person who violates any of the acts provisions with intent to deceive or defraud any charity or individual is liable for a specified civil penalty. The act also authorizes the Attorney General to impose other specified civil penalties for related acts and omission.

The act, among other things, prohibits charitable organizations and commercial fundraisers for charitable purposes, in the planning, conduct, or execution of a solicitation or charitable sales promotion, from using or exploiting the fact of registration with the Attorney Generals Registry of Charitable Trusts so as to lead a person to believe that the registration constitutes an endorsement or approval by the Attorney General.

This bill would also prohibit charitable organizations and commercial fundraisers, in the circumstances described above, from using or exploiting the fact of filing with the Secretary of State so as to lead a person to believe that this action constitutes an endorsement or approval by the Secretary of State.

Date of Hearing: May 9, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2556

Author:(Irwin) – As Amended Ver:April 19, 2018

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill adds to the Supervision of Trustees and Fundraisers for Charitable Purposes Act the ability to engage in “charitable crowdfunding solicitations” by a new category of persons raising money for charitable purposes known as “crowdfunding solicitors for charitable purposes,” subject to various registration and reporting requirements, as specified.

FISCAL EFFECT:

Significant costs (Registry of Charitable Trusts Fund) for the Department of Justice (DOJ) to handle an increase in registrations and financial reporting with the Registry of Charitable Trusts managed by DOJ. Specifically, DOJ reports annual costs of $957,000 in 2018-19 and $1.7 million in 2019-20 and ongoing.

COMMENTS:

1. Background. Under the Supervision of Trustees and Fundraisers for Charitable Purposes Act, there must always be a written contract between a fundraiser for charitable purposes and a charitable organization for each solicitation campaign, event, or service. The contract must be available for inspection by the attorney general and it must contain specified information.
2. Purpose. This bill seeks to update California’s Charitable Purposes Act to recognize online charity giving platforms. Specifically, this bill creates a registration process for charitable solicitors and exempts charitable solicitors from the requirement to have a written agreement with each charity for which they are soliciting donations. Specifically, it provides for the recognition of, and consumer protections for, the practice of charitable fundraising by way of internet crowdfunding efforts. This bill is sponsored by PayPal Giving Fund. According to the author:

AB 2556 creates a new section of law to address the recent advent of online charity giving platforms. The bill allows an online charity giving platform, which is defined in the bill as a “crowdfunding solicitor for charitable purposes,” to solicit funds on behalf a charitable organization without having received written consent if the platform meets several conditions listed in the bill. These conditions are designed to ensure important consumer protections as well as protection to the charitable organizations.

Analysis Prepared by: Jessica Peters / APPR. / (916) 319-2081

Date of Hearing: April 17, 2018

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Ed Chau, Chair

ABPCA Bill Id:AB 2556 (

Author:Irwin) – As Amended Ver:April 4, 2018

SUBJECT: Charitable organizations: crowdfunding solicitors

SUMMARY: This bill would add to the Supervision of Trustees and Fundraisers for Charitable Purposes Act (Charitable Purposes Act or Act) the ability to engage in “charitable crowdfunding solicitations” by a new category of persons raising money for charitable purposes known as “crowdfunding solicitors for charitable purposes,” subject to various registration and reporting requirements, as specified. This bill would exempt these crowdfunding solicitors from various written consent requirements, as specified, when using the name of a charitable organization. Specifically, this bill would:

