Pending Privacy Legislation Could Drive Up Cost of Fund Raising for Nonprofit Groups

Charities could spend a total of $9-billion more each year on fund-raising expenses if consumer-privacy legislation pending in Congress and in some states is passed, according to the preliminary results of a study by the Direct Marketing Association, a New York trade group that represents charities and companies.

Association officials say that pending privacy rules would unfairly limit the sharing of publicly available information about consumers and donors, such as addresses, marital status, buying habits, and other demographic data. And, the officials say, the rules would especially hurt charities, many of which depend on data-collection companies to keep their donor lists fresh and to make sure appeals are going to those who are likely to give.

The association’s Information Services Executive Council, which represents companies that compile consumer data, in cooperation with the DMA Nonprofit Federation, is conducting a study of the potential impact of data-sharing restrictions. Final results are due to be released next month.

Preliminary results show that charities, on average, spend 30 cents to raise every dollar, and that the cost would rise to 45 cents if privacy legislation curtailed the activity of companies that provide charities with demographic information about their donors.

Based on figures from an earlier study, which found that donations from direct-mail and telephone solicitations amounted to nearly $60-billion in 1998, average annual fund-raising expenses would rise from $18-billion to $27-billion.

The increased costs, says Michael Turner, executive director of the Information Services Executive Council, would be due to less successful direct-marketing campaigns. Without the information that the data-marketing companies normally supply, he says, charities can expect a 50-percent drop in the number of people who give in response to a solicitation.

It is not clear how the data-collection companies would be affected by proposed privacy rules. Most of the proposals would bar financial-services institutions and other companies that gather information about their customers from sharing that data with third parties without the approval of the customers.

Ari Schwartz, associate director of the Center for Democracy and Technology, in Washington, says that giving consumers more control over the information-sharing process will benefit charities. And, he says, even with tighter restrictions charities still will be able to get the data they need. “Charities are getting the information now, but so are the unscrupulous marketers, and that makes it more difficult for charities to get their message through,” Mr. Schwartz says. “In a cleaner environment, with less junk mail and more targeted telephone solicitations, charities will win out.”