Cristina Vessels, Attorney
Venable LLP Nonprofit Organizations Group
The following is a summary of the remarks made by Cristina Vessels at the ACCP Annual Conference held in Denver, Colorado, on October 17, 2023. Cristina is an attorney in Venable LLP’s Nonprofit Organizations Group. She counsels nonprofit organizations and routinely advises on the full spectrum of legal issues and business considerations, ranging from general day-to-day counseling matters to challenging negotiations for multi-million-dollar agreements. Her practice focuses on advising charitable organizations and companies of all sizes on their charitable fundraising, corporate giving, and all aspects of cause-related marketing.
Understanding the legal requirements for different cause-related marketing campaigns enables your organization to take its campaigns from concept to execution more efficiently, quickly, and compliantly.
The legal landscape affecting cause-related marketing comprises not just states’ charitable solicitation laws but also the Federal Trade Commission’s requirements and guidance for charitable fundraising, particularly online efforts. These legal frameworks, in turn, are contextualized by third-party actions like multistate agency investigations and the National Advertising Division of the Better Business Bureau’s monitoring efforts.
In all cases, the objectives are generally the same: protect citizens from public representations that unfairly, unclearly, or unscrupulously exploit the public’s propensity for charitable giving to advance other objectives.
Cause-related marketing is an umbrella topic describing a relationship between a nonprofit organization and a for-profit company where both organizations benefit.
Typically, the company is the primary driver behind the collaboration. The company benefits—a halo effect and other positive marketing—from having its brand seen as aligned with the mission of the nonprofit it is supporting. The nonprofit, by contrast, usually has a passive role in the arrangement and typically limits its involvement to licensing its name and marks to the company for the campaign.
Beyond ensuring that the charity for which donations are solicited is registered and in good standing wherever necessary, the following are compliance considerations for some of the most popular cause-related marketing structures.
Charitable Sales Promotions Conducted by Commercial Coventurers (CCVs). A CCV campaign typically involves any advertisement or public representation that the purchase or use of a good or service will benefit a charitable organization. Understand that your organization should:
- Contract with the charity to use its name and marks, detail the parameters of the campaign, and include state-required contract language.
- Register your company as a CCV, post bond, and file pre-promotion notices in the half-dozen states that require this, if necessary, or consider whether your organization wants to take a different approach for a less-regulated cause-related marketing campaign.
- Share the campaign results (and corresponding payments or benefits) with the charity at the end of the promotion and on an annual schedule (at a minimum) for longer-term campaigns. If your company registered as a CCV, file these details in reports to those states in which your company registered.
- Disclose the material terms of the campaign in marketing materials for the charitable sales promotion. Generally, this means including, at a minimum, the names of the parties, the start and end dates of the campaign, the amount per purchase to benefit the charity (expressed in dollars or as a percentage of the sales price), and any other material terms necessary to understand the contours or limits of the campaign (such as guaranteed minimum donations, possible maximum limits, etc.).
Free Action Campaigns. The sibling of a charitable sales promotion is colloquially referred to as a “free action campaign.” In these, a free customer or public action obligates your company to donate or transfer a benefit to a charitable organization or cause, such as promising to make a donation for every social media post using a particular hashtag.
Since these campaigns do not involve the purchase of a product or use of your business’s service, they’re often viewed as outside of charitable solicitation laws’ regulation of CCVs.
With this said, a few states’ laws have broader definitions of CCV activity that could bring this into the regulated space for CCVs, so it helps to analyze these campaigns on a case-by-case basis. Best practice suggests you should:
- Contract, share results, transmit donations, and disclose material terms as you would in the CCV context.
- Consider whether to register and file reports with states as a CCV.
- Follow third-party platform rules, such as promotional advertising restrictions on social media sites.
- Navigate user-generated content issues that arise, like how your company will use donation-triggering pictures posted to social media with a particular hashtag.
Charitable Sweepstakes. Giving away money or other benefits to a charitable organization is regulated one way; giving your consumers a chance for a prize, even if there is a charitable giving component, is regulated quite strictly in another way.
Federal and state laws prohibit privately run lotteries, which include three elements: (1) the awarding of a prize (2) by chance (3) where participants had to submit something of value to enter for that chance to win. If you have all three elements, then, to put it simply, you probably have a problem. But by adding an alternative free method of entry, an organization can usually make moot the element of consideration and, therefore, generally stay within bounds for running a sweepstakes.
Given the possibility of civil and criminal penalties for a sweepstakes that is not structured correctly, professional advice is highly recommended. As a general matter, though, with each sweepstakes involving a donate-to-enter option, your organization should, at a minimum:
- Post official rules that meet the extremely specific lottery law requirements.
- Disclose all material terms to satisfy both charitable solicitation laws and lottery laws.
- Make clear no donation is required to enter.
Customer Donation Programs. Customer donation programs are those where customers are given the opportunity to donate in connection with their purchases, rather than the company donating based on consumers’ purchases. Here, the customer’s donation is elective (e.g., if you donate an article of clothing, you’ll obtain a discount; do you want to round-up to the next whole dollar; etc.). With these efforts, your organization should:
- Document how the donations will be raised, stored in a separate account, and eventually transferred to the charity by the company, acting as an agent for the charity, and confirm whether the company or the charity will issue donation receipts.
- Ensure 100% of customers’ donations are transferred to the charity.
- Disclose the amount the charity will receive, and a statement including the charity’s name, mission, contact information, and other material terms and disclosures (spacing can be an issue here).
- Understand that online customer donation programs may be subject to different rules, at least in California.
Online Giving Efforts via Charitable Fundraising Platforms. As of January 1, 2023, California began specifically regulating entities that use the internet to provide a website, service, or other platform to persons in California where solicitations for charity and other charitable fundraising activities occur.
Although the law is currently in effect, regulations for charitable fundraising platforms and platform charities to satisfy the law have not been finalized. As a result, regulated entities have been required to comply with an incomplete framework.
Your organization should understand that online fundraising efforts may soon require closer scrutiny, and until regulations clarifying how to comply with the new law are finalized, your organization should:
- Ensure the charity or charities supported by your efforts are in good standing with the Internal Revenue Service, the California Franchise Tax Board, and the California Attorney General.
- Maintain funds raised in a separate account.
- Disclose material terms to prevent the likelihood of donor deception or confusion, as applicable.
- Obtain written consent from the benefiting charity before allowing the solicitations to occur or otherwise follow the state’s rules for non-consenting charities.