AB 488: California Issues Final Regulations For Online Charitable Fundraising Law

California's AB 488, the first-of-its-kind statute regulating online charitable fundraising platforms ("CFPs") in the U.S., is finally becoming fully effective. While the statute was initially passed in October 2021 and purportedly effective on January 1, 2023, its implementing regulations have taken a tortuous path to finalization, with numerous draft regulations being issued in the ensuing years and final regulations (the "Regulations") only being published in March 2024. However, with the Regulations now finalized, all of AB 488's many new requirements will now begin to take effect. Most pressingly, as of June 12, 2024, online charitable fundraising platforms and platform charities need to register with the California Attorney General's Office (the "AG") prior to engaging in any online solicitations and begin tracking and reporting on their online charitable fundraising transactions, as more fully described below. 

Registration and Reporting Requirements Effective June 12, 2024; Online Filing Required

Beginning June 12, 2024, CFPs must register with the AG before "performing, permitting, or enabling" any online acts of charitable solicitation. Registration must be renewed annually by January 15. Each CFP must also start tracking its online charitable solicitation transactions beginning June 12, 2024, so that the CFP can submit its first annual report to the AG in 2025, summarizing all solicitation activity that occurred during the prior calendar year (i.e., 2024). The annual report is due by July 15 of each year. The AG has indicated that the initial annual report for any CFP that registers in 2024 will be due on July 15, 2025, and should report on all activity from June 12, 2024, to December 31, 2024.

All of the required filings must be made through the AG's Online Filing Service, which is now available on the Registry of Charities and Fundraisers' new Charitable Fundraising Platforms website at https://oag.ca.gov/charities/pl. While this registration and reporting requirement goes into effect on June 12, 2024, the AG has indicated that no late fees will be assessed if a CFP's initial registration is filed by October 12, 2024. The Charitable Fundraising Platforms website also includes FAQs and other instructions on both the registration process and the law as a whole.

Who and What Does AB 488 Regulate?

AB 488 regulates charitable fundraising platforms, which are defined as "any person, corporation, unincorporated association, or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in [California], and performs, permits, or enables acts of solicitation to occur." In other words, any entity that provides an online platform that enables charitable contributions to be solicited from California residents may be operating a CFP. These platforms include mobile apps, software applications, or other interactive internet-based platforms that enable individuals or entities to ask Californians for donations, to make purchases, or to otherwise use the platform to benefit charitable organizations.

The law's definition of CFP specifically excludes a charity's own website, vendors that service such platforms for technical or support reasons only (such as digital payment processing or domain services), DAF sponsors, entities that meet the definition of both a commercial fundraiser and a CFP (in certain instances), and entities that meet the definition of both a commercial coventurer and a CFP (in certain limited circumstances). However, the broad definition can arguably sweep in numerous social media and gaming platforms, online shopping portals, and other unsuspecting online platforms that may incorporate a mechanism to benefit charity.

AB 488 also regulates "platform charities," which are defined as charitable trusts or nonprofit corporations that facilitate acts of solicitation on a CFP by engaging in activities such as:

• soliciting donations through a CFP for themselves from users of the CFP, with the implied or express representation that the platform charity will re-grant the donations to qualifying charities; or
• granting fund to charities based on purchases made or other activity performed by users of a CFP.

Platform charities frequently partner with CFPs to provide a suite of online charitable giving products or vehicles, so the law includes a number of provisions addressing how CFPs and platform charities can collaborate to meet AB 488's compliance obligations. The Regulations also require platform charities to notify the AG of any partnership with a CFP by filing Form PL-3 within 30 days of entering into the partnership.

Types of Regulated CFP Solicitation Activities

While the AB 488 statute provides a broad definition of what constitutes a charitable fundraising platform, the Regulations clarify that your organization will only be viewed as operating a CFP if you engage in one (or more) of five specific types of charitable solicitation activities:

• Solicitation Type A: Soliciting donations or recommended donations, including micro donations and round-up donations, from platform users by listing charities on the platform or referencing charities by name that will be sent donations.
• Solicitation Type B: Allowing users of the platform to solicit donations to one or more charities through peer-to-peer charitable fundraising. This includes enabling crowdfunding campaigns created by platform users to solicit donations from other platform users for specified charities.
• Solicitation Type C: Permitting platform users to select one or more charities to receive donations made by the platform or other third-party based on purchases made or other activity performed by platform users. This includes solicitations through charitable sales promotions, commercial coventuring (CCV) / cause marketing campaigns, and free-action programs.
• Solicitation Type D: Listing or referencing by name for one or more charities that will receive donations made by the platform based on purchases made or other activity performed by platform users. This includes solicitations through charitable sales promotions, commercial coventuring / cause marketing campaigns, and free-action programs. Unlike type C, type D activity involves the platform choosing the recipient charity (rather than the platform user choosing the recipient charity as in type C).
• Solicitation Type E: Providing charities with a platform that can be private-labeled or otherwise customized, that is subject to a software as a service license agreement between the charitable fundraising platform and charitable organizations, and allows charitable organizations to solicit donations from donors.