1. Provide that a crowdfunding solicitor for charitable purposes does not need to obtain written consent under Charitable Purposes Act provisions which: (1) limit the use of a charitable organization’s name to solicit contributions without written consent; and (2) prohibit misrepresenting or misleading anyone in any manner into believing that any other person sponsors, endorses, or approves a charitable solicitation in the planning, conduct, or execution of any solicitation or charitable sales promotion, without that person’s written consent, as long as specified requirements are met. These requirements include that the solicitation only lists the charitable organization’s name and other public information, as specified; that the crowdfunding solicitor list only those organizations in good standing, as specified; and that the crowdfunding soliton make various disclosures be made by the crowdfunding solicitor, among other things.
2. Require a for-profit crowdfunding solicitor for charitable purposes to register with the Attorney General (AG), as specified, prior to performing a charitable crowdfunding solicitation in California, or prior to receiving and controlling any funds, assets, or property, as a result of a charitable crowdfunding solicitation in this state. That registration would be valid for one year.
3. Require that a crowdfunding solicitor for charitable purposes file an annual report on a form provided by the AG, accounting for all funds collected from charitable crowdfunding solicitations during the preceding calendar year, as specified. The AG would be required to establish the contents of the forms for annual registration and financial reporting by crowdfunding solicitor for charitable purposes, and the annual financial report must require a detailed, itemized accounting of funds, assets, or property, of 501(c)(3) exempt charitable crowdfunding solicitations or for each charitable purpose during the accounting period. This bill would various items that the annual report must include, among other data.
4. Make it unlawful for any crowdfunding solicitor for charitable purposes to solicit funds in this state for charitable purposes unless it has complied with the registration or annual and financial reporting requirements of this Act. Failure to comply with the registration or annual renewal and financial reporting requirements shall be grounds for injunction against solicitation in this state for charitable purposes and other civil remedies provided by law.
5. Specify that a crowdfunding solicitor for charitable purposes is a constructive trustee for charitable purposes and must account to the AG for all funds. This bill would further specify that crowdfunding solicitor for charitable purposes is subject to the AG’s supervision and enforcement over charitable funds and assets to the same extent as a trustee for charitable purposes under this article.
6. Define “charitable crowdfunding solicitation” and “crowdfunding solicitor for charitable purposes” for these purposes, as specified.

EXISTING LAW:

1. Establishes the Charitable Purposes Act, which generally governs all charitable corporations, unincorporated associations, trustees, commercial fundraisers for charitable purposes, fundraising counsel for charitable purposes, commercial coventurers, and other legal entities holding or soliciting property for charitable purposes and requires these entities to file a registration statement, articles of incorporation, and an annual financial report with the AG. Existing law provides the AG with primary enforcement and supervisory powers over these entities, and requires that the AG maintain a register of charitable organizations subject to the Act. (Gov. Code Sec. 12580 et seq.)
2. Provides that the primary responsibility for supervising charitable trusts in California, for ensuring compliance with trusts and articles of incorporation, and for protection of assets held by charitable trusts and public benefit corporations, resides in the AG. The AG has broad powers under common law and California statutory law to carry out these charitable trust enforcement responsibilities. These powers include, but are not limited to, charitable trust enforcement actions under specified laws, including the Supervision of Trustees and Fundraisers for Charitable Purposes Act. (Gov. Code Sec. 12598(a).)
3. Requires every charitable corporation, unincorporated association, and trustee subject to the Charitable Purposes Act to file with the AG an initial registration form, under oath, as specified, within 30 days after the entity initially receives property, except as specified. Existing law also generally requires that these entities file with the AG periodic written reports, as specified. (Gov. Code Secs. 12585, 12586.)
4. Requires a “commercial fundraiser,” as defined, to register with the AG’s Registry of Charitable Trusts prior to soliciting or receiving and controlling any funds, assets, or property, and to file an annual financial report of funds, assets, or property solicited on behalf of each charitable purpose or organization, as specified. (Gov. Code Sec. 12599.)
5. Prohibits a commercial fundraiser for charitable purposes from soliciting in the state on behalf of a charitable organization unless that charitable organization is registered or is exempt from registration with the AG’s Registry of Charitable Trusts. (Gov. Code Sec. 12599(m).)
6. Requires that a “fundraising counsel for charitable purposes,” as defined, register with the AG’s Registry of Charitable Trusts, prior to managing, advising, counseling, consulting, or preparing material for, or with respect to, the solicitation in this state of funds, assets, or property for charitable purposes, and to file (1) an annual report listing each person, corporation, unincorporated association, or other legal entity for whom the fundraising counsel has performed specified services for compensation, and (2) a statement certifying that the fundraising counsel had a written contract with each listed person, corporation, unincorporated association, or other legal entity that complied with specified requirements. (Gov. Code Sec. 12599.1.)
7. Requires there to be a written contract between a commercial fundraiser for charitable purposes and a charitable organization for each solicitation campaign, event, or service, as specified. The contract must be available for inspection by the AG and contain specified information. (Gov. Code Sec. 12599(h).) Also requires a written contract between a fundraising counsel for charitable purposes and a charitable organization for each service to be performed by the fundraising counsel for the charitable organization, as specified. The contract must be available for inspection by the AG and contain specified information. (Gov. Code Sec. 12599.1(f).)
8. Authorizes the AG to refuse to register or revoke or suspend the registration of a charitable corporation or trustee, commercial fundraiser, fundraising counsel, or coventurer whenever the AG finds that the charitable corporation or trustee, commercial fundraiser, fundraising counsel, or coventurer has violated or is operating in violation of any provisions of the Charitable Purposes Act. (Gov. Code Sec. 12598(e)(1).)
9. Authorizes the AG to bring a civil action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceedings thereof for and on behalf of any charitable trust or corporation at any time within 10 years after the cause of action accrued. (Gov. Code Sec. 12596(a).)
10. Authorizes the AG to bring a civil action for violation of the Charitable Purposes Act, as specified, at any time within 10 years after the cause of action accrued. Also authorizes the AG, notwithstanding the limited application of the Charitable Purposes Act to certain entities, to bring a civil action against a person who aids or abets a violation of that Act, specified laws relating to involuntary trusts, or the Nonprofit Public Benefit Corporations’ article providing standards of conduct for directors and management, at any time within 10 years after the cause of action accrued. (Gov. Code Sec. 12596(b)-(c).)

