PayPal has agreed to additional disclosures around its charitable giving fund as part of a settlement with nearly two dozen state charity officials. It also agreed to pay $200,000 toward education and regulatory efforts.
The 12-page settlement was signed yesterday, almost three years after the lawsuit was filed. New York Attorney General Letitia James, co-chair of the charities committee for the National Association of Attorneys General (NAAG), issued a press release to announce the agreement. It involved 23 state charity regulators plus Washington, D.C.
PayPal Charitable Giving 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 PPGF is a donor-advised fund (DAF), 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 meet PPGF’s diligence requirements.
The process forced charities to open and use PayPal business accounts to access potential donations, according to a class-action lawsuit brought by the charity Friends For Health: Supporting the North Shore Health Center in Highland Park, Ill., and donor Terry Kass. 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.
The $200,000 payment will be deposited into NAAG’s Charities Enforcement and Training Fund, which helps defray costs associated with the investigation and litigation of cases brought by state regulators as well as to provide education and training to regulators.
In a statement, PayPal officials said they are pleased with the settlement and the new standards of transparency. “Well before concluding the settlement, PayPal Giving Fund had already updated its disclosures to donors and charities, and we remain committed to building and evolving our platform in a way that continues to enhance the experience for donors,” according to the statement.
The giving fund distributed almost $107 million in 2017, according to its most recent tax form, filed in May, after distributing $42 million and almost $37 million in the prior two years, respectively. PayPal processed $1.3 billion in donations this past holiday season, about $80 million more than the same period in 2018.
Editor’s note: The original version of this story was updated to reflect corrections and clarifications.