Charity Control: Evaluating legal risks for in-house nonprofit fundraising

Nonprofits are always looking for ways to increase donations to serve their charitable purposes.  But what are the legal risks to the nonprofit if it moves its fundraising efforts in-house as opposed to continuing to outsource its fundraising to professional fundraisers?

First, moving fundraising in-house allows the nonprofit to control how and when calls are made to ensure compliance with federal and state laws. It can ensure agents are properly trained and monitored. This eliminates the risk of being on the hook if a professional fundraiser fails to comply with the law and a plaintiff alleges that it unlawfully received calls made on behalf of the nonprofit. Plaintiffs often go after both parties especially if the nonprofit is a larger organization, which plaintiffs’ attorneys assume to have deep pockets. The nonprofit also would control and have immediate access to records showing compliance with applicable law.

A strong indemnification clause can, however, reduce the burden to the nonprofit if the professional fundraiser is at fault, but it would still have to expend legal resources to enforce the clause. This is only beneficial to the nonprofit if the professional fundraiser has the assets to indemnify the nonprofit in the first place and does not protect the nonprofit from being a defendant if sued, only making it potentially whole after the subsequent indemnification determination.

If the nonprofit decides to move its fundraising efforts in-house, it will have 100 percent of the financial burden if it is sued by a plaintiff whether the allegations are meritless or not. While the nonprofit will not have worry about mistakes by a professional fundraiser, it will have to ensure its in-house fundraising efforts comply with all federal and state laws and continue to monitor and update its policies and practices to ensure compliance as well as keep records of those efforts.

If the nonprofit chooses the latter, it should obtain liability insurance for both violations and alleged violations of the Telephone Consumer Protection Act (“TCPA”). Most insurance policies exclude TCPA coverage unless explicitly stated in the policy. This is the biggest financial risk to the nonprofit as plaintiffs’ attorneys often file class actions under the TCPA claiming $500-$1,500 per alleged violation. 

Compliance with state law presents similar issues, but without the potential for class actions. In our experience, state regulation of fundraising is substantially easier if fundraising is done in-house, and you should enjoy indirect savings from this fact, i.e. because your fundraising will not be net of your outside fundraisers’ registration and other state compliance costs, your overall return could be higher conducting the calling in-house.

Please contact us if you have questions related to in-house fundraising for your organization.