For-profit Thrift Store Gets Sued For Dressing Like a Charity

This article originally appeared in Philanthropy Daily on March 21, 2019.

One reason many of us give our used clothes or out-of-date TVs to Goodwill or the Salvation Army is that we know that the funds these organizations get from our donations are used for charitable purposes.

When you drop off your donations at Value Village, a nationwide chain based in Bellevue, Washington, it appears that your gifts help others. ‘DONATE TO A NONPROFIT HERE,” a banner in front of a typical Value Village says. But then on smaller letters at the bottom of the banner it says, “Value Village is a for-profit national fundraiser.”

As it turns out, Value Village is a for-profit company that does not appear to be a social enterprise but has adopted the protective mimicry of a charity.

Washington state attorney general Bob Ferguson has filed suit against the company and its parent corporation Savers LLC charging it with fraudulently posing as a charity and insinuating to donors that most of the money Value Village earns goes to charity. Francesca Lyman of Investigate West has the details.

What makes General Ferguson’s suit interesting is that his office considers his lawsuit to be a donor intent case, according to the complaint his office filed with King County, Washington Superior Court.

Their 87-page complaint refers to “the bedrock of charitable giving—honoring a donor’s intent.” In the state of Washington’s view, a donor who thinks that most of her gift to Value Village is going to charity has just as much right to have her wishes honored as the large donor who creates a foundation does.

At issue is this: Money from Value Village sales does go to charity.

Savers LLC says it donated $13 million to partner charities in Washington State in 2016 and $106 million between 2006-2016. In addition, some charities, such as ARC of Washington State, say they make deals with Value Village because it’s easier to get contracts with Value Village than it is to run a thrift store.

The problem is that not very much of a Value Village donation goes to charity. Contracts InvestigateWest received said that charities would receive anywhere from four cents a pound for “soft goods” such as clothes if they were dropped off at a Value Village Center to 44 cents a pound if the charities trucked in the goods. For “hard goods” such as furniture, the rate ranges from 2 cents a pound to 19 cents. So, a 50-pound set of drawers that Value Village might sell for $50 would earn a charity as little as a dollar.

But Value Village makes it appear that their donations to charity are far higher than they actually are.

Their official list of what they want has on top “items to give to charity.” The company issued tax receipts for a particular charity, even though the money from a particular sale might be split between several charities.

Moreover, the state charges that Value Village staffers are told to evade the question if asked how much of a particular donation goes to charity. The state of Washington, as part of their case, submitted findings from a focus group they convened about Value Village that said that 75 percent of the people in the focus group thought Value Village was a nonprofit, and 90 percent substantially overestimated the amount of money Value Village gave to charity.

Savers LLC says its policies are commercial free speech, and cite a 1988 Supreme Court decision in their defense. I wish Lyman had named this decision, but she doesn’t.

However, she does cite a 2003 case, which I found was Madigan v. TelemarketingAssociates, in which the Supreme Court, reversing the Illinois Supreme Court, said that Illinois Attorney General Lisa Madigan could sue Telemarketing Associates, which raised $7.6 million for VietNow between 1987-95 and kept $6.6 million. But Justice Ruth Bader Ginsburg, writing for the majority, said that the states couldn’t sue a telemarketer for high fees or not disclosing a contract with a client, but could sue if the telemarketer said anything that was deceptive.

Perhaps this is why Value Village employees often don’t answer the question when they’re asked how much of a particular donation goes to charity.

I’ve written about the abuses of state attorneys general in the past, but one legitimate function they have is upholding the rule of law, including contracts. Value Village is justified in setting up contracts with nonprofits, and they are performing useful functions in saving people money and extending the life of recyclable goods.

But they shouldn’t pretend to be a charity.

The state of Washington is seeking a seven-figure fine from Savers LLC. I am strongly opposed to this fine if it went to the state’s treasury and less opposed if it was a one-time payment to some of the charities that contract with Savers LLC. I would favor terms of a settlement that would require Value Village to place in an easily accessible location, such as flyers near a donation site, details of how much of a donor’s gift goes to charity.

Lyman interviewed Wise Giving Alliance CEO Bennett Weiser. If a donor asks, “How much will a charity receive from my donation?” Weiser said, “If you don’t get a straight answer, move on.”

That strikes me as excellent advice.