FISCAL EFFECT: Unknown

COMMENTS:

1. Purpose of this bill: This bill seeks to update California’s Charitable Purposes Act which did not anticipate online charity giving platforms. Specifically, it provides for the recognition of, and consumer protections for, the practice of charitable fundraising by way of internet crowdfunding efforts. This bill is sponsored by PayPal Giving Fund.
2. Author’s statement: According to the author, “AB 2556 creates a new section of law to address the recent advent of online charity giving platforms. The bill allows an online charity giving platform, which is defined in the bill as a “crowdfunding solicitor for charitable purposes,” to solicit funds on behalf a charitable organization without having received written consent if the platform meets several conditions listed in the bill. These conditions are designed to ensure important consumer protections as well as protection to the charitable organizations.”
3. Charitable Purposes Act background: Under California law, the AG oversees registered charities to ensure that funds received are properly managed and devoted to charitable programs. The office derives its authority from the Charitable Purposes Act, which was originally enacted in 1959. This law generally requires every person or entity that holds or solicits property for charitable purposes in California to file specified documents and information, including annual financial statements, with the AG. These reports are in turn used by the AG to investigate and litigate cases of charity fraud and mismanagement by trustees and directors of charities.

In 1989, in order to protect the interests of a donor and the donee charitable organization, the Act was expanded to also apply to commercial fundraisers who solicit for charitable purposes (a commercial fundraiser is not a charity, but usually an individual or corporation engaged in business for-profit). (SB 502 (Lockyer, Ch. 307, Stats. 1989).) The provisions for commercial fundraisers were further strengthened in 1991 and 1992 by adding a bond requirement for commercial fundraisers and by adding a requirement that any person or entity who for compensation solicits funds or other property for charitable purposes, must disclose that the solicitation is being conducted by a commercial fundraiser for charitable purposes. Significantly, commercial fundraisers were thereafter required to also disclose, upon receiving a written or oral request from a person solicited, the ratio of total expenses of the fundraiser to the total revenue received by the fundraiser. (See AB 838 (Peace, Ch. 569, Stats. 1991); SB 1682 (Boatwright, Ch. 511, Stats. 1992); AB 3066 (Sher, Ch. 249, Stats. 1992).)

