MyChange - A Guide to RealLife Versions

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1 perknscoe 7Q013th Street. NW Sute 600 latehngtoa DC O O perknscolefom o r^ BY HAND DELIVERY Federal Electon Commsson Offce of the General Counsel Attn: Adav Not, Esq. Actng Assocate General Counsel for Polcy 999 E Street N.W. Washngton, DC Re: Advsory Opnon Request Dear Mr. Not: Ezra W. Reese Ercese@perknscoe.eon D r o crs 1 c-o r -.«3 -n.'"11 o jrsr I IJ :s «-)-< * rnrr, CO r+1 Pursuant to 52 U.S.C , we request an advsory opnon on behalf of FYP, LLC sd^n^^ confrmaton of the permssblty of ts busness plan under the Federal Electon campagn Act of 1971 (the "Act"). FACTUAL DISCUSSION MyChange s an app that automatcally rounds up the spare change from a user's credt card or debt card transactons and contrbutes the resultng amounts to the user's desgnated nonproft organzaton(s) '^r poltcal commttee(s). For example, f a user buys a cup of coffee for $2.30, MyChange calculates a roundup of $0.70 and transfers the rounded-up amount (net of relevant fees) to the user's chosen organzaton(s) and/or commttee(s). MyChange s a product of FYP, LLC, regstered n New Mexco. MyChange and ts users are concerned that tradtonal models of gvng are confusng, tme-consumng, and outmoded. MyChange lowers the barrers to entry n the realm of poltcal speech and poltcal partcpaton by gvng busy, forward-thnkng people a smple way to engage n the poltcal conversaton, and to feel good by dong good. User Drecton and Control of Contrbutons. To make poltcal contrbutons usng MyChange, a user frst downloads the MyChange app or accesses Ae MyChange webste and nputs the relevant nformaton regardng Ae user's cr^t cards and debt cards that the user wshes to have rounded-up, ncludng the user's account credentals (.e. user name and password) wth each card ssuer. Next, the user selects organzatons and canddates of her nterest and assgns a percentage of her monthly round-up donaton to up to three recpents per card. At any tme, the user may also set a monthly cap on LCGAL127474S33.S AaMKCMLIP AOR001

2 Federal Electon Conunlsson Page 2 contrbutons; choose to double or trple ther monthly round-up; or choose to add addtonal credt or debt cards. All users who choose a poltcal commttee as a recpent organzaton wll be requred to agree to the followng statement: ns contrbuton s mack from my own funds, andfunds are not beng provded to me by another person or entty for the purpose of makng ths contrbuton. I am makng ths contrbuton wth my own personal credt card and not wth a corporate or busness credt card or a card ssued to another person. lam not a federal contractor. lam at least eghteen years old. lama U.S. ctzen or lawfully admtted permanent resdent (.e. green cardholder). If a user does not agree to ths statement, the MyChange app wll not accept the user's desgnatons and the user wll not be allowed to desgnate contrbutons to poltcal commttees. Users who select a poltcal conunttee as a recpent organzaton wll also be requred to submt ther occupaton and employer. Once each month, MyChange wll populate ts app wth addtonal poltcal commttees' and nonproft organzatons from whch users may choose to drect rounded-up funds. Poltcal commttees can request to do bsness wth MyChange by submttng a request on MyChange's webste. MyChange does not ntend to work wth any and all poltcal commttees that request to do busness wth t. Rather, MyChange wll apply a standard set of commercally-based ^tors to determne whether t wll work wth the commttee. These factors nclude whether the commttee s n good standng wth the Federal Electon Commsson ("FEC" or the "Commsson") (or, because MyChange ntends to nclude nonfederal canddates and conunttees on ts platform, wth de relevant state or local regulator), and the canddate or commttee's deology and values. MyChange wll enter nto terms of servce wth commttees that meet MyChange's crtera for the lmted purpose of facltatng the transfer of users' funds to the commttees' accounts. TtaHSfetnB UserFurds to DeSenatSd Pdltcal Cofhtrtttees Once each month, MyChange works wth a partner vendor to calculate the total round-up of the user's transactons. Next, MyChange's merchant servce provder uses MyChange's software to charge the user's personal credt and/or debt card(s) for the total amount of the round-up. The merchant servce provder sends that money to a merchant account. MyChange plans to establsh a merchant account separate from ts own treasury funds whch wll be used solely to depost users' rounded-up funds as charged to the users' credt and/or debt cards. ' MyChange wll allow users to desgnate authorzed commttees and commttees that make contrbutons to authorzed commttees. LXGAL127474S33.S F\!lmhCpeJ.r AOR002

