Know the Rules Before Working With Non-Profits10 Jan, 2012 By: Jeffrey D. Knowles, Jonathan L. Pompan
For-profit marketers and charitable organizations increasingly work together, and these relationships have recently attracted the attention of a number of state attorneys general. Many times, charities will hire direct marketers, call centers and professional fundraisers who use their experience to increase the success of their campaigns.
In other cases, a marketer may collaborate with a prominent charity or non-profit organization in order to boost sales of the marketer’s product and the non-profit’s bottom line. It can be personally, and financially, rewarding for marketers to help a charitable organization achieve its goals. However, for-profit companies should understand a few things before jumping into a so-called “commercial co-venture.”
The regulations governing relationships between for-profit and non-profit entities vary from state to state. While some states require “commercial co-ventures” to register with the state, others do not. In addition, reporting requirements and enforcement can vary greatly from state to state.
For example, New York’s charitable solicitation laws, like many states’, prohibit any person from engaging in a fraudulent or illegal act while soliciting on behalf of a charity. Importantly, New York does not require the demonstration of either intent to defraud or an injury to prove fraud. Therefore, it is critical for those involved in such campaigns to review their solicitations to ensure regulatory compliance and that the campaign cannot be characterized as misleading or deceptive.
New York also mandates that advertising supporting any cause-related marketing campaign must contain specific disclosures, such as the anticipated percentage of the gross proceeds or the dollar amount per purchase that the non-profit will receive. When the campaign concludes, the marketing partner must also provide a full accounting to the non-profit, including the number of items sold, the amount of each sale, and the amount paid or to be paid to the organization.
At the same time, state attorneys general in Texas, Oregon, Colorado and New York pursued recent cases against “charities” that claimed to support a variety of worthy causes. The common denominator for these organizations is that they all allegedly diverted the funds donated by consumers to the charities’ board members and their relatives, and, in a few of the cases, for-profit service providers. In several of these cases, the investigation has expanded beyond the charities to include the groups’ for-profit service providers.
In Oregon, the investigation resulted in sanctions for the telemarketer hired by the non-profit. For its role in the fundraising operation and alleged misleading statements to consumers, as well as do-not-call violations, the telemarketer received a two-year ban on charitable fundraising in Oregon and a $40,000 fine. After the expiration of the two-year ban, the telemarketer must adhere to strict reporting and disclosure requirements if it makes any fundraising calls to Oregon residents on behalf of a charity.
These actions and investigations into the activities of charities and their for-profit partners highlight the increasing focus by state attorneys general on charitable solicitations and cause-related marketing campaigns. For-profit companies partnering with or providing services to charities should remember that when it comes to consumer protection, no cause is off-limits to scrutiny from state regulators.
Jeffrey D. Knowles is a partner at Venable LLP and chair of the firm’s Advertising, Marketing and New Media Group. Jonathan L. Pompan is of counsel at Venable LLP. They can be reached at (202) 344-4000, or jdknowles@Venable.com and jlpompan@Venable.com.