Then in 1998, AB 1810 (Davis, Ch. 445, Stats. 1998) was enacted in response to an increasing practice by sophisticated commercial fundraisers to hire “fundraising counsels” or enter into partnerships with “commercial conventurers,” in order to downplay the extraordinary costs of their fundraising and exclude administrative costs from their annual financial reports (because the commercial fundraisers were aware that high fundraising costs and administrative expenses—which translate into smaller distributions to the charity—can discourage donors from making donations). Accordingly, AB 1810 sought to close any loophole in the law by requiring registration and reporting of fundraising counsels and commercial conventurers. In doing so, the bill also renamed the Act to its current title of the Supervision of Trustees and Fundraisers for Charitable Purposes Act.

Other bills have since been enacted to provide the AG with additional tools and resources in the supervision and enforcement of this Act. As a result of some of those changes, the AG may now also issue cease and desist orders for violations of this Act or its implementing regulations; impose specified civil penalties for each act or omission that constitutes a violation; suspend the registration of a person or entity where a penalty has been assessed; or apply to a superior court for relief and obtain a temporary or permanent injunctive order. Notably, the Charitable Purposes Act provides a 10 year statute of limitations for the AG to bring an action against trustees or other persons holding property in trust for charitable purposes or against any charitable corporation or any director or officer thereof, to enforce a charitable trust or to impress property with a trust for charitable purposes or to recover property or the proceeds thereof for and on behalf of any charitable trust or corporation. While this 10 year statute of limitations has been in existence since 1965 and affords the AG’s office additional time to investigate and pursue action against those in violation of the law, until recently it was largely limited with respect to the parties that the AG can bring an action against. In 2015, the author of this bill also authored AB 556 (Irwin, Ch. 299, Stats. 2015) to provide an additional 10 year statute of limitations under which the AG could pursue various actions against those who violate or aid and abet in violations of the Charitable Purposes Act. That bill also sought to close a loophole in the law by better defining the differences between “fundraising counsels” and “commercial fundraisers.”

This bill now seeks to introduce into the Charitable Purposes Act the concept of “charitable crowdfunding solicitations” by a new category of persons raising money for charitable purposes to be known as “crowdfunding solicitor for charitable purposes.”

1. “Crowdfunding solicitor for charitable purposes” and the shift in charitable giving practices on the internet: As noted above, under current California law the Charitable Purposes Act governs charitable corporations, trustees, commercial fundraisers, fundraising counsel, and other commercial coventurers who solicit or hold property for charitable purposes, and grants the AG supervisory powers over these entities. This bill would now establish crowdfunding solicitors for charitable purposes who may engage in charitable crowdfunding solicitations (i.e., the practice of raising contributions from a large number of people for charitable proposes through means of the internet) under that Act. A crowdfunding solicitor for charitable purposes may operate either for profit or not for profit, but may not otherwise be defined as a commercial fundraiser for charitable purposes, a fundraising counsel for charitable purposes, or a commercial coventurer, which are separately governed under the Charitable Purposes Act.

PayPal Charitable Giving Fund (PPGF), the sponsor of this bill, and PayPal, write in support of this bill that in 2016, “Americans donated a record figure of over $390 billion to charitable organizations operating in a variety of areas—religion, education, arts, health and human services, and the like. The vast majority of these donations—over 70 [percent]—came from individual donors.” As described by PCGF and PayPal, the means of giving has shifted considerably in recent years:

Until recently, charitable solicitations occurred through various direct means, like door-to-door or sidewalk solicitations, telephone calls, or mailings. Other popular methods for raising money for charitable causes included televised fundraisers or sales of tickets to events. The Internet fundamentally changed the charitable giving landscape. In a matter of minutes, individuals could make donations to the charity of their choice by sending an electronic payment, all without leaving their homes, speaking to anyone in person or on the phone, or mailing a check. According to a recent analysis of over 5,000 nonprofits, online giving reflected 7.9 [percent] of charitable contributions in 2016, or approximately $2.6 billion. And online giving continues to grow[…].

