Commissioner's Blog: Crowd funding
With Acting Commissioner for Consumer Protection David Hillyard
Crowd funding is an increasingly popular way for people to raise money for a variety of causes using the internet. If an online crowd funding campaign is regarding a work-related or leisure-based project we see this as peer-to-peer lending. However, when the fundraising is for a charitable purpose Consumer Protection is interested because we enforce the Charities Collections Act 1946.
When raising money for a charitable cause in WA you need a licence or to be acting under the authority of a licensed charity. This applies to any organisation, person, club and/or crowd fundraisers. The only exemptions are non-charitable purposes such as social and sporting clubs. The licensing system safeguards donations and prevents misuse of funds by ensuring a proper record is kept of monies collected, how it is distributed and that any costs deducted are reasonable.
What’s a charitable purpose?
- The relief of the sick, infirm, incurable, poor, destitute, helpless or unemployed people or their dependants;
- Animal welfare, conservation and environmental causes;
- The relief of distress caused by war, and the support of people who have been members of the armed forces;
- The support of hospitals, infant health centres, schools, kindergartens and other activities of a social or welfare character; or
- Any benevolent, philanthropic or patriotic purpose.
The types of appeals you might find being run by WA people on a crowd funding website that do not require a charities licence include an artist raising money for a show to display their works or a local athlete trying to raise money to attend a sporting event overseas. Causes considered to be charitable include supporting a local bereaved family by contributing to the cost of a funeral, donating to help buy equipment for a local child with a disability or funding medical bills for a local person injured while overseas.
Crowd funding websites – tips for consumers
- Crowd funding platforms usually take a service fee from funding raised through their site even if the campaign doesn’t reach its target. This can be 5% of the total amount raised. There can also be transaction fees depending on how the donor pays.
- Crowd funding websites usually have terms and conditions or disclaimers absolving them of responsibility in relation to truth or accuracy of claims made by fund seekers.
- Consider the explanation of the campaign and details of how the money will be spent – is it clear and does it sound realistic? Review the responses to any questions asked by other would-be donors.
- Carry out some independent research, such as an internet search of the name of the cause or campaign. Try typing the word ‘complaint’ or ‘scam’ after the name to reveal any potentially negative information.
- If the campaign is for a charitable purpose, check the charity is licensed in WA by searching the licensed charities register at www.commerce.wa.gov.au/charities.
- As with anything you are paying for online, consider the benefits of a credit card or a third party payment service like PayPal that protect the sender’s banking information from the receiver. Be aware of the risks of direct bank transfer and the sharing of any other personal or financial information with a crowd funder.
- How sure are you that the money you are giving will go to the intended cause? If it’s a small dollar amount you may be prepared to donate in good faith but it can be like giving money to a beggar in the street – you don’t know whether their plea for help is real or what they will spend the money on.
- Although there may be a process such as the fund seeker having to supply photo identification, someone perpetrating a fraud can easily produce a fake or stolen ID.
- Complain to a crowd funding website if you think a campaign is a scam.
The Charities branch at Consumer Protection usually recommends Everyday Hero (licensed in WA) for donors or fund raisers wishing to participate in crowd funding for a charitable purpose.
Fund raisers can download the ‘Charitable Collections - Guidance pack for fundraisers’ from www.commerce.wa.gov.au/charities. Alternatively, call us on 1300 30 40 74 or email email@example.com for further information. We do not take a fee for supplying a licence or connecting you with an organisation that can assist by letting you operate a short-term campaign under their charity licence.
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