California Enacts Law to Regulate Online Fundraising Platforms

Fundraising platforms, and the whole online giving ecosystem, is changing – and in a big way. On October 7, 2021, California Governor Gavin Newsom signed into law Assembly Bill 488. This is the first law of its kind that aims to regulate online fundraising, and it gives the state of California oversight of the modern methods of charitable giving. According to the press release from the office of California Attorney General, it “authorizes the California Department of Justice to exercise supervision over charitable fundraising occurring on internet platforms to protect donors and charities from deceptive or misleading solicitations.” 

With the incredible growth of online fundraising over the past several years, there was a gap in the regulatory framework. In order to close this gap and ensure transparency, there will be new registration and reporting requirements, donor disclosure requirements, and other measures that will safeguard the act of giving on the internet.

Previously, anyone could raise money for a nonprofit, and it was a rather arbitrary process. It was the individual’s responsibility to determine whether it was a donation to a legitimate nonprofit, and then claim it as tax-deductible. With this new law, it will become much more concrete. Since nonprofits utilize 3rd party services to facilitate their online fundraising, these platforms will be held to a much higher standard of regulation. And instead of being monitored solely by the IRS, they will also have to report to the California Attorney General’s Registry of Charitable Trusts.

Let’s take Classy, for example. When someone makes an online donation via Classy, the funds get housed in Classy before they are transferred to the nonprofit. Since Classy is the online platform facilitating this exchange, they must adhere to the new key requirements.

The new law also applies to donations from other alternative fundraising sources (Facebook, Venmo, PayPal, AmazonSmile, etc).  It even impacts commercial coventures, such as a corporate matching program or donating a portion of a sale to benefit a nonprofit.

There is a lot to take in with this big change . Thankfully, there are many legal resources and experts who are able to break it down it for you. But if you want to read the full bill, you can find it here.

This means that you need to make extra sure that the platform you are utilizing meets all these requirements to a T, or you risk jeopardizing your online reputation in a big way. While a great deal of this new law is written in regards to how fundraising platforms operate, it is up to the individual nonprofits to provide the necessary information to the platform and ensure they integrate the tools appropriately on their own website in order to stay in compliance. 

While this won’t go into effect until 2023, you don’t want to wait until the last minute to get your tech stack in order and risk losing your “good standing” status. Even temporarily. You want to give your donors the confidence that their gift is being handled appropriately, and you want to continue to be able to raise the most money to do the most good. You have a year to get ready for the new age of online fundraising, and Mittun can help.