3 Federal Electon Commsson September II,2015 Pages At the same tme the merchant servce provder charges the user's card(s), MyChange's software automatcally produces a spreadsheet record of all users' temzed contrbutons for the month and year-to-date, and all user's temzed contrbutons separated by recpent organzaton or commttee for the month and year-to-date. MyChange keeps a separate accountng of the contrbutons desgnated to each commttee and nonproft organzaton, and sends each recpent poltcal commttee and nonproft organzaton a monthly spreadsheet of all users' temzed contrbutons to the organzaton. Ths transmttal to poltcal commttees wll nclude all nformaton that poltcal commttees wll need to comply wth ther PEC reportng oblgatons, such as each user's address, occupaton and employer. Commttees and organzatons can also access the MyChange webste at any tme to download temzed contrbuton nformaton on an on-demand bass. Wthn one busness day of the monthly charge of users' cards, the merchant account processes an automated transfer of contrbutons as desgnated by the users to the applcable recpent commttee or organzaton, less a fee that s deducted from the user's funds before the funds are transferred to the recpent commttee(s). All transfers are made accordng to users* desgnatons; MyChange does not exercse any drecton or control over the transfers, except that MyChange may lmt the amount of the transfer to avod exceedng the relevant contrbuton lmt. The merchant account transfers the fee to FYP, LLC. The amount of the fee wll represent the relevant fees for MyChange to cover ts vendor and operatonal costs assocated wth transferrng users' f\mds, as well as a reasonable proft. At the end of each month, MyChange wll reconcle the merchant servces account to ensure the proper contrbutons have been forwarded to the proper recpent, as desgnated by the user. As part of the monthly reconclaton, MyChange wll (1) reconcle the total amount n the merchant servces account wth ts own nternal record of roun^ up funds receved; (2) reconcle the amount pad out of the merchant servces account to the total amount pad to each poltcal commttee and nonproft organzaton wth MyChange's nternal record or desgnated contrbutons to each recpent; and (3) calculate an overall account reconclaton to ensure the amount receved each month equals the total amount dstrbuted to recpents and the fees dstrbuted to MyChange. Fnally, also at the end of each month, MyChange automatcally emals a statement to each user descrbng the user's total round-up. Users have the ablty to add or remove cards and to adjust ther desgnatons at any tme. LEGAL ANALYSIS All aspects of MyChange's busness plan are consstent wth the Act and Commsson regulatons. Specfcally, none of MyChange's planned operatons results n an mpermssble contrbuton by MyChange to poltcal commttees, as explaned below. We respectfully request LEGALI27474S33.S rtok-wjju..lp AOR003

