Twenty-three state regulators have now reached a deal with a prominent online payments processor to address that company’s insufficient disclosures on its platform. We explain why that matters to you.
Many financial institutions solicit customers for charitable donations, and some for charities they control.
One of the world’s largest online payments processors has a charitable affiliate that solicits the parent company’s customers for a variety of noble causes. As a duly registered charity, the charity accepts donations from individuals and then makes grants to charities selected by those individuals. Selected charities that appear on the platform are vetted by the charity before the distribution occurs. In some cases, a donor’s selected charity does not pass the charity’s vetting requirements, and the charity redirects the charitable funds to a similar charity that has been approved through the vetting process.
Beginning in December 2016, the charity also began listing on its parent company’s website charities that had not enrolled with the charity but were on a third-party list of charitable organizations. This change triggered an investigation by the attorneys general of Arkansas, Colorado, Connecticut, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Washington, D.C., and Wisconsin, along with the North Carolina secretary of state.
The charity later suspended the listing of unenrolled charities on its platform, but the AGs found additional problems. They expressed concern that the charity did not sufficiently disclose that a charity would receive its contributions more quickly if it maintains an account with the online processors, that a donation would not be made to the intended charity if it failed to pass the vetting process, and that the money would instead go to a different organization with similar purposes without notice to the donor.
Although the charity denied any liability, it agreed to an Assurance of Discontinuance with the state regulators. The deal provides that the charity make several “unavoidable and prominent disclosures,” defined as information that appears on a page that each and every donor must access prior to donating to the charity, and that it is immediately proximate to a necessary field or button used by each donor.
The agreed-upon disclosures include a statement that the donors are making donations to the charity itself, and not to the charity they select, and that the charity has the ability, under defined circumstances, to reassign funds to a similar charity.
In addition, the charity will provide notice to donors when it exercises its variance power and redirects a donation to an organization other than the donor-selected charity, and will refrain from using language implying that potential donors are making a donation directly to their chosen charity.
The charity also promised to make a $200,000 donation to the National Association of Attorneys General’s Charities Enforcement and Training Fund.
To read the Assurance of Discontinuance, click here.
Why It Matters
In addition to reinforcing state oversight of donation platforms and cause marketing programs, this investigation serves as a good reminder that in 2018, the Federal Trade Commission (FTC), in response to its own concern that such portals can inadvertently create donor confusion, published guidance for online retailers, social media hubs, crowdfunding sites and other online platforms that provide a list of charities people can choose to support directly from the online platform.
The FTC’s central message when it released the guidance was this: provide donors with clear information about how the donated money is allocated. Not only are donors more likely to understand how the process works, but also it helps ensure that the giving portal complies with advertising law principles. “It’s important to provide clear and truthful information to donors,” the FTC wrote. Among other things, the portals should disclose who distributes the donor’s money and should make it clear to donors if the charity will not receive the money directly or immediately. Portals should also disclose whether any fees are related to the donation, by stating the total amount or percentage of the contribution that the charity will receive.
Furthermore, portals should disclose whether donor information will be shared, when the charity will receive the donation, what happens if the giving portal cannot get the donation to the charity, how often this happens and how the donation will be treated under these circumstances. The FTC suggested that donors be provided with the ability to choose whether they want their information shared. Giving portals should also “be obvious,” the agency advised. The important information “should not be in fine print, buried at the bottom of a page or in a poorly labeled hyperlink,” the FTC said. “Donors must be able to see the key information and disclosures before giving through online portals. In evaluating whether a disclosure is clear and conspicuous, consider its placement on the page and its proximity to the relevant claim.”
Finally, the FTC emphasized the need to truthfully describe the designated charities and the portal’s relationship to those charities. According to the guidance, “using specific and plain language to describe what type of screening (if any) is done before a charity is included on the giving portal can help avoid creating a false impression that a charity is recommended or otherwise evaluated or endorsed by the giving portal.”
Consulting state law is also essential because many states have their own rules and regulations about what a third party can and cannot say about a designated charity or what disclosures are required when raising money on behalf of a fund or charity.