Digital Transformation: eSignature and ePayment News and Trends - 1 November 2021

A fact of business today is that customers – both consumers and other businesses – and employees expect to transact digitally. To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses.

Successfully implementing this transformation requires careful planning to ensure regulatory compliance, a smooth integration with existing business technology and a positive customer experience.

Each issue will feature in-depth insight on a timely and important current topic.

In this issue, for our Insights piece, we provide an analysis of recent changes to the NACHA Rules regarding consumer ACH debits.  This issue also includes reports on other recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.

For related information regarding blockchain and digital assets, please see our monthly bulletin Blockchain and Digital Assets News and Trends.

INSIGHT

NACHA updates its rules regarding consumer ACH debits: key points

By Margo H.K. Tank, R. David Whitaker, Andrew W. Grant and Liz Caires

The National Automated Clearing House Association (NACHA) has updated its Operating Rules and Guidelines to create a new type of consumer ACH debit authorization, called a “standing authorization.” One of the limitations of the prior NACHA Operating Rules was that consumer debit authorizations were required to either be “recurring,” meaning that the debits were pre-scheduled at regular intervals, or “single,” meaning that each separate authorization had to include all the information required under the NACHA Rules for a debit authorization, and be separately authorized by the consumer. The new standing authorization essentially bridges the gap and permits advance authorization of future debits initiated by a consumer at varying, unscheduled intervals. Read more.  

REGULATORY DEVELOPMENTS

STATE

Blockchain technology

New Jersey passes law allowing corporations to use blockchain to store certain corporate records: On September 28, 2021, New Jersey enacted a law which provides that corporations may utilize electronic networks, including distributed electronic networks or databases that utilize blockchain technology, administered by or on the behalf of the corporation, in order to meet recordkeeping requirements.

Regulatory sandboxes

North Carolina passes Regulatory Sandbox Act: On October 15, 2021, North Carolina passed the Regulatory Sandbox Act, which creates a “regulatory sandbox program” under which an applicable North Carolina state agency (either the Office of the Commissioner of Banks or the Department of Insurance) is authorized to waive statutory or regulatory requirements to permit a program to offer an innovative financial, insurance, or emerging technology product to consumers for a limited time under the relevant agency’s supervision.

Money transmission

California amends money transmission act to require online disclosure of telephone number: On October 4, 2021, the governor of California approved a bill that requires a money transmitter licensee to display on its internet website a toll-free number through which a customer may contact the money transmitter for customer service issues and receive live customer assistance, and the days and time that telephone line must be operative. The bill also requires the telephone number to be included among the information contained in a receipt given to a customer at the time of a money transmission transaction.

INDUSTRY DEVELOPMENTS

Virtual currency

FATF releases Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers: On October 28, 2021, the Financial Action Task Force (FATF) updated its 2019 Guidance for a Risk-Based Approach for Virtual Assets and Virtual Asset Service Providers (VASPs). The updated guidance includes updates focusing on the following six key areas:

1. clarification of the definitions of virtual assets and VASPs
2. guidance on how the FATF Standards apply to stablecoins
3. additional guidance on the risks and the tools available to countries to address the money laundering and terrorist financing risks for peer-to-peer transactions
4. updated guidance on the licensing and registration of VASPs
5. additional guidance for the public and private sectors on the implementation of the “travel rule” and
6. Principles of information-sharing and co-operation among VASP Supervisors

CASE LAW

FEDERAL

Electronic signature and contract formation

Courts uphold arbitration agreements entered into electronically: In Levine v. Vitamin Cottage Natural Food Markets, 2021 WL 4439800 (D. Colo. Sep. 27, 2021), in a class action, the court was confronted with three categories to analyze regarding whether the plaintiffs had electronically signed an arbitration agreement. For the first group of plaintiffs – those that submitted no contrary evidence, the court upheld the arbitration agreement entered into electronically because the plaintiffs failed to identify a material dispute of fact. The court highlighted that the relevant terms appeared as part of the same document where the plaintiffs manifested an electronic signature or through a link that individuals were required to click and review before clicking “Accept” to manifest agreement. For the second group, these plaintiffs submitted declarations that they did not sign the arbitration agreement but rather acknowledged that they had read the agreement in full. Here, the court analyzed the signing process, which required that the plaintiffs (1) open the arbitration agreement, which included a statement that read “I have agreed to this Agreement as of the date of my execution or electronic acceptance thereof” and (2) click “Accept.” It was only after this process that plaintiffs were provided the prompt to acknowledge that they had read the agreement in full and that by accepting the agreement, they agreed to be bound by all terms. After performing this analysis, the court concluded that these plaintiffs had not provided sufficient evidence to create a dispute of material fact. For the third group – a single plaintiff – the court found that the plaintiff’s evidence, which included a precise recollection of his affirmative refusal to sign the agreement plus screenshots that support his denial, was sufficient to create a dispute of a material fact and therefore the court denied the motion to compel arbitration of this plaintiff's claims.