The Internet has not only enabled traditional direct donor-to-charity giving but also has generated, new indirect methods of giving –for example, websites serving as online charitable giving platforms –that provide donors with additional opportunities to donate to many causes. These websites typically aggregate many charities and allow for one-stop shopping, where donors can browse a database or list of charities and recommend donations be regranted from the online platform to single or multiple charities all at one time. PPGF is just one example of this type of online charitable giving platform. […]

Online charitable giving platforms have attempted to cast a broad net in terms of charities listed on their websites for potential donations. Many list charities on their platforms beyond those that have provided the platform with affirmative consent to raise money for the charity. Offering this range of charities expands choice by providing donors access to a broader group of charities than only the organizations that have provided consent to a particular platform- in most cases increasing the charities listed in the director to virtually all legally eligible U.S. organizations. Greater choice translates into greater charitable giving and corresponding increase in social utlility[.]”

Recognizing this newer practice, this bill exempts such crowdfunding solicitors for charitable purposes from seeking prior written consent of the organizations they wish to list on their platforms, as long as they meet certain requirements. Those requirements include, among other things that the crowdfunding solicitor:

• • exclude charitable organizations that are not in good standing, as specified;
  • conspicuously disclose the charitable organization can request removal from the database or list, which shall be implemented within five days of a request; and
  • conspicuously disclose that the charitable organization may not receive the contribution, and if so, that the contribution may be provided to a charitable organization with a similar charitable purpose unless the donor specifies an alternative organization.

1. No written consent necessary between crowdfunding solicitor for charitable purposes and charitable organization under this bill: Under the Charitable Purposes Act, there must always be a written contract between a commercial fundraiser for charitable purposes and a charitable organization for each solicitation campaign, event, or service, as specified; the contract must be available for inspection by the AG; and it must contain specified information. (Gov. Code Sec. 12599(h).) Similarly, the Act requires a written contract between a fundraising counsel for charitable purposes and a charitable organization for each service to be performed by the fundraising counsel for the charitable organization, as specified. That contract also must be available for inspection by the AG and contain specified information. (Gov. Code Sec. 12599.1(f).) Commercial fundraisers must not only make their contracts available for inspection, but also specifically disclose to the AG, on an annual basis, their: (1) total revenue; (2) the fee or commission charged by the commercial fundraiser for charitable purposes; (3) salaries paid by the commercial fundraiser for charitable purposes to its officers and employees; (4) fundraising expenses; (5) distributions to the identified charitable organization or purpose; and (6) the names and addresses of any director, officer, or employee of the commercial fundraiser for charitable purposes who is a director, officer, or employee of any charitable organization listed in the annual financial report. (See Gov. Code Secs. 12599.1(d)-(f), 12599(d).)

As noted in Comment 4, above, while this bill seeks to exempt crowdfunding solicitors from this contract (i.e., written consent) requirement before the crowdfunding solicitor can list the organization in connection with a charitable crowdfunding solicitation, the exemption from this consent requirement is made contingent upon the crowdfunding solicitor meeting certain other requirements. Again, among these requirements are that the crowdfunding solicitor must conspicuously disclose both: (1) that the charitable organization can request removal from the database or list (which must then be implemented within five days of receiving the request); and (2) that the charitable organization may not receive the contribution, and if so, that the contribution may be provided to a charitable organization with a similar charitable purpose unless the donor specifies an alternative organization.

Furthermore, this bill would make it unlawful for a crowdfunding solicitor to solicit funds in this state without complying with various registration or annual renewal and financial reporting requirements. Any failure to comply with these registration or annual renewal and financial reporting requirements would be grounds for injunction against solicitation in this state for charitable purposes and other civil remedies provided by law under this bill.

Specifically, under AB 2556, for-profit crowdfunding solicitors must register with the AG prior to performing a charitable crowdfunding solicitation in California, or prior to receiving and controlling any funds, assets, or property, as a result of a charitable crowdfunding solicitation in this state. Furthermore, all crowdfunding solicitors for charitable purposes (for-profit and not for profit, alike) must file an annual report on a form provided by the AG, accounting for all funds collected from charitable crowdfunding solicitations during the preceding calendar year, as specified. The bill allows for the contents of those annual registration forms and financial reporting to be established by the AG by way of rules and regulations, but also specifies that the annual financial data must require a detailed, itemized accounting of funds, assets, or property, including, among other data: (1) total revenue; (2) fee or commission charged; (3) salaries paid to officers and employees; (4) fundraising expenses; and (5) distributions to the identified charitable organization or purpose.