4 Federal Electon Commsson Page 4 that the Commsson confrm that MyChange's busness plan comples wth federal campagn fnance law. 1. Costs Pad by MyChange Users Represent the Normal and Usual Charge for MyChange's Servces The Act and Commsson regulatons generally prohbt corporatons and LLCs taxed as corporatons from makng a contrbuton n connecton wth a federal electon, and place lmts on the amounts that permssble sources may contrbute. See 52 U.S.C ; 11 C.F.R (b)(1). A contrbuton ncludes "anythng of value made by any person for the purpose of nfluencng any electon for federal offce." 11 C.F.R (a). "Anythng of value," n turn, ncludes all n-knd contrbutons, ncludng the provson of goods or servces at less than the usual and normal charge. Id (d)(1). "Usual and normal charge" s defned as the prce of goods n the market from whch they ordnarly would have been purchased at the tme of the contrbuton, or the commercally reasonable rate at the tme servces were rendered. Id (d)(2). a. "ne CommssbhJhas APDCdved PraErams Smlar to MvChange*S In ts prevous advsory opnons, the Commsson has permtted vendors to offer programs smlu to MyChange's (whch the Commsson often refers to as "affnty programs") provded two condtons are met ensurng that no prohbted contrbuton has taken place; Frst, that the vendor and the poltcal commttee enter nto a commercally reasonable transacton n whch the user or the poltcal commttee pays the usual and normal charge for servces provded; and second, that the amounts transferred to the poltcal commttee are from the ndvdual customer's funds and not from the corporaton's funds. See, e.g.. Advsory Opnons (REED Marketng; (Famos LLC); (ReCellular); (Workng Assets); (Provdan Natonal Bank). MyChange's proposed operatons meet the Commsson's two-part test for permssble affntylke programs. Frst, MyChange's users (rather than the recpent poltcal commttees) wll pay a fee to MyChange for MyChange's servces rendered n roundng up users' purchases and transferrng rounded-up funds to the users' desgnated commttee. The fee s calculated to cover all costs ncurred by MyChange n provdng the servces, ncludng transacton processng fees and other bank fees, and to provde MyChange wth a reasonable proft. The fee therefore represents the "normal and usual charge" for MyChange's servces as the Commsson has nterpreted ths requrement See, e.g.. Advsory Opnon (Atlatl). Second, the funds transferred to the recpent commttees represent users' funds, not MyChange's. Once each month, MyChange charges a user's credt card or debt card for the total amount of rounded-up funds on the card for that month. The user's ssung bank then transfers LEGAL127474S33.S nnhrttrowllp AOR004

5 Federal Electon Commsson Page 5 funds to a merchant account establshed by MyChange. The merchant account wll be separate \ from MyChange's treasury funds and s used only to hold users' funds desgnated for poltcal commttees and nonproft organzatons. The merchant account then transfers the users' funds to the recpent organzatons (less the fee). At no pont n ths process does MyChange exercse any drecton or control over any funds transferred to poltcal commttees. Accordngly, all amounts transferred are from the ndvdual user's funds, not from MyChange's funds. See Advsory ; Opnon (Workng Assets) (concludng that transfer of rebated and rounded-up amounts to poltcal commttees were contrbutons by customers, rather than the vendor, where the rebates and round-ups occurred n the ordnary course of the entty's busness and the user, not the entty, controlled the dsposton of rebated and rounded up funds). j MyChange s therefore smlar n all materal respects to several affnty programs the \ Commsson has approved n the past. The example wth facts closest resemblng MyChange s Advsory Opnon , where the Commsson approved a program offered by Workng Assets, Inc., allowng ts phone and wreless servce customers to desgnate a rebate valued at : 10% of ther monthly servce charges as a contrbuton to a poltcal commttee. Customers were! also allowed to contrbute by roundng up monthly charges and desgnatng the rounded-up amount as a contrbuton. Customers made ther desgnatons at the tme of enrollment; could 1 change ther desgnatons at any tme; and receved an annual notce allowng them to affrm or change ther desgnatons. Workng Assets deposted users' funds n a separate merchant \ account, and exercsed no dscreton or control over the dsposton of the funds. Under those smlar facts, the Commsson ruled that Workng Asset's roundng-up proposal compled wth the Act and FEC regulatons. b. The Commsson Allows the User. Rather than the ftedpent^outcal Commtteffe. to Pay the Normal and Usual Charge The Commsson has also made clear that no contrbuton from a vendor to