Because reporting and compliance requirements vary by solicitation type, proper categorization of all charitable solicitation activity conducted by a CFP is important. We also note that Solicitation Type E is quite broad and can sweep in a number of platforms that might not otherwise consider themselves CFPs.

What Are a CFP's Compliance Obligations Under AB 488?

Once an entity determines that it is a CFP and that it engages in one of the five solicitation activities, AB 488 now imposes a host of new compliance obligations on the CFP, some of which are already effective and others which go into effect on January 1, 2025:

1. Regularly Verify Good Standing of All Charities on Platform (Currently in Effect) AB 488 only permits CFPs to solicit for charities that are in good standing with the Internal Revenue Service ("IRS"), the California Franchise Tax Board ("FTB"), and the California AG. If a charity falls out of good standing with any of the three regulatory entities (e.g., if it becomes delinquent with the California AG or FTB due to late or incomplete filings or loses its tax-exempt status with the FTB or IRS), it becomes ineligible to have funds solicited for it on a CFP or to receive solicited funds from a CFP, and a CFP is obligated to disable any solicitations or disbursement of funds for that charitable organization, subject to a five business day grace period.
   
   We note that because this requirement was one of the few statutory provisions that took effect before the Regulations were finalized, CFPs have already begun cutting off solicitations and donations to charities that lose their good standing, which can happen for minor technicalities, such as a late annual report or failure to pay the full annual filing fee, which may have increased since the last filing period. Moreover, once a charity falls out of good standing with the FTB or the AG, it can take weeks to months to reinstate eligibility. We understand that this delay in reinstatement has stemmed in part from the high volume of charities seeking to rectify delinquencies and get back into good standing in light of AB 488's implementation and the ensuing consequences. Numerous charities have thus found themselves losing the crucial online fundraising pipeline for long stretches at a time. Given these dire consequences, charities are advised to remain diligent with timely filing their annual reports with the California AG and the FTB lest they find themselves cut off from online fundraising platforms and the important revenue streams they provide.
   
   The Regulations clarify that to confirm the good standing of a charity with the California AG, a CFP should consult both the Registry of Charities and Fundraisers (the "Registry") by utilizing the Registry Search Tool and the "May Not Operate or Solicit for Charitable Purposes List" (the "May Not Operate List") published by the AG on the first and third Wednesdays of each month. Note that if a charity is not on the May Not Operate List but the Registry indicates the charity is not in good standing, the CFP may still continue to solicit for and receive and submit donated funds to the charity. Additionally, if the Registry indicates that a charity is in good standing, a CFP may solicit for and receive and submit donated funds to the charity. The Regulations additionally include certain grace periods for CFPs relying on either the Registry or on the List.
   
   The Regulations do not provide guidance on the preferred method for confirming a charity's good standing with the FTB or the IRS, but good standing with those bodies fundamentally means that the charity has not lost its state (FTB) or federal (IRS) tax-exempt status. Hence, CFPs may rely on the FTB's Revoked Exempt Organizations list and the IRS's Tax Exempt Organization Search function to confirm whether an organization remains tax-exempt. CFPs are advised to devise a methodology (which may include utilizing a third-party provider like Candid's Charity Check API) to check good standing of all charities on their platform on a regular basis. 
   
   
2. Provide Conspicuous Disclosures to Donors (Effective March 26, 2024) CFPs must ensure that they are making certain disclosures to platform users in connection with solicitations on the platform. The required disclosures vary by solicitation type:
   
   
   • For Type A or B Solicitations:
     • Additionally, CFPs must provide donors the ability to find out whether their donations were sent to the intended charity or to an alternate charity. This information must be made available no later than 15 business days after the donated funds are sent to the charity and may be provided through written notification or electronically through a website. (Note that this requirement does not go into effect until January 1, 2025.)
     • A CFP must disclose to platform users the maximum length of time it will take to send the donated funds to the Recipient and include an explanation as to the length of time. If in connection with solicitation type C activity donated funds are sent contemporaneously, this disclosure is not required.
     • The CFP must provide platform users who made purchases or performed other activity that caused donated funds to be sent to charity the ability to find out that the total amount of donated funds sent to a charity included funds based on the user's purchases or other activity. This information must be made available no later than 15 business days after the donated funds are sent to the charity and may be provided through written notification or electronically through a website. This rule does not require the CFP to inform the user how much of the donated funds sent is attributable to the user's purchases or other activity. (Note that this requirement does not go into effect until January 1, 2025.)
   • For Type C or D Solicitations:
     • A CFP must disclose to platform users the maximum length of time it will take to send the donated funds to the Recipient and include an explanation as to the length of time. If in connection with solicitation type C activity donated funds are sent contemporaneously, this disclosure is not required.
     • The CFP must provide platform users who made purchases or performed other activity that caused donated funds to be sent to charity the ability to find out that the total amount of donated funds sent to a charity included funds based on the user's purchases or other activity. This information must be made available no later than 15 business days after the donated funds are sent to the charity and may be provided through written notification or electronically through a website. This rule does not require the CFP to inform the user how much of the donated funds sent is attributable to the user's purchases or other activity. (Note that this requirement does not go into effect until January 1, 2025.)
   • All CFPs must disclose to platform users the most pertinent reasons that a charity might be deemed ineligible to be sent donated funds. This requirement does not apply if the CFP has no policy or standard under which transmittal of the funds could be precluded.
     