Staff notes that while the listed items are largely track the information that a commercial fundraiser must disclose to the AG on an annual basis, above, there is one noticeable difference between these disclosures and the information disclosed by the commercial fundraisers, detailed above: commercial fundraisers must also divulge to the AG the names and addresses of any director, officer, or employee of the commercial fundraiser for charitable purposes who is a director, officer, or employee of any charitable organization listed in the annual financial report. Such a disclosure of names, here, could seemingly help divulge whether the crowdfunding would benefit individuals engaging in the crowdfunding campaign. While the AG could add this information to the list of required data by way of rules and regulations, the author may wish to consider whether it should be expressly added to the Act.

1. Conspicuous disclosure: Several of this bill’s provisions require “conspicuous disclosure” by the crowdfunding solicitor for charitable purposes. For example, to avoid having to obtain written consent of a charitable organization prior to using its name in a solicitation, the crowdfunding solicitor must, among other things, “conspicuously” disclose that the charitable organization may not receive the contribution and if so, that the contribution may be provided to a charitable organization with a similar charitable purpose unless the donor specifies an alternative organization. However, this bill does not provide any definition of what “conspicuous disclosure” means.

Notably, under the Business and Professions Code, disclosures must be in at least 12 point type (if in print or electronically) and made in a “clear and conspicuous” manner by legal entities who, for compensation, solicit funds for charitable purposes, including over the internet. “Clear and conspicuous” for those purposes means “in larger type than the surrounding text, or in contrasting type, font, or color to the surrounding text of the same size, or set off from the surrounding text of the same size by symbols or other marks, in a manner that clearly calls attention to the language. In the case of an audio disclosure, [it] means in a volume and cadence sufficient to be readily audible and understandable.” (Bus. & Prof. Code Sec. 17601.) Indeed, the requirement that the disclosure be of 12 point type and clear and conspicuous was actually enacted by way of AB 556, which shares the same author as this bill. As such, the author has agreed to the following amendment to incorporate the same standard for these relatively analogous purposes:

Author’s amendment:

On page 7, line 33, after “Registry for Charitable Trusts.” insert “For purposes of this section, “conspicuously” has the same meaning as in Section 17601 of the Business and Professions Code.”

More generally, with respect to this particular “conspicuous disclosure” provision in the bill (whereby a donor is notified that the charitable organization may not receive the contribution and that the contribution may be provided to a charitable organization with similar charitable purposes unless the donor specifies an alternative organization), a concern has been raised by the League of California Community Foundations (LCCF), stating that:

This bill may inadvertently be codifying the behavior that was evident in the recent issues exhibited by PayPal. It does this by giving the crowdfunding solicitor the ability to channel funds to a charity other than that identified by the donor. Best practice standards are that variance power such as this should be used judiciously and in a well-defined, not capricious or self-serving manner.

We believe that is important to focus on the discretion a not-for-profit has in determining the intended beneficiary and the extent of variance power the not-for-profit holds. If the original beneficiary no longer needs or cannot accept the donation or, for any reason, the donations are determined not to be acceptable, in our field, the charity’s governing body can execute its variance power to modify a restriction or condition on the distribution of funds. […] However, this is a very unusual occurrence, and one that is taken very seriously, and not capriciously. We feel that this bill could be strengthened by clearly delineating and limiting the power the online crowdsource solicitor has to determine a beneficiary other than that intended by the donor or implicit in the solicitation.

Additionally, this section does not address the case where the donor specifies an alternate organization that the solicitor may not want to use. What happens in this case? We suggest that the gift be given as specified in the solicitation or by the donor unless variance power is very specifically outlined, is transparent and followed.

Finally, it is unclear if this legislation applies if a solicitor does not identify a charity by name.

The California Association of Nonprofits (CalNonprofits), which has also submitted a letter of concern, echoes similar concerns about ensuring that donors having assurance that their charitable contributes getting to the charity they have identified, and finds the naming of an alternative recipient unworkable. “For instance, what would happen if the funds could not be delivered to the alternative organization? A better system needs to be designed to guarantee a transparent process that ensures that a donor’s designations are prioritized.”

