Online Fundraising Platforms to Face Stricter Regulations in California

Several years in the making, a new California law will allow the state’s Department of Justice to begin supervising online fundraising platforms, starting in 2023. Gov. Gavin Newsom signed the bill into law earlier this month.

The law does not apply to sponsor organizations of donor-advised funds or nonprofits that only fundraise on their own behalf. Instead, the law will impact fundraising platforms — like those used in peer-to-peer and crowdfunding efforts, among others — that operate in California or simply solicit contributions in the state.

The California Association of Nonprofits, known as CalNonprofits, supported the bill, which it felt supported donors and nonprofits, and aligned with the association’s crowdfunding principles.

“This legislation impacts every single person who clicks on that ‘donate now’ button and every single nonprofit that receives funding this way,” Jan Masaoka, CEO of CalNonprofits, said in a blog post. “It may be low-profile, but it’s most certainly high-impact and meaningful.”

The law aims to protect donors and charities from deceptive or misleading solicitations. The state’s Department of Justice already oversees charities and regulates fundraising on behalf of all charitable purposes in the state, but with the surge in online fundraising platforms, the state’s law, as written, wasn’t sufficient to reach online fundraising. The state found that resulted in deceit and mistreatment of charitable donations in some instances that the state was unable to regulate or enforce via existing oversight laws.

More specifically, the new law will develop two new groups within the state’s oversight — “charitable fundraising platforms” and “platform charities.” Those entities will join charitable corporations or trustees, commercial fundraisers, fundraising counsels and coventurers,” to which the law currently applies. Some of the requirements those new entities will now have to follow include:

• Have written consent from the nonprofit for which they are soliciting funds.
• Provide transparency disclosures on their sites.
• Distribute donations to nonprofits promptly — quarterly in most cases.
• Send donors tax deductibility statements.
• Prohibit solicitations for charities not in good standing with the state’s Attorney General’s Registry of Charitable Trusts.

The law requires a $250 registration fee to the state by Jan. 15 annually as well as annual reports filings. Missed deadlines for required documents result in $25 per month late fees. The reports will allow the state oversight on whether funds have been properly solicited, received, held, controlled or distributed by tracking the number of donations made, amounts raised, distribution durations and platform fees. However, the reports will not require personally identifiable donor information.

“In the midst of a record-breaking wildfire season and a global pandemic, Californians have opened their hearts and their wallets to charities across the state, the nation, and the world,” California’s Attorney General Rob Bonta said in a statement. “As charitable fundraising moves increasingly online, [assembly bill No.] 488 will provide my office with the ability to properly supervise third-party internet platforms and safeguard the proper treatment of Californians' donations.”