eSignature and ePayment News and Trends
Achieving Digital Transformation and Securing Digital AssetsA 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, our Insights piece highlights the applicability of the “Financial Asset” structure currently available under Part 5 of UCC Article 8 in light of the ULC-approved Amendments to the Uniform Commercial Code (2022). 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
Transferring digital assets under UCC Article 8
The Uniform Law Commission has recommended 2022 Amendments to the Uniform Commercial Code (the 2022 Amendments) which address, among other things, limitations on the liquidity of some digital assets under existing UCC Article 9. In particular, virtual currencies and electronic debt obligations classified as “general intangibles” or “payment intangibles” under Uniform Commercial Code (UCC) Article 9 (for convenience, this article will refer to them as Digital Assets) may currently be subject to a security interest perfected by a lender’s filing of a UCC-1 in the appropriate jurisdiction. The transfer or assignment of these Digital Assets to a new owner will often be subject to that security interest, which will travel with and continue to burden the Digital Assets even in the hands of a transferee or assignee.
While the 2022 Amendments will, if widely adopted, make it easier to transfer interests in those Digital Assets free of most third-party claims, it may be a considerable period of time before widespread adoption occurs. In the meantime, some owners and assignees of those Digital Assets, and their lenders, are turning to an alternative that already exists and is available in all 50 states and the District of Columbia – the “Financial Asset” structure available under Part 5 of UCC Article 8. Read more.
REGULATORY DEVELOPMENTS
FEDERAL
Treasury issues report on impact of non-bank firms on markets. In November 2022, the US Department of the Treasury Report to the White House Competition Council released a report titled “Assessing the Impact of New Entrant Non-bank Firms on Competition in Consumer Finance Markets.” The Treasury Report focuses on fintechs and other new entrant non-bank firms that are directly involved in providing digital financial products in core consumer finance markets, including deposits, payments, and credit. The Treasury Report identified the following impacts that the new entrant non-bank firms are having on competition in consumer finance markets:
- New entrant non-bank firms are contributing to the diversification of firms and business models competing in core consumer finance markets, while adding complexity.
- The evolving role of non-bank firms in core consumer finance markets complicate measurements of competition, but there are indications that new entrant firms are adding competitive pressures in those markets.
- Opportunities for new entrant non-bank firms to continue to improve the delivery of financial services may also present risks to consumers and the financial system.
- Emerging developments, particularly the entry of Big Tech firms into core consumer finance markets, could further impact competition and warrant review.
- When done responsibly, competition and innovation can deliver benefits to consumers.
CFPB issues Complaint Bulletin containing an analysis of consumer complaints related to crypto-assets. On November 10, the Consumer Financial Protection Bureau (CFPB) issued a report titled “Complaint Bulletin: An analysis of consumer complaints related to crypto-assets” The CFPB report found that significant problems within crypto-asset markets include fraud, theft, hacks, scams, and transaction problems, such as frozen accounts and inability to access assets. The analysis was based on complaints submitted to the CFPB related to crypto-assets.
CFPB requests additional public input on big tech payments. On October 31, 2022, the CFPB announced it will re-open public comments related to their October 2021 Order to major tech and peer-to-peer platforms with payment services. The new public comment period is open for 30 days from November 7, 2022 (when it was published in the Federal Register), and public comment on the risks faced by consumers and potential policy solutions to allow them to add additional questions; particularly with regards to acceptable use policies, fines, and penalties, is solicited. Comments are due on or before December 7, 2022 and may be submitted electronically via the Federal eRulemaking Portal or email, or in hard copy via mail/hand delivery/courier, although electronic submissions are encouraged due to surface mail delays. Further instructions, including how to include the docket identification information, are available in the Federal Register publication.
STATE
California DFPI issues Opinion Letter on cryptocurrency exchange platform. The Commissioner of the California Department of Financial Protection and Innovation published an Opinion Letter in response to a redacted request for an interpretive opinion as to whether a California Money Transmission Act license is required for business activities including offering various cryptocurrency purchasing, selling, and trading via an affiliate’s platform using a tokenized version of the US dollar, but not providing custody or digital wallet services. The Opinion Letter indicates that the DFPI currently does not require a money transmission license for such activity as the DFPI has not determined whether the issuance of such tokens or the use of such tokens to trade cryptocurrency constitutes money transmission; it also notes that the opinion is subject to change and based on the facts presented.
Money transmission and virtual currency
Louisiana’s Virtual Currency Act to take effect January 1, 2023. Final regulations promulgated by the Louisiana Office of Financial Institutions to implement the Louisiana’s Businesses Act (VCBA) were adopted by emergency rule last month. The VCBA was adopted in August 2020 to regulate virtual currency in the state by creating a regulatory structure specific to virtual currency activities, rather than grouping them with money transmission laws. Applications for the related license will be available through the NMLS, and a license or other permission/exemption will be required for regulated virtual currency activities conducted after June 30, 2023.
Ohio DFI updates money transmission licenses to include crypto guidance. The Ohio Division of Financial Institutions (DFI) issued Interpretive Guidance 2022-01, which supersedes and replaces prior guidance for the licensing of cryptocurrency businesses under the Ohio Money Transmitters Act (OMTA). The guidance notes the OMTA’s definition of money transmission (ORC 1315.01(G)) and asserts that, for purposes of the OMTA, the DFI considers cryptocurrencies to be money or its equivalent. The bulletin also indicates that, generally, activities surrounding the purchase and sale of cryptocurrencies will require a license under the OMTA and provides specific examples of regulated activity requiring licensure.
Remote Online Notarizations
Kansas adopts permanent RON regulations. On October 13, 2022, the Kansas Secretary of State published regulations for remote online notarial acts performed in the state effective as of October 28. These regulations made permanent the state’s emergency regulations which were effective from June 30.