a poltcal commttee results when an entty engages wth the user who wshes to utlze the entty's servces and the user pays (rather than a benefcary poltcal commttee) the entty's fees. In such stuatons, the Commsson has taken the vew that the vendor s offerng servces to ts users; t s not provdng servces to the recpent commttee. See Advsory Opnons (Crowdpac); (Democracy Engne); (Brooks) (comparng such servces to "delvery servces, bll payng servces, or check wrtng servces."). Where an entty "s provdng servces only to the [user], and not to any poltcal commttee" the Commsson has found that the servces do "not result n mpermssble contrbutons " Advsory Opnon (Where servces are provded "at the request and for the beneft of the contrbutors, not of the recpent poltcal commttees," then the servces do not "releve the recpent poltcal commttees of a fnancal burden they would otherwse have to pay for themselves. For ths reason the servces provded to contrbutors were not consdered to be contrbutons to the recpent poltcal commttees."). LEOAL127474S33.S AOR005

6 Federal Electon Commsson Paged 2. MyChange Does Not Make an Impermssble Contrbuton by Declnng to Work wth Certan Poltcal Commttees As dscussed, MyChange provdes contrbuton roundng and transfer servces to ts users, and those users wll pay the normal and usual fee for such servces. Because the normal and usual charge s pad, and because the funds are those of MyChange's users* funds, MyChange does not make a contrbuton to the poltcal commttees t transfers contrbutons to. Ths s true even f MyChange chooses not to work wth all poltcal commttees that request access to MyChange-s app, and t s true even f MyChange excludes certan commttees based on deologc^ factors. The Commsson has long held that a vendor does not need to work wth any and all poltcal commttees n order to avod makng an n-knd contrbuton to the commttees t does work wth. In Advsory Opnon , for example, the Comtrusson allowed CTIA to set varous j crtera mportant to CTIA's busness to determne a commttee's elgblty to contract for CTIA's servces. In that opnon, the Commsson ruled that "a vendor may establsh and apply elgblty crtera to poltcal commttees n order to protect the commercr vablty of the vendor's program." Advsory Opnon (CTIA- The Wreless Assocaton). Smlarly, n Advsory Opnon , the Commsson permtted a vendor to (A) work exclusvely wth party conunttees and nonconnected PACs, and not provde servces to authorzed canddate commttees or separate segregated funds; and (B) fhrther lmt the partes and PACs t would work wth based on crtera mportant to the vendor's busness such as the potental for long-term customer commtment and the customer's credt ratng. Advsory Opnon (Workng Assets). MyChange's busness plan hnges on workng wth canddates and commttees that meet MyChange's elgblty requrements. For example, MyChange wll not enter nto terms of servce wth commttees that are not n good standng wth the Commsson or wth relevant state regulators. It s also vtal to MyChange's busness that MyChange enter nto terms of servce only wth poltcal commttees that share MyChange's users' deology and values. If MyChange were oblgated to work wth commttees wth competng values, the company's busness relatonshps wth ts core base of lke-mnded poltcal commttee clents would be harmed. In other words, applyng an deologcal crteron to potental commttee partners preserves the commercal vablty of MyChange's program. Therefore, under the FEC's past precedents MyChange can choose as a busness matter to exclude commttees of a certan poltcal party or canddates who hold a certan polcy poston wthout makng an n-knd contrbuton to the commttees MyChange does choose to work wth. 3. MyChange's Contrbuton Processng System Meets Commsson Requrements MyChange users can desgnate poltcal commttees and other nonproft organzatons as recpents of the users' rounded-up funds. MyChange plans to process all rounded-up funds LEGALI27474S33.S nstoncol-iip AOR006