In response, the author has expressed her “intent that the language of the bill be clear on how and when a donation can be delivered to alternative organization.” To this end, the author has expressed a commitment to “continue to work with both CalNonprofits and LCCF, as well as the regulatory entities, to clarify when this option is available to the crowdfunding solicitor.”

1. Bill considers crowdfunding solicitors for charitable solicitations a constructive trustee for charitable purposes for purposes of Charitable Purposes Act: Staff notes that this bill does not update several general provisions of the Charitable Purposes Act which state the AG’s enforcement and supervisory powers over various legal entities engaged in charitable solicitations, as well as the AG’s ability to make additional rules and regulations necessary for the administration of the Act. (See Sections 12581 and 12587 of the Government Code.) That being said, the bill does include a provision that clearly states that a crowdfunding solicitor for charitable purposes is a “constructive trustee for charitable purposes” and must account to the AG for all funds. (Proposed Section 12599.9(h).) It further states, expressly, that a crowdfunding solicitor for charitable purposes is subject to the AG’s supervision and enforcement over charitable funds and assets to the same extent as a trustee for charitable purposes under this Act. Thus, the general enforcement provisions of the Charitable Purposes Act would apply to enable the AG to bring civil actions against crowdfunding solicitors that violate the Act, as amended by this bill, just as the AG currently can bring against a trustee, commercial fundraiser, fundraising counsel, or conventurer, or other charitable corporations or legal entities engaged in charitable purposes. Those existing enforcement provisions provide the AG a 10 year statute of limitations to bring various civil actions for violations of the Act, including the ability to bring a civil action against a person who aids or abets a violation of the Act. (See Gov. Code Sec. 12596.) Likewise, the AG would have the ability to refuse to register or revoke or suspend the registration of a crowdfunding solicitor under Section 12598 of the Government Code for violations of the Act, just as it could a trustee, commercial fundraiser, fundraising counsel, conventurer, etc., under existing law.

Nonetheless, the author may wish to consider if it would provide more obvious notice to the public to expressly list “crowdfunding solicitor” to that provision, and other key provisions such as Section 12581 and 12587, which make obvious the AG’s enforcement and supervisory role over these entities—rather than folding them into existing law by designating them as “trustees.”

1. Disclosures under Business and Professions Code by legal entities who, for compensation, solicit funds for charitable purposes: Under existing law, the Business and Professions Code includes an article relating to advertising of charitable solicitations to protect the public against fraud, deceit and imposition and to foster and encourage fair solicitations and sales solicitations for charitable purposes wherein the person from whom the money is being solicited will know what portion of the money will actually be utilized for charitable purposes. (Bus. & Prof. Code Sec. 17510 et seq.) Relevant to this bill, Section 17510.85 of the Business and Professions Code requires specified disclosures be made by any individual, corporation, or other legal entity who, for compensation, solicits funds or other property in this state for charitable purposes under certain circumstances. Specifically, such legal entities must disclose prior to an oral solicitation or sales solicitation made by direct personal contact, radio, television, telephone, or over the Internet, or at the same time as a written solicitation or sales solicitation: (1) that the solicitation or sales solicitation is being conducted by a commercial fundraiser for charitable purposes; and (2) the name of the commercial fundraiser for charitable purposes as registered with the AG pursuant to specified law. (Bus. & Prof. Code Sec. Section 17510.85. )

Notably, this bill, AB 2556 now allows for the possibility of crowdfunding solicitors for charitable purposes conducting charitable solicitations for-profit, as well as not-for-profit, with for profit charitable fundraisers having to register with the AG’s office in advance of receiving any solicitations. As such, the Business and Professions Code should arguably be updated to reflect that such disclosures should also be made at any time the solicitation is being conducted by a crowdfunding solicitor for charitable purposes for profit—consistent with how those disclosures are required for commercial fundraisers under that same statute.

