A lawsuit filed against a donation website operated by online payment company PayPal highlights the extent to which the digital fundraising landscape is still a kind of Wild West, according to experts.
“I think these portals are both a boon and a potential problem,” said Jennifer Chandler, vice president of the National Council of Nonprofits. “Lack of transparency over all is a concern.”
The newly filed lawsuit is a case of charities’ donations being held hostage, according to the plaintiff. Terry Kass, who said she has given money to charities for years, sued PayPal after discovering that some donations she’d made through the Giving Fund platform during its 2016 holiday giving campaign never reached the charities she’d selected.
The reason? The charities weren’t registered with the PayPal Giving Fund.
PayPal gives users the option to donate to groups that haven’t registered with the Giving Fund, which is a registered charity that receives financial and technical support from PayPal. To claim those donations, charities have to sign up for a PayPal Giving Fund account, which requires that they have a PayPal nonprofit business account.
PayPal says it tries to contact unregistered nonprofits for which it has collected donations. The company is still trying to do so for gifts made during the 2016 holiday campaign. But if after six months, it’s been unable to reach them, it claims the right to redirect those donations to other nonprofits.
That makes the fund similar to a donor-advised fund, a distinction many donors may not understand, says Belinda Johns, former California senior assistant attorney general for the charitable trusts section.
Donors may want to give to a particular group, but “that is absolutely not assured, because many of those charities haven’t signed up,” she said. “That at least has the tendency to mislead.”
Ms. Kass says none of the unregistered charities she picked ever heard from the company and that she would be upset if money she gave “to my temple, to my rabbi, where my kid enjoyed being a Sunday school aid” were sent to a different organization.
In a blog post, Franz Paasche, PayPal senior vice president for corporate affairs and communication, called the lawsuit “misleading.” None of the money given during the holiday campaign has been redirected to alternative groups, according to the company, which says it raised $971 million in total during the campaign. It said a small portion of that money was made through the Giving Fund but has not said exactly how much.
Before they’re delivered to charities, all donations made through the Giving Fund are placed in a noninterest-bearing account, he said. That is where the undistributed dollars remain.
A PayPal spokeswoman declined to answer questions about whether the PayPal Giving Fund has ever redirected donations or how charities can check whether the Giving Fund has accrued money in their names.
In fiscal year 2015, PayPal Giving Fund reported more than $38 million in revenue and more than $36 million in grants given.
A spokeswoman for DC Central Kitchen, one of the groups Ms. Kass wanted to support, issued a statement that it was aware of the lawsuit and “is considering our options with counsel and our Board of Directors.”
Damaged Relationships
PayPal’s Giving Fund is just one of many third-party fundraising sites to crop up in the past 15 years. While online donations remain a small share of total charitable giving in the United States, such sites have already altered the fundraising landscape, and charities must be ready for them to play an even bigger role in the future.
“This is going to be potentially an increasing problem because there are more and more platforms springing up that are seeking to connect donors and charities,” says Art Taylor, chief executive of the BBB Wise Giving Alliance.
In the next few months, the BBB Giving Alliance will be convening groups of charity leaders to discuss how they’re dealing with new forms of online giving and consider what new measures may be needed to protect donors.
Ms. Kass says that although losing donations may be detrimental to nonprofits, so too is the potential loss of a new donor.
“They’re robbing them of more than just the money,” she says. “They’re damaging the donor-charity relationship.” If charities don’t get donors’ names, they can’t follow up with a thank-you note or a future solicitation, she says.
Ms. Kass says she has talked to charity leaders who secured the names of donors who gave through third-party sites, but it took a lot of time and effort. Relying on third-party sites reluctant to share donor information puts nonprofits “at risk for not cultivating donors,” says Ms. Chandler of the National Council of Nonprofits.
Leaders also voiced concerns that some third-party platforms may solicit donations on behalf of organizations that are not legitimate charities.
“There’s an impetus to include as many charities as possible without doing any vetting of them,” Mr. Taylor says. “It leaves donors in a very vulnerable position. More should be done to make sure charities on these platforms get some vetting.”
Steps to Take
Because so many charities don’t have online giving through their own websites, it’s not practical to advise them to steer clear of third-party giving platforms, Ms. Chandler says.
And giving platforms have benefits, including added exposure for charities, Mr. Taylor says. Some platforms offer matching donations; Ms. Kass was attracted to using the PayPal Giving Fund in part because the company offered a 1 percent match during the holiday campaign.
But both Ms. Chandler and Mr. Taylor advise charities to use caution when dealing with third-party platforms, especially those that may use nonprofits to burnish their image without providing a fair service.
“Charities’ brands are pretty valuable, as businesses are finding out,” Mr. Taylor says. “We want to make sure both groups succeed and not just one.”
Giving platform AmazonSmile has a redirection clause similar to PayPal’s. According to AmazonSmile’s FAQ site, if a selected charity does not register to participate and the donor does not select a different charity, the money will be distributed to other nonprofits at AmazonSmile’s discretion.
In contrast, giving platform GiveGab does not accept donations on behalf of groups that haven’t signed up to participate, according to chief executive Charlie Mulligan. And donations go directly to the charities without passing through the platform.
If charity leaders discover a platform is raising money in their organizations’ name without their permission, they should immediately contact the platform to learn more, Ms. Chandler says. It could be an opportunity to forge a partnership with a well-meaning organization.
However, if it seems like a case of fraudulent fundraising, she recommends charities file a complaint to state charity officials.
Correction: This story has been revised to make it clear that $971 million is the total that PayPal raised during its 2016 holiday giving campaign, not what it raised through the Giving Fund. Also, the section pertaining to undistributed funds has been corrected.