7 Federal Electon Commsson September 11,20 IS Page? through a sngle merchant account, and, accordngly, antcpates the account wll sometmes process fmds from users who are prohbted sources under the Act, such as federal contractors or corporatons, who are makng contrbutons to organzatons other than poltcal commttees. The Commsson has requred that amounts a vendor transfers to a poltcal commttee must be from ndvdual customers' funds and not from mpermssble sources such as the vendor's own! treasury funds. See, e.g.. Advsory Opnon (Dgtal Correctons). MyChange beleves ; the merchant account comples wth Commsson regulatons because (1) MyChange has specfc recordkeepng systems n place to ensure that only funds from permssble sources flow to 1 poltcal commttees, whle fmds desgnated by an mpermssble source for a nonproft organzaton flow only to the nonproft and not to a poltcal commttee; and (2) the payment process through the merchant account s substantally smlar to the normal credt card payment process frst approved by the Commsson n When a poltcal commttee accepts credt card contrbutons, the commttee receves the funds before the ndvdual contrbutor pays hs or her credt card bll. Whle the payments from the ssung bank are drect proxes for the donor's poltcal contrbutons, the payments do not consst of the donor's actual funds, they consst of the ssung bank's own corporate treasury funds. The Commsson approved ths payment process n Advsory Opnon (Seth). At that tme, the Commsson made no comment on the fact that Ae funds flowng to the! poltcal conunttee orgnated from the corporate treasury funds of the ssung bank and dd not requre the ssung bank to segregate funds from permssble donors from other funds. Whle some of the Conunsson's past precedents generally dsallowed an affnty program vendor from commnglng permssble and mpermssble funds, those opnons appear to be overruled n Advsory Opnon (m-qube I). In that opnon, the Commsson dd not \ requre the requestor to establsh a separate account, n part because the requestor establshed a suffcent trackng system to "ensure[] that poltcal contrbutons are properly accounted for." Id. In ths opnon, the Corunsson explctly overruled ts pror advsory opnons regardng the comnglng prohbton when vendors have establshed adequate systems to track contrbutons. Subsequently, the Commsson reaffrmed ths poston n Advsory Opnon ] (Revoluton Messagng). As explaned above, MyChange keeps such separate records for all enttes t works wth, whether poltcal commttees or other types of nonproft organzatons. MyChange wll conduct several reconclaton processes on an ongong, monthly bass to ensure fmds are properly accounted for and dstrbuted accordng to users' desgnatons. In other words, MyChange has trackng systems and preventatve measures n place such that (1) t wll only transfer to poltcal commttees the permssble funds desgnated to those commttees; and (2) the merchant account wll never be n a poston where t does not have suffcent permssble fmds to transfer to poltcal commttees and must nstead transfer mpermssble funds. Gven such measures. LKGAL r^lmncrnra^ AOR007

8 Federal Electon Commsson Page 8 MyChange's payment processng system does not result n prohbted contrbutons to any poltcal conunttee. Concluson FYP, LLC requests the Commsson's confrmaton that all aspects of ts MyChange busness plan descrbed above comply wth federal campagn fnance law. If the Commsson camot provde such confrmaton, FYP, LLC alternatvely requests confrmaton that the MyChange busness plan would comply wth federd campagn fnance law If.MyChange requred all users (rather than just userjs who, desgn^tlbd h'er ^unded-up funds to (^lteal commttees) to certfy that they are.qualfed to cbntnb.ute:to.f^e.ra.!.pql tcd commttees, such that MyChange would not pro.qes.s9ny.contrjbujtsns ftom a fser whb-faled to certfy that he or she s not a federal contractor or foregn natonal, and was usng only a personal credt card. We apprecate the Commsson's consderaton of ths request. Very truly yours. Reese Tyler J. Hagenbuch Counsel to FYP, LLC LEGALI naknnodlp AOR008