     
3. Prompt Transmittal of Donations by Peer-to-Peer Fundraisers (Effective March 26, 2024) All peer-to-peer fundraisers must send donated funds to the intended charity within ten (10) business days of receipt. In the event a peer-to-peer fundraiser fails to send the donated funds to the Recipient within the ten business-day time frame, such fundraiser must register as a trustee with the AG. In such case, the peer-to-peer fundraiser will be subject to the direct oversight of the AG's office.
   
   
4. Obtain Consent From Charities To Solicit in Their Name, Unless Exception Met (Effective January 1, 2025) Except as otherwise provided, CFPs must obtain the consent of a charity to use of the charity's name on the platform. A consent agreement may be entered into between the charity and the CFP electronically and can incorporate terms available on the CFP's platform, provided that: a) the charity is notified when changes have been made to the platform containing the agreement's terms, b) access to the platform is free, and c) the changes have been clearly explained on the platform. The Regulations specify that any such consent agreement must contain specific provisions, including explicitly stating the fees charged by the CFP, the time period for sending donations to the charities, the circumstances in which the charity can review and approve a solicitation, and more.
   
   Exception: Note, however, that a charity's consent is not required for solicitation types A, B, and C when certain criteria are met. Specifically, a charity's consent will not be required for type A, B, or C solicitation activities if the CFP only references publicly-available information about the charity, the CFP conspicuously discloses to donors that the charity has not provided its consent for the solicitation, the CFP removes the charity from the solicitation upon a verifiable request from the charity to do so, and the CFP does not require that a charity consent to any solicitations as a condition for accepting a donation.
   
   
5. Promptly Issue Tax Donation Receipts (Effective January 1, 2025) A CFP that engages in solicitation type A or B is required to send a tax donation receipt to donors no later than five (5) business days after a donation is made. The tax donation receipt must contain the information set forth in California Business and Professions Code Sections 17510.3(a)(1) through (a)(4) and 17510.4. When a donation is made directly to a charity instead of to the CFP, the CFP must obtain authorization from the charity to send a tax donation receipt on behalf of the Recipient. Authorization is most frequently granted through the consent agreement described above. Any tax donation receipt sent by the CFP pursuant to the Regulations may be sent electronically.
   
   
6. Disburse Donations to Charities in a Timely Fashion (Effective January 1, 2025) AB 488 requires that CFPs "promptly" send donations raised through the platform to the intended charity. The precise time period that must be met to comply with the "prompt" distribution requirement varies depending on the type of solicitation activity that generated the donation and certain other factors.
   
   For solicitation types A and B, donations to charities that have provided written consent to the solicitations must be sent within 30 days after the end of the month in which the donation is made. Donations to non-consenting charities must be sent within 45 days after the end of the month in which the donation is made.
   
   For solicitation types C or D, the Regulations provide that donations must be sent no less than on a quarterly basis, subject to a minimum amount no greater than $10, and must be sent after four consecutive quarters if the minimum amount is not reached by then. For purposes of this rule, "quarterly basis" means no later than 30 days after the end of a 90-day period that constitutes a quarter.
   
   For solicitation type E, donations must be sent to the Recipient within five (5) business days of when the donation was made. However, if in addition to engaging in type E solicitations a CFP also engages in solicitation types A or B, donated funds shall be sent in compliance with the rules set forth above for sending donations received in connection with solicitation types A or B.
   
   
7. Select Alternate Recipient Charities When Original Charity Ineligible  (Effective January 1, 2025) As discussed above, AB 488 prohibits CFPs from sending donations to a charity that the CFP determines is not eligible to receive the donations. A CFP must determine whether a charity is eligible to be sent donated funds within the applicable time period for when donated funds must be sent. If the CFP determines that a charity is not eligible, it must send the donations to an alternate charity in accordance with specific procedures that vary depending on the type of solicitation. For solicitation types A and B, the CFP must notify the donor of the ineligibility of a charity and provide the donor an opportunity to designate an alternate recipient charity.
   
   
8. Provide Information to Charities Regarding Donations (Effective January 1, 2025)
   
   The Regulations prescribe that a CFP must provide certain information to recipient charities in connection with donations made to the charities through the CFP. The specific type of information required depends on the applicable type of solicitation but generally includes detail on the number, amount, and timing of donations, fees deducted from the donations, information regarding the donors, and the user activity that led to the donations, as applicable. This information can be sent to a charity with the donated funds, or it can be provided to a charity via a free, secure platform.

Conclusion

AB 488 represents a dramatic leap into the regulation of online charitable fundraising and imposes a host of complex, new compliance obligations on all platforms that facilitate online charitable giving. Every organization that participates in any way in the charitable solicitation of funds over the internet should be aware of the scope and sweep of AB 488 and should engage in an analysis of how the law may apply to them.

*Tiffany Okeani was a 2L law clerk at DWT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.