Anyone who works with a charity, or with a business supporting or collaborating with a charity, will have heard, at some point (especially with good legal counsel), about how important it is to be properly registered with state agencies that regulate charitable solicitations and to be up-front with donors and consumers about how solicitations are collected and used for legitimate charitable purposes. The same population also likely will have wondered about enforcement and risk in this regard. This week's newest sad story about this illustrates the importance of charitable solicitation regulation as a consumer protection measure.
On January 26, the Federal Trade Commission, over 30 states and the District of Columbia filed suit against a number of businesses alleging that, between 2008 and 2019, these businesses made over one billion “abusive, unsolicited and deceptive” fundraising calls to millions of Americans for donations to “sham” charities. (Federal Trade Commission et al. v. Associated Community Services, Inc. et al, case number 2:21-cv-10174, in the U.S. District Court for the Eastern District of Michigan.) Accusations include violations of the Federal Trade Commission Act, Telemarketing and Consumer Fraud and Abuse Prevention Act, and state law violations.
In their unsolicited calls, Associated Community Services, Inc., Directele Inc., and three sister companies solicited donations for causes including breast cancer patients, child cancer patients, homeless veterans and victims of fires. Allegedly, according to the complaint, five percent or less of the millions of dollars that were donated actually reached legitimate charities. Instead, in just the most recent three-year period for which financial records are available, the vast majority of donated funds were kept by the businesses making the solicitations. In addition, and as is often sadly the case, these deceptive campaigns disproportionately targeted older Americans in an effort to boost contributions
State Attorneys General and other agencies charged with charity and fundraising oversight have long kept tabs on fundraisers not only to root out sham transactions, but also to compare fees charged by such fundraisers to the amounts donated that actually reached charities. For example, in New York, the Charities Bureau of the Attorney General’s Office publishes an annual report, Pennies for Charity (https://charitiesnys.com/pennies_report_new.html), on fundraising campaigns in New York, through which donors may easily review how much of their contributions in response to fundraiser solicitations is actually retained by charities. The Association of Fundraising Professionals has adopted a Code of Ethical Standards (https://afpglobal.org/ethicsmain/code-ethical-standards) which states that members shall “not accept compensation or enter into a contract that is based on a percentage of contributions.” The goal of these measures is, of course, to maximize the amount of donations that reach charities and minimize the amount kept by businesses making the ask.
This most recent enforcement action and ongoing state and federal efforts make clear that consumer protection measures for donors and charities are alive and well and enforced regularly. Please let us know if we can assist in your philanthropic efforts in this regard.