For years crowdfunding websites have given regular people a platform to finance their personal causes. GoFundMe, for instance, adds 100,000 campaigns to its site each month. Most people are looking to raise money to combat a crisis, such as paying for medical bills or funeral expenses. Together these campaigns have raised more than $2 billion on GoFundMe alone, with more than half of that amount coming in the last 9 months. In fact, analysts expect that crowdfunding donations will grow at an annual rate of 25 percent over the next several years.

Some of this growth will be driven by viral campaigns that raise millions after capturing the Internet’s attention. GoFundMe’s most successful effort raised more than $2 million for the family of a terminally ill child. Nevertheless, most personal crowdfunding campaigns raise less than $5,000. That was the case for Todd King, who received a few thousand dollars from his community for the funeral of his son. Unfortunately, this already tragic situation turned worse when King learned a neighbor had kept more than $1,000 that she had crowdfunded on the family’s behalf. After taking the neighbor to court, she pled guilty to telecommunications fraud and landed a sentence of 60 days in jail.

While crowdfunding sites claim these types of scams are rare, they are undoubtedly a risk of collecting money through the Internet. Many states have laws in place that prohibit nonprofits from using fraudulent campaigns to raise cash. However, it remains unclear whether these laws apply to for-profit online platforms and the people who use them to raise money. According to experts, the crowdfunding industry could face regulation if it cannot come up with a plan to prevent users from donating to deceptive campaigns. In the meantime, potential donors must be careful to give only to causes that are started by the people who will directly benefit from them.

Questions: 

1. Should the government put clear legislation in place that protects people from crowdfunding scams?
2. What can crowdfunding companies do to prevent fraudulent campaigns from appearing on their sites?

Source: Ruth Simon, “Crowdfunding Sites Like GoFundMe and YouCaring Raise Money—and Concerns,” The Wall Street Journal, February 29, 2016. Photo by Andy.