Regulation of Charitable Solicitation and Cause-Related Marketing

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1 Regulation of Charitable Solicitation and Cause-Related Marketing The State Bar of California Nonprofit Organizations Committee May 13, 2014 Nancy McGlamery and Emily Chan Adler & Colvin 235 Montgomery Street, Suite 1220 San Francisco CA (415)

2 Regulation of Charitable Solicitation 2

3 Regulatory Landscape 40 jurisdictions regulate charitable solicitation registration (39 states plus the District of Columbia) Varies state to state Enforcement typically by state Attorney General 3

4 In the News Exposés on the costs of fundraising and professional fundraisers Government investigations into domestic disaster relief charity fundraising scams Bad actors theft, fraud, embezzlement 4

5 California Statutory Scheme Supervision of Trustees and Fundraisers for Charitable Purposes Act (Cal. Govt. Code Sections et seq.) Control by the charity over fundraising activities No misrepresentations regarding purpose or beneficiary 12 prohibited acts and practices Charitable Solicitation Disclosure Law (Calif. Bus. & Prof. Code Sections et seq.) What is charitable solicitation? 5

6 California Filing Requirements Who must file? (Not exclusive to 501(c)(3)s!) Form CT-1, Initial Registration Form RRF-1, Annual Renewal/Report Schedule B Disclosure: CCP v. Harris Cal. Govt. Code Sections 12581,

7 Regulating Online Fundraising NASCO Charleston Principles (2001) Interactive website + (i) specifically targets persons physically located in the state or ii) receives contributions from state on a repeated and ongoing basis or substantial basis through its website; OR Solicits contributions through a website that is not interactive, but (i) specifically invites further offline activity to complete a contribution, or (ii) establishes other contacts with the state using communications that promote the website. Other issues? 7

8 Failure to Register/Report Charitable Solicitation Activity Lawsuits by Attorney General Cease and desist letters Civil penalties and fines Criminal penalties Revoked authority to solicit contributions 8

9 Multistate Filing Uniform Registration Statement more info at Single Portal Initiative more info at Filing costs Practical strategies for small nonprofits 9

10 Recent State Developments Arizona HB 2457 (effective Sep. 13, 2013) Colorado HB (effective Jan ) Delaware HB 187 (introduced) Florida SB 638/HB 629 (introduced) 10

11 Recent State Developments Maine (continued) LD 1277 (effective Oct. 8, 2013) LD 1799 (effective 90 days after the adjournment of 126th Legislature, Second Regular Session) Maryland HB 1352 (introduced) 11

12 Recent State Developments (continued) Nevada AB 60 (effective Jan. 1, 2014) Oregon HB 4081 (effective Jan. 1, 2015) Tennessee HB 1752 (introduced) 12

13 A Closer Look: Cause-Related Marketing 13

14 Who is a commercial co-venturer? Commercial co-venturer (CCV) defined by state law Cal. Govt. Code Section (a): 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. Commercial co-ventures commonly referred to as causerelated marketing or charitable sales promotion 14

15 Examples 15

16 Regulatory Landscape 16 Approx. 20 states specifically regulate CCVs (don t forget about charitable solicitation laws generally). Types of regulation (varies state to state): Reporting Contract requirements Disclosures* and reports Registration of commercial co-venturer Bonds * Approx. 12 states require ads to disclose the expected contribution; some states specifically require disclosure on a per-unit basis.

17 In the News Media criticism about cause-related marketing practices Criticism about mission alignment between charities and CCVs State investigations into cause-related marketing practices 17

18 California CCV Laws A CCV is not required to register or file periodic reports with the California AG provided that it meets certain requirements in three areas: Contract with the charity Transfer of funds to the charity Accounting of funds to the charity If CCV registration is required: Form CT-5CF and registration fee ($350) 18

19 California CCV Contract Cal. Govt. Code Section (b)(1): Written; Signed by two officers of the charity; and Entered into prior to representations to the public about the promotion. Other considerations: Licensing issue? Tax issues? 19

20 California CCV Transfers Cal. Govt. Code Section (b)(2): Transfer within 90 days after commencement of representations to the public about the promotion; and Subsequent transfers at the end of each successive 90-day period during which representations are made. 20

21 California CCV Accounting Cal. Govt. Code Section (b)(3): Provides written accounting to the charity sufficient to enable the charity to: Determine whether representations to the public on its behalf are accurate and correct; and Prepare its charitable solicitation reports to the California AG. 21

22 Doing Well by Doing Good? Challenges Mixed motives CCV regulation education Mission consistency Misrepresentations Public scrutiny EO tax laws Other legal requirements Opportunities Visibility/publicity Rise in sociallymotivated consumer behavior New revenue source New supporters Raise awareness Strategic alignment 22

23 New York Attorney General Five Best Practices for Transparent Cause Marketing 1. Clearly describe the promotion 2. Allow consumers to easily determine donation amount 3. Be transparent about what is not apparent 4. Ensure transparency in social media 5. Tell the public how much was raised 23

24 BBB Wise Giving Alliance Standards for Charity Accountability Standard #19: Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation: 1. The actual or anticipated portion of the purchase price that will benefit the charity (e.g., 5 cents will be contributed to abc charity for every xyz company product sold). 2. The duration of the campaign (e.g., the month of October) Any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).

25 Questions? Adler & Colvin 235 Montgomery Street, Suite 1220 San Francisco CA (415) Nancy McGlamery Emily Chan 25