9 Page 1 of2 RE: FY? LLC pre-aor: follow-up to telephone conversaton Reese, Ezra (Perkns Coe) to: EGyory@fec.gov 09/22/ :50 AM Cc: "Hagenbuch, Tyler J. (Perkns Coe)", "ARothsten@fec.gov" Hde Detals From: "Reese, Ezra (Perkns Coe)" <Ereese@perknscoe.com> To: "EGyory^ec.gov" <EGyory@fec.gov>, Cc: "Hagenbuch, Tyler J. (Perkns Coe)" <'IHagenbuch@perknscoe.com>, ^ "ARothsten@fec.gov" <ARothsten@fec.gov>? Hstory: Ths message has been forwarded. ; Ms. Gyory, : The nformaton below s accurate. \ Very truly yours, Ezra Reese Ezra W. Reese Perkns Coe LLP PARTNER 700 Thrteenth Street, N.W. Sute 600 ) Washngton. DC ' F E.-! " " From: EGyory@fec.gov rmatb^gyqrygtfec'qovl Sent: Monday, September 21, 20l5 3;'47 PM To: Reese, Ezra (Perkns Cole) Cc: Hagenbuch, Tyler J. (Perkns Coe); ARothsteln@fec.gov Subject: FYP LLC pre-aor: fbllow-up to telephone conversaton Dear Mr. Reese, Thank you for takng the tme to talk wth us Frday and today and to answer our questons regardng the pre-aor submtted on behalf of FYP LLC. Below s a summary of nformaton that you provded to us. Please ether confrm that the nformaton below s accurate, or respond wth any necessary correctons or clarfcatons. 1. For the purposes-of the advsory opnon request, the Commsson should assume that FYP LLC has elected to be treated as a corporaton fbr federal tax purposes. 2. The requestor asks that the Commsson opne on whether the fees pad by a contrbutor to FYP LLC would have to be ncluded n the total amount of the contrbuton to a recpent poltcal commttee. 3. A contrbutor partcpatng n the MyChange program wll be able to cancel or wthdraw from the program at any tme, and the cancellaton wll be effectve mmedately, f a contrbutor cancels or wthdraws before funds are deducted from hs or her credt or debt card, then the credt or debt card wll not be charged. 4. The requestor wll notfy contrbutors of the total amount charged to ther credt or debt cards shortly after chargng the cards. The requestor wll not notfy contrbutors n advance of chargng ther credt or debt cards. 5. Each potental recpent poltcal commttee and nonproft organzaton wll be assgned a unque URL to enable the requestor and ts merchant servces provder to track donatons and contrbutons to each recpent I AOR009

10 Page 2 of2 6. The requestor sjoes not ^lan td-arrange wth poltlga! GornrT;ttee.s;to- market, the MyChange program to'tha portcal commttees' members qr cohtrbutors, athough.poltcaj commttees may wsh to'market the prbgrarh themselves. The requestor plans to advertse the progrem-o the publc, rather than marketg only to a targeted group. 7. The requestor wll charge users a flat fee, calculated as;a percentage, of the.total funds dedcted from the user's credt or debt card. The fee wll cover the cost of cpllectng the user^s nformaton and trahsmlfthg s;uch Informaton to the recpent poltcal commttee or nonproft organzatorr. The amount of the foe wll b'e the sameregardless of whether the recpent of the funds Is a poltcal commttee or a nonproft organzaton. 8. The requestor's busness relatonshps are wth the Indvduals who use MyCharge to make donatons and contrbutons, and not wth the poltcal commttee recpents of contrbutons (apart from the lmted contractual relatonshps necessary to effectuate transfors). The reference n the request to "the company's busness relatonshps wth, ts core, base of lke-mnded poltcal commttee clents" (AOR at 6) s ntended to refer to the requestor's relatonshps vyth ts ndvdual users who use the servce.to make contrbutons and donatons. 9. If a user wshes to' make a (fontrbutlon to a poltcal commttee or nonproft organzaton not currently among those offered by the MyChange program, MyChange wll consder that request and wll apply the same set of standards to determne whether.the poltcal commttee or nonproft organzaton shares MyGhangO Users' deology and values. We would apprecate your response by emal. Your response may be consdered to be part of your advsory opnon request; If so, t wll be posted as such on the Commsson's webste. Sncerely, Esther Gyory Attorney, Polcy Dvson Offce of General Counsel Federal Electon Commsson (202) NOTICE: Ths communcaton may contan prhleged or othar confdental nformaton, f you tave receved t n error, pleasa advse le sender ty reply emal and mmedately delete the message and any attachments wthout copyng or dscosng the contanls. Thank you. AOR010