Accordingly, the author has agreed to the following amendment to add crowdfunding solicitors for charitable purposes to the Business and Professions Code when engaging in for profit charitable crowdfunding purposes:

Author’s Amendment:

Add a new section to this bill amending Section 17510.85 of the Business and Professions Code to read:

(a) An individual, corporation, or other legal entity who for compensation solicits funds or other property in this state for charitable purposes shall disclose prior to an oral solicitation or sales solicitation made by direct personal contact, radio, television, telephone, or over the Internet, or at the same time as a written solicitation or sales solicitation:

(1) That If the solicitation or sales solicitation is being conducted by a commercial fundraiser for charitable purposes or the solicitation is being conducted for profit by a crowdfunding solicitor for charitable purposes.

(2) The name of the commercial fundraiser for charitable purposes as registered with the Attorney General pursuant to Section 12599 of the Government Code or the name of the crowdfunding solicitor for charitable purposes, as applicable.

(b) The disclosures required pursuant to this section, if printed or if presented electronically, shall be in at least 12-point type, and shall be clear and conspicuous, as defined in Section 17601.

1. Letters of concern: In addition to the concern raised in Comment 6, above, the LCCF raises two other concerns with this bill. First, the LCCF contends that the provision requiring the crowdfunding solicitor provide an accounting of any fees imposed for processing the contribution to the charitable organization within a certain number days of its receipt of the contribution is problematic in that only the charitable organization receiving the donation receives the account of donation expenses. The LCCF believes “that the donor should have the right to understand how much of their donation will actually be received by the designated nonprofit before they make the donation. Transparency in fees/costs is the right thing to do, and is a norm in the field.”

Second, with respect to the filing and annual statements requirements of the bill, the LCCF writes that those provisions “seem to imply that anyone raising money for a charitable cause via the internet will need to register and report. If no one is paid, is this legislation relevant to that fund-raiser? For instance, does this include someone on Facebook requesting donations for a specific charity, even though they will not take any part of the donation? Moreover, if there is a fee charged, will Facebook have to register as well as it is the platform used for the solicitation? Additionally, how might this affect giving circles where donors use the internet to communicate to raise funds for community causes; or large giving days such as the Big Day of Giving that raise millions of dollars through already highly regulated public charities? Does this apply to capital campaigns? Finally, the extent of the report seems overly onerous, and may serve to disincentiv[iz]e charitable donations.”

CalNonprofits suggests that the time period for providing that accounting information to the charitable organization (which has not yet been specified in the bill) should be 15 days, noting that “the long delays in the transfer of these funds ha[ve] been an ongoing complaint of both donors and charities.” Lastly, CalNonprofits raises concerns with the definition of “charitable crowdfunding solicitation,” in that it is unclear to them if this would encompass entities such as donor-advised funds and giving circles.

In response, the author concurs that “the donor should be notified of how much of their donation will reach the charity” and intends to amend the bill to making this clearer. The author has further expressed a commitment “to continue to work with LCCF, CalNonprofits, and the relevant regulatory agencies to craft language that clearly identifies which fund raising platforms will be captured by this law.”

1. Other arguments in support: In support, the Internet Association and TechNet write: “Every year in California, individuals contribute billions of dollars to good causes in response to charity fundraising appeals. An increasingly popular and successful method is through an online fundraising platform. With new technologies, non-profits can tap into a vast ecosystem of websites and partners to accelerate fundraising campaigns, share via social media and galvanize supporters. This bill updates the current law requiring all non-profits or charities soliciting funds to get expressed written consent prior to a charity receiving funds to still allow charity platforms to raise funds for charities and transmit the monies to the appropriate entity. As evidenced by the numerous protections the bill provides, the original intent of the statute to protect the donor from fraudulent solicitors remains.”
2. Prior legislation: AB 556 (Irwin, Ch. 299, Stats. 2015) See Comments 3 and 6.

REGISTERED SUPPORT / OPPOSITION:

Support

PayPal Charitable Giving Fund (sponsor)

PayPal

Internet Association

TechNet

Opposition

California Association of Nonprofits (CalNonprofits) (concern)

League of California Community Foundations (concern)

Analysis Prepared by: Ronak Daylami / P. & C.P. / (916) 319-2200