California Proposes New Regulations Regulating Nonprofit Crowdfunding

Our colleagues over at the Nonprofit Law Blog, not to be confused with this Nonprofit Law Prof Blog, have an interesting post about Califo0rnia's proposed regulations pertaining to nonprofit online solicitation.  My first reaction was "good grief, 65 pages of regulations just to make sure that fools and their money are not parted via the internet!?"  Here is a summary from the Nonprofit Law Blog of what the law requires: 

• Charitable Fundraising Platforms and Platform Charities should ensure compliance with the law’s good standing requirements for charities.  (Gov. Code, § 12599.9, subds. (a)(3) and (d).)  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. The Internal Revenue Service’s list can be found here.
• Donations cannot be diverted or misused, and shall be maintained in a separate account from other funds belonging to a Charitable Fundraising Platform or Platform Charity.  (Gov. Code, § 12599.9, subd. (h).)
• Charitable Fundraising Platforms and Platform Charities are required to make disclosures that prevent the likelihood of donor deception or confusion, when applicable. (Gov. Code, § 12599.9, subds. (e) and (f)(2)(B).)  For information on the proposed regulations on this, see Section 314, subdivision (a), in the latest proposed regulations.
• Solicitations for “non-consenting” charities must comply with Government Code section 12599.9, subdivision (f)(2).

Here is a brief summary from that blog of some of the newly proposed regs:

In 2021, California passed a new set of laws (referred to as AB 488) regulating charitable crowdfunding that go into effect on January 1, 2023. The state’s Department of Justice (DOJ) initially proposed regulations implementing AB 488 in May 2022, but following comments and feedback at a public hearing in July, the DOJ proposed modified regulations on November 21, with a comment period that ended on December 7. There have been substantial revisions. Not surprisingly, the DOJ proposes to delay the effective date of the new and modified regulations to January 1, 2024. Below are some general summaries of the changes in Article 1, Registration, Reporting, and General Supervision of Trustees and Fundraisers (caution: many details and exceptions are not covered here, and the proposed regulations are not law).

Note the [extremely] long-arm [world-wide, even] jurisdiction implicitly asserted in the definition of a Charitable Fundraising Platform (snippets taken from the Nonprofit Law Blog):

Definition of a Charitable Fundraising Platform

Charitable fundraising platform means 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 performs, permits, or otherwise enables acts of solicitation to occur, which includes the following and any similar activity:

(A) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by donors who use the platform.

(B) Permits persons who use the platform to solicit donations for or recommend donations to be granted to one or more recipient charitable organizations through peer-to-peer charitable fundraising.

(C) Permits persons who use the platform to select one or more recipient charitable organizations to receive donations or grants of recommended donations made by a platform, platform charity, or other third party person, based on purchases made or other activity performed by persons who use the platform.

(D) Lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform.

(E) Provides to charitable organizations a customizable internet-based website, software as a service, or other platform that allows charitable organizations to solicit or receive donations on or through the platform, including through peer-to-peer charitable fundraising. The customizable platform provided by the charitable fundraising platform does not include the charitable organization’s own platform, but may integrate with the charitable organization’s platform.

Gov. Code Sec. 12599.9(a)(1) . . . 

Registration and Filing Requirements for Charitable Fundraising Platforms (CFPs) and Platform Charities (PCs)

A CFP is subject to (1) an initial registration (Form PL-1) accompanied by a $625 registration fee and (2) an annual registration renewal (Form PL-2) due by January 15 of each applicable year.

A PC must also register and file annual reports. In addition, it must file a notification (Form PL-3) when it enters into a partnership with a CFP to facilitate acts of solicitation on the CFP no later than 30 days after the partnership was entered unless notification was previously provided.

A CFP or PC must file an annual report (Form PL-4) with the Attorney General (AG) on or before July 15 for fundraising activities of the previous year. Certain information that is confidential or a trade secret can be submitted in an attachment to keep it separate from the information available for public inspection. However, the AG can deny this with notification and require an amended Form PL-4.

When a registrant CFP retains a PC or another CFP (“Partner”) to facilitate solicitations performed, permitted, or enabled by the registrant CFP, the registrant CFP’s Form PL-4 may be filed by the Partner, subject to certain conditions.

Does this mean that a small charity in Bunnell, Florida that has a website visible by Clint Eastwood in his gazillion dollar California ranch home is subject to the law's requirements?  Here is a brief primer from ReedSmith.

 

dkj