Three years after 23 state charity regulators filed a lawsuit, Paypal caved in and has agreed to provide more information to donors who use the Paypal Charitable Gift Fund to make donations to nonprofits. According to the terms of the settlement, Paypal will also have to contribute $200k toward education and regulatory efforts.
Mark Hrywna filed this report for The NonProfit Times:
The PayPal Charitable Gift Fund, Inc. (PPGF) is a tax-exempt 501(c)(3) nonprofit, the charitable arm of PayPal. The San Jose, Calif.-based payment processor allows donors to contribute funds electronically to PPGF and to select a charity to receive the contribution. The gift fund aggregates contributions, then distributes them accordingly to various charities.
The gift fund in essence operates like a donor-advised fund, collecting donations as a registered nonprofit and granting them out after a vetting process. While that’s not uncommon, among the issues raised in the complaint was whether that process was properly disclosed to donors.
PPGF also agreed to notify donors when it redirects a donor’s charitable contribution to an organization other than the one selected by the donor. It will provide regulators with future fundraising campaign data to ensure the organization is in compliance with the agreement.
PPGF agreed to adopt reforms to its disclosures so that donors know they are making contributions to the gift fund and not directly to a charity, the timeframe in which a charity will receive funds, and, the implication of being an enrolled versus an unenrolled charity on the platform.
Unless a charity had a registered account with PayPal, donations could be redirected to similar charities of PayPal’s choice. A charity that maintains a PayPal account received contributions more quickly, which had not been adequately disclosed to donors, according to state officials. In some cases, the gift fund redirected a donor’s gift to other nonprofits with a similar purpose, without informing donors, if the charity did not have a PayPal account or was not vetted by the gift fund.
Regulators alleged in the lawsuit that the process forced charities to open and use PayPal business accounts to access potential donations. While most national, large charities might be registered with PayPal, it was claimed in the lawsuit that thousands of smaller charities likely have not. According to a Securities and Exchange Commission (SEC) filing cited in the complaint, fewer than 30,000 charities had registered accounts with the gift fund in 2015.