Archive for January, 2010

Charitable organizations soliciting funds for Haiti earthquake relief are taking advantage of a new way of soliciting donations from consumers: text messages. Charities are encouraging consumers to text a phrase, for example “Haiti” or “Earthquake,” to a short code to make a donation in a set amount that will be added to the consumer’s monthly cellular bill.

Charitable organizations may use text-to-donate campaigns to directly solicit donations. Charities looking to engage in such campaigns on a nationwide level should ensure that they are registered in every state in which they will be conducting the campaign. Furthermore, any related advertising is likely to be subject to state law requirements. Many states require specific disclosures in both advertising and point-of-solicitation materials, including:

1. the solicitor’s name and address;
2. the charitable organization’s name and address;
3. a fair and accurate description of the purpose of the solicitation;
4. that a financial statement of the charitable organization will be provided upon request and who to contact to obtain that information;
5. the amount of the contribution that is tax deductible;
6. the approximate annual percentage paid to maintain, service, or collect the contributions raised by the solicitation;
7. whether the person maintaining, servicing, or collecting the contributions is a volunteer or is paid for the services;
8. the net percentage or sum of the contribution going to the specific charitable purpose; and
9. each organization, or fund, on behalf of which all or any part of the money collected will be utilized for charitable purposes.

For profit companies may also utilize text-to-donate campaigns to solicit donations for the benefit of a charitable organization. Companies engaged in cause marketing campaigns are regulated by state laws as commercial co-ventures. A typical example of a commercial co-venture is where a company advertises that the company will donate a certain amount of money to a charity for every purchase of the company’s goods or services. Some states require companies to register and bond with state authorities when conducting commercial co-ventures/solicitation campaigns. Although some states only require registration and bonding if the company is promoting a sale of its own product or service by stating that a purchase will benefit a charitable organization, other states require registration for any type of commercial consideration.

Where for profit companies are merely advertising that the consumer can directly donate to a charitable organization by sending a text message, state commercial co-venturer obligations are unlikely to apply. However, a company may also engage in a promotion whereby the company advertises that the company will make a donation to a charitable organization for every text message sent by a consumer. With regards to such a promotion, it is possible that even though the company is merely encouraging consumers to send a text to increase the amount the company will donate, the advertising benefit and goodwill that that the company receives from conducting a text-to-donate campaign may be deemed “commercial consideration,” triggering some state’s registration and bonding requirements.

Entities may also use the text-to-donate model to establish a direct marketing connection with consumers by allowing the consumer to opt-in to receive more information or periodic updates about the charity via text message. This new method of charitable solicitation can implicate several issues, including what kinds of disclosures will be necessary such as disclosing of how many text messages are required to be sent or received to complete the transaction, if more than one, and ensuring consumers are provided the proper opt-out and opt-in choices.

If an entity would like to establish a direct marketing connection with a consumer via text message whereby consumers will receive general advertising or marketing messages, the entity should be aware that it should clearly disclose this to consumers and that merely asking the consumer to text “yes” to accept may not be sufficient consent. Specifically, depending on the type of technology used to send the text message (e.g., if the text message address references a domain name), the text message may need to adhere to more stringent requirements including a more stringent electronic signature requirement, proper identification of the entity that is sending the message, that the message is for advertising or marketing purposes, and how the consumer can opt-out of receiving future messages.

–Monique Bhargava, Esq.

These materials have been prepared by Winston & Strawn for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.