(image from pixels.com)
By Karen I. Wu
California’s first-of-its-kind law regulating online charitable fundraising platforms has been amended to address key operational hurdles. Assembly Bill 2221, approved by the governor this past September 27 refines the regulatory framework established by AB 488 and its implementing regulations, easing several compliance burdens that arose after the original legislation took effect.
Under AB 488, a number of requirements, restrictions, and administrative procedures created significant challenges for fundraising platforms and inadvertently caused thousands of charities — both in California and nationwide — to lose access to online donations. While AB 2221 does not resolve every challenge created by the original framework, it provides several critical changes that will streamline operations and help ensure that donors’ contributions support the charities they choose.
Following is a summary of the key legislative updates in AB 2221 and the issues they address.
Amends the provisions governing “good standing” of charitable organizations
Perhaps the most consequential aspect of AB 2221 is its updates to “good standing” procedures. AB 488 required that charitable fundraising platforms and platform charities may facilitate donations only for the benefit of charitable organizations in good standing.
“Good standing” was originally defined to include that the charity’s tax-exempt status is not revoked by the Internal Revenue Service (IRS) or the California Franchise Tax Board (FTB), and that the charity is not prohibited by the California Attorney General from soliciting or operating in the state.
When the original law took effect in 2023, thousands of charities were suddenly blocked from receiving online donations for failing to meet this good-standing requirement. Many, if not most, of those good-standing issues stemmed from minor, ministerial issues with the charities’ California solicitation registration filings, although some charities were also blocked due to revocations by the FTB or the IRS.
Good-standing issues with all three agencies took months to resolve due to agency backlogs, leaving organizations unable to receive significant sources of funds through the fundraising platforms they relied on to facilitate their online fundraising efforts.
AB 2221 simplifies the “good standing” procedures by removing IRS revocation from the definition of good standing. While some stakeholders advocated that FTB revocation should also not disqualify a charitable organization from receiving donations through a fundraising platform, FTB status remains part of the good-standing framework.
The amendments clarify that good standing includes not being prohibited from soliciting or operating in California “on the basis of a cease-and-desist order, delinquency, suspension, or revocation by the attorney general.” They also add newly established procedures to the law to ensure that organizations have a meaningful opportunity to correct filing issues before they are deemed out of good standing.
Grounds for delinquency include but are not limited to: (1) failure to timely file periodic written reports; (2) failure to timely file completed annual fundraiser reports; and (3) failure to timely pay late fees.
The following procedures have been added to ensure that appropriate due process is provided before a charity is deemed to be out of good standing. These procedures also apply to all other individuals or entities subject to charitable registration requirements in California, including commercial fundraisers, fundraising counsels, and commercial coventurers.
* Before a person or entity’s registration becomes delinquent, the state attorney general must provide a notice indicating the reasons for the deficiency and 60 days to respond. If no response is provided, a second notice will be sent. If no response is submitted within 60 days of the second notice, a third notice will be sent indicating that the registrant is delinquent.
* Effective beginning January 1, 2028, for individuals or entities submitting a new registration or resolving an expired/delinquent registration, if the attorney general has not processed the filing within 15 calendar days, the registration will be deemed in good standing. If a registration filing is deficient, the attorney general must issue a notice, and the registrant has 30 days to respond.
This notice process must be repeated through up to three rounds of notices and responses. By January 1, 2028, the Attorney General’s online filing service and related systems must also support comprehensive electronic administration, including prompt confirmation and automated processing of filings submitted by charitable organizations.
* In addition, an administrative action must be taken in accordance with certain regulatory procedures before a person or entity’s registration can be suspended or revoked, or the person or entity can be subject to a cease-and-desist order.
Collectively, these amendments should significantly reduce the number of organizations blocked from receiving donations on fundraising platforms and help ensure that critical funds reach the charities donors wish to support.
Authorizes fundraising platforms to establish a minimum donation threshold before sending funds
Fundraising platforms that facilitate online donations (specifically, those that facilitate Solicitation Type A or Solicitation Type B donations, which generally include donations made by individuals through a variety of websites or mobile apps, including as part of peer-to-peer fundraising campaigns) can set a minimum threshold, not to exceed $10, before sending donations to the recipient charity.
The minimum threshold must be disclosed, and in all cases, funds donated (even if they total less than $10) must be sent within 12 months after the donation is made.
The law previously required all such donations (even if less than $10 in total) to be sent to charities within 30 days of the end of the month in which the funds were donated. This amendment helps reduce the operational burden and costs associated with sending small donations.
Permits the alternative disposition of funds if a recipient charity is unable to receive funds
Under the regulations adopted pursuant to AB 488, if a recipient charity was not in good standing, the fundraising platform was required to contact donors who had donated to that charity and ask them to select an alternate charity. This requirement proved extremely burdensome in many contexts, including small donations raised through online customer donation campaigns at checkout.
Under the amendment, fundraising platforms must disclose the alternative disposition for donated funds that cannot be sent to a recipient charity, which may include: (1) the fundraising platform can contact the donor and ask the donor to select an alternate charity; (2) the fundraising platform or a platform charity can select an alternate charity; or (3) for Type A, B, or E solicitations, donations of $10 or less may be refunded.
Makes adjustments to ease burdens on customer donation campaigns at checkout
AB 2221 eases some of the burdensome regulations affecting retail businesses that conduct round-up or other customer donation campaigns:
* Fundraising platforms that invite customers to donate at checkout can now provide most of the required disclosures via a conspicuous hyperlink. These disclosures include:
(1) if applicable, a statement that a recipient charity may not receive donations or grants of recommended donations, with an explanation identifying the circumstances under which a recipient charity may not receive the funds and any alternative disposition of funds;
(2) the length of time it takes to send the donation or a grant of the recommended donation to a recipient charity;
(3) the fees or other amounts (if any) deducted from or added to the donation or a grant of the recommended donation; and,
(4) whether the donation is tax-deductible. One disclosure that must remain directly visible to all potential donors is a statement identifying who is receiving the donation (e.g., the designated recipient charity, or a platform charity that will grant the donated funds to a recommended recipient charity). Given the limited space and other design constraints for incorporating disclosures within a typical checkout user flow, this amendment should reduce the burden on retailers to comply with these disclosure requirements.
* Retailers and similar fundraising platforms that invite customers to donate $10 or less at checkout no longer need to provide a way for such donors to share their contact information with the recipient charity.
* As noted above, if the donated funds cannot be sent to the originally designated recipient charity (e.g., if that charity is no longer in good standing), fundraising platforms have more options for handling the funds than returning them to donors and asking them to choose alternate charities (a procedure that is highly impracticable in a customer checkout situation where donations range from a few cents to a few dollars each and the volume of such donors is massive). Potential alternative dispositions, including the fundraising platform or platform charity selecting an alternative charity, or the issuance of refunds for donations of $10 or less, are permitted, provided they are appropriately disclosed.
While most of the provisions of AB 2221 ease the burdens on fundraising platforms, the amendments added a restriction: customer donation campaigns are permitted only for recipient charitable organizations that have provided written consent, thereby eliminating a previously available consent-exception procedure.
The enactment of AB 2221 is the result of significant stakeholder advocacy by the California Association of Nonprofits and the Giving Platform Collaborative, a membership community representing giving platforms and aiming to foster a thriving, impactful philanthropy sector through seamless collaboration among them (note: Perlman & Perlman is an active member).
*****
Karen Wu is a partner with the law firm Perlman & Perlman. Her email is Karen@perlmanandperlman.com
