Almost two dozen states announced that they have entered into a multi-state settlement agreement with PayPal Charitable Giving Fund (“PPGF”) to ensure that donors have adequate information to make informed decisions when giving through PPGF’s online fundraising platform.  As part of the settlement, PPGF has agreed to implement a significant number of changes to its website disclosures.

PPGF, the charitable arm of PayPal, Inc., is a 501(c)(3) tax-exempt nonprofit that allows donors to contribute funds online to PPGF and select a charity that will ultimately receive the benefit of their contribution. Donors’ contributions are aggregated and distributed to the donors’ chosen charities.

The state regulators’ concerns focused on PPGF’s disclosure and grantee vetting practices. Specifically, their concerns included whether PPGF adequately disclosed to donors that (1) donations made through the PPGF website were made to PPGF rather than the intended charity selected by the donor, (2) that PPGF could reassign a donation by exercising its “variance power” when the selected charity did not pass PPGF’s vetting process, and (3) the length of time for donors’ donations to reach the intended charities.  While PPGF does not collect fees from donors or charities for this service, charities receive contributions more quickly if they maintain a PayPal account, a fact that the regulators claim had not been adequately disclosed.

The agreed upon reforms focus on modifying the disclosures to ensure that donors know: (1) that they are donating to PPGF rather than the selected charity, (2) that PPGF has the ability to reassign funds to a similar charity and the circumstances when PPGF may reassign funds, including a clear explanation of any vetting processes, (3) the fees associated with use of the platform (or the absence of fees), (4) the expected time frame for the selected charity to receive the grant, and (5) the implications of being an enrolled charity vs. an unenrolled charity[1]. PPGF also agreed to notify donors when it redirects a donor’s charitable contribution to an organization other than the one selected by the donor.

Of particular note is PPGF’s commitment to make many of these disclosures “unavoidable and prominent,” which means that “the information is not included in an optional pop up window or on another page accessed by a link on the original page. It also means that the information must be located on a page that each and every donor must access prior to donating to PPGF and in a position on that page that is in immediate proximity to a necessary field or button used by each and every donor.” PPGF’s agreement to notify donors when their donation is redirected to another organization may also set a new industry-leading standard of transparency among online platforms that utilize an intermediary charity to facilitate donations to various causes.

As part of the settlement, PPGF has donated $200,000 to the National Association of Attorneys General (“NAAG”) to help defray costs associated with charity regulators’ enforcement activities, and to provide training and education to those regulators.

The states participating in the settlement include the attorneys general of Arkansas, Colorado, Connecticut, the District of Columbia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, and Wisconsin, as well as the Secretary of State of North Carolina.

State charity regulators’ concerns regarding transparency by online fundraising platforms are not new. Several years ago, the National Association of State Charity Officials (“NASCO”) posted tips on internet and social media fundraising to help charities and fundraising platforms understand their rights and obligations, and to help donors make informed giving decisions.  The guidance included tips directed at fundraising platforms, encouraging them to prominently disclose key information about the platform to better educate charities and donors using the platform.

In 2016, NASCO formed a Crowdfunding Working Group comprised of charity regulators from various states. Members of the working group collaborate to learn from each other how the states handle issues relating to fundraising via third party websites and social media.

Given the significant regulatory focus on donor disclosures in online fundraising platforms, companies operating such platforms should review their current website disclosures to ensure that key information is prominently disclosed to donors to help them make informed decisions when making charitable contributions through the platform.

[1] Charities that maintain a PayPal account are considered “enrolled charities.”