CASE LAW
FEDERAL
Electronic signature and contract formation
Revised terms of use unenforceable: In Optimum Construction, Inc. v. Harbor Business Compliance Corporation, 2022 WL 4608170 (D. Md. Sep. 30, 2022), the court denied the defendant’s motion to dismiss the case because of improper venue. The court concluded that the defendant did not demonstrate that the plaintiff had assented to the changed terms of use that included the choice of venue clause. In 2017, the plaintiff agreed to the defendant’s terms of use online, but the defendant did not put forth any evidence that the venue selection clause was contained in that document. The venue selection clause was contained in terms of use dated June 2019. During the intervening time, the plaintiff accessed the defendant’s website over 75 times. The defendant asserted that the terms of service had been subsequently updated (in 2019) and that the new version had been available for review upon clickthrough on the client portal. However, the plaintiff put forth evidence – uncontradicted by the defendant – that each time the plaintiff logged into its account with the defendant, the checkbox for agreeing to the terms was prechecked. The court reasoned that because there was no evidence that the defendant ever notified the plaintiff that its terms of use had been modified or updated at any point, that it could not conclude that the plaintiff was on inquiry notice of any modifications to the terms of use. The court stated that if the terms were modified to include a forum selection clause, the only way that the plaintiff could have avoided inadvertently accepting the modified terms would have been to check the multi-page terms of use against the 2017 version each time the plaintiff logged into the website, and noted that the law does not impose this burden on website users who are subject to online contracts of adhesion. Contrasting this case with cases in which a service provider gave notice to users concerning modifications to the terms of use, the court denied the defendant’s motion to dismiss as well as its alternative request for removal to Pennsylvania under a forum non conveniens analysis.
Retailer’s website associated with store is subject to ADA. In Fernandez v. Sunday State LLC, Slip Copy 2022 WL 12256263 (S.D. Fl. October 19, 2022), the court found that a retailer’s website was an “intangible service, privilege and advantage” associated with a physical store and was therefore subject to the ADA. The plaintiff, who is partially blind and paralyzed, alleged that the website associated with a retail clothing store was inaccessible for the plaintiff and others similarly disabled in violation of the Americans with Disabilities Act (ADA). The defendant did not answer the complaint, so the court accepted the plaintiff’s factual assertions (the clothing store was open to the public; website content and functions were closely connected to the operation of the physical store; and inadequate design and execution of many features of the website hampered full access and use via available third-party screen reading software or alternative accessible interaction). The court determined that the clothing store itself was “a place of public accommodation” under the ADA and enumerated proof of the website’s “nexus” with the physical store, including information about the store and its location, online sales, and the offering of many services that could be used either online or in the physical store, such as gift cards and other offers, benefits, invitations and discounts, among them “exclusive online offers.” Based on these circumstances, the court held that inadequate access to website features violated the ADA by creating “`intangible barriers’’ to full participation in the public’s access to the store.
Electronic payments
Court finds that unauthorized withdrawal was bona fide error. In Ramirez v. LTD Financial Services, L.P., No. 1:19-CV-2575-CAP, 2021 WL 9598131 (N.D. Ga. Sept. 2, 2021), the court granted a debt collector’s motion for summary judgment as to alleged violations of the Fair Debt Collection Practices Act (FDCPA) and Electronic Funds Transfer Act (EFTA). Noting that the debt collector showed evidence of sufficient training, policies and procedures specifically addressing EFTA and FDCPA compliance, the court found that the failure to cancel electronic payment arrangements that resulted in an unauthorized withdrawal of a payment from the debtor’s account was bona fide error that occurred due to human error, and had not come about due to lack of procedures reasonably calculated to avoid the error. Because of this, the court held, the bona fide error defense applied.
Our thanks to Braden Penhoet for his assistance in preparing the case law summaries.
RECENT EVENTS
Margo Tank and David Whitaker co-presented at the eSignRecords2022 Electronic Signatures and Records Association (ESRA) Annual Conference, held November 15-17 at DLA Piper’s Washington, DC offices. Their presentations included “Legal Year in Review,” an annual round-up of key legal developments affecting electronic signatures and records; and “New UCC Article 12 – Its Purpose, Provisions and Potential Impact,” focused on the provisions of the Amendments, and particularly UCC Article 12, that address gaps in existing law governing the transfer of property rights (including both ownership rights and security interests) in certain assets that consist of, or are evidenced by, electronic records. Andrew Gastworth, also of DLA Piper, presented “Real-World Blockchain Solutions for Business,” which covered solutions designed to drive profitability through tokenization of real-world assets, managing supply chains, creating circular economies, and supporting sustainability.
Margo Tank and David Whitaker were featured speakers at NACHA’s ACH Legal & Compliance Summit on November 30, 2022, where they discussed the intersection between ESIGN, the UETA, and the laws and regulations governing electronic fund transfers.
David Whitaker presented at a webinar hosted by MERSCORP Holdings, Inc. and ICE Mortgage Technology on electronic home equity lines of credit and the potential impact of proposed Article 12 of the Uniform Commercial Code on transfers of ownership.
DLA Piper ranked in 2023 Chambers FinTech Guide. DLA Piper is pleased to announce that the firm's FinTech Legal practice has been ranked nationwide by the prestigious legal publisher Chambers and Partners. Margo Tank and David Whitaker each received individual FinTech rankings. Overall, the firm received 21 practice rankings and 16 individual lawyer rankings in the Chambers FinTech 2023 edition.
RECENT PUBLICATIONS
Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, including chapters by Meshulam and Fluhr and by Margo H.K. Tank and Andrew Grant.
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.
For more information
Why private fund advisers should pay attention to the SEC’s ESG focus
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