Business records exemption to hearsay sufficient to introduce evidence of electronically signed arbitration agreements: In Andrews v. Michaels Store, Inc., 2021 WL 4813760 (C.D. Cal. Sep. 15, 2021), the defendant sought to compel arbitration against the plaintiffs because the defendant argued that the plaintiffs agreed to arbitrate electronically when the plaintiffs signed two arbitration agreements in connection with their employment with defendant. First, the plaintiffs sought to have evidence regarding the first arbitration agreement deemed inadmissible as hearsay and lack of authentication. Regarding hearsay, the court concluded that the electronic signatures obtained from the relevant database and the arbitration agreements fall under the business records exception to hearsay because it was the defendant’s regular practice to use the relevant databases to store information from new applicants, including their electronic signatures on agreements, and the defendant’s declarations established that its employees had first-hand knowledge of the systems used and the hiring practices. Regarding authentication, the plaintiffs did not present any evidence contesting the authenticity of the electronic signatures on the earliest arbitration agreement. Next, the plaintiffs argued that the contracts were not validly formed. As part of that analysis, the court concluded that the plaintiffs assented to the arbitration agreements using evidence that the court admitted under the business records exemption. Specifically, the court noted that the plaintiffs electronically signed the arbitration agreement by clicking “I Agree.”

Disclosures provided under the Truth-in-Lending Act

Court finds that defendant provided disclosures prior to consummation: In Sparano v. JLO Automotive, 2021 WL 4503078 (Sep. 30, 2021), the court held that the defendant provided the required Truth-in-Lending Act disclosures on paper before the plaintiff electronically signed the loan documents (ie, before consummating the loan). The court found that, despite the plaintiff’s later claims to the contrary, the plaintiff signed a declaration stating that he was given the opportunity to review a paper version before signing the agreement.

STATE

Electronic signatures and general online contract formation

In Knox Waste Service, LLC v. Sherman, 2021 WL 4470876 (Tex. Ct. App. Sep. 30, 2021), the court analyzed the recent Texas supreme court decision, Aerotek, Inc. v. Boyd, 624 S.W.3d 199 (Tex. 2021) (previously covered here), in reversing the trial court’s decision to deny one of the plaintiff’s motions to compel arbitration for the signatory to the arbitration agreement (the court upheld the trial court’s decision not to compel arbitration as it pertained to the plaintiff who was a non-signatory to the arbitration agreement). The plaintiff produced a signed copy of the arbitration agreement, evidence of the application and documentation processes, a signature authentication program, metadata from the signature authentication certificate, and two affidavits that described the signing process for new employees. The defendant claimed that the plaintiff failed to produce any evidence of a valid arbitration agreement because the two affidavits were not made on personal knowledge and were otherwise insufficient to support the finding of a valid arbitration agreement. The court first noted that it is inconsequential whether the affiants personally observed the plaintiff sign the arbitration agreement. As the court noted, the Texas supreme court in Aerotek faced a similar argument and the court applied that reasoning to this case to conclude that the affiants did not need to personally observe the plaintiff signing because the hiring application did. The defendant also produced an affidavit denying that he signed the arbitration agreement, amongst other statements. Regarding the defendant’s denial, the court stated that, in applying Aerotek, the statements contained in the defendant’s affidavit are mere arguments and do not create a genuine issue of material fact. The court noted that “it would be contrary to good policy to hold that the efficacy of an electronic signature's validation could be cast into doubt by a person's mere denial that he signed the agreement, particularly in light of such weighty evidence to the contrary and without any affirmative demonstration of actual fraud.” 

RECENT EVENTS

The Financial Times has ranked DLA Piper second on its lists of Most Innovative Law Firms and Most Digital Law Firms in the FT North America Innovative Lawyers 2020 report. Particularly noted by The Financial Times was our pro bono legal work on behalf of the UN’s World Food Programme – the authors of eSignature and ePayment News and Trends assisted in that work.

RECENT PUBLICATIONS

The Law of Electronic Signatures, 2020 - 2021 Edition (Thomson Reuters) is an essential guide to electronic signatures and records laws, including the context in which the laws were adopted and the ways in which the authors believe the drafters intended them to be interpreted. The publication is prepared by authors, including Margo Tank and David Whitaker, with more than 30 years combined experience that includes involvement with the drafting and passage of Electronic Signatures in Global and National Commerce Act (ESIGN), the preparation of the Uniform Electronic Transactions Act (UETA), the creation of the Standards and Procedures for electronic Records and Signatures (SPeRS™) and serving as counsel to the Electronic Signatures and Records Association. The insights they provide will be indispensable to anyone seeking to understand the impact of, and the liability associated with, using electronic signatures and electronic records.

These insights include:

• Details on the legal requirements for using electronic signatures and records, including delivery, presentation, signing and record retention
• Comprehensive tables itemizing the state variations to the uniform UETA language
• Special considerations for using electronic signatures and records in connection with emerging and evolving technology
• Using electronic records and signatures in specialized transactions and documents, such as securities, chattel paper and mortgages
• Analysis of the interplay between ESIGN, UETA and many other key laws and regulations
• Identification and summaries of recent legal developments and court cases impacting electronic signatures and records

The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by DLA Piper, provides a comprehensive look at RON requirements in each state that has enacted RON legislation.  These fully editable surveys are organized by category of requirements, including registration, technology, seal and signature, certificates of RON acts, journal, authentication, session, recording and additional requirements. Companies can purchase the full package which includes surveys for all states that have enacted RON legislation along with a matrix summarizing state requirements, or companies can purchase information about individual states as needed. Read more.

In case you missed it

Read the latest issue of our bulletins Bank Regulatory News and Trends and Consumer Finance Regulatory News and Trends.

Trending

UK Government response to Payments Landscape Review 

Contacts

Learn more about our eSignatures and ePayments practice by contacting:

Margo H.K. Tank 

David Whitaker