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  • Arizona’s fintech sandbox program accepts first participant

    Fintech

    On October 11, the Arizona Attorney General announced the state’s first fintech sandbox participant. The mobile payment platform company will test its product—a centralized wallet infrastructure designed to create “cheaper and faster payment transfers”—for two years by processing guest payments at a Tucson resort. Arizona resident-guests will receive a disclosure agreement outlining the company’s participation in the sandbox, an explanation of the test product, a privacy notice, and the ability to opt out of any information sharing with the resort. As previously covered by InfoBytes, the Arizona governor signed legislation in March creating the first state sandbox program for companies to test innovative financial products or services without certain regulatory requirements. 

    The Attorney General also announced the finalization of a Memorandum of Understanding (MOU) with Taiwan’s financial regulator, the Financial Supervisory Commission, to increase the reach of the state’s sandbox program. The MOU will establish an information sharing agreement “that may result in the opportunity for businesses to develop/test eligible [fintech] products in both markets,” the release stated.

    Fintech State Issues State Attorney General Regulatory Sandbox

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  • Utah Supreme Court reverses foreclosure ruling, states OCC interpretation of “located” is reasonable

    Courts

    On October 5, the Utah Supreme Court revisited a 2013 decision in which it held that federal law does not preempt Utah state law that limits the ability of national banks to foreclose on real property in the state. In a unanimous opinion, the court wrote that it was overruling its “clearly erroneous” decision in a case stemming from a borrower’s challenge to the validity of a nonjudicial foreclosure sale of her Utah home by a Texas-based national bank. According to the opinion, the borrower argued that the sale of her home at auction was invalid because Utah state law “does not permit a bank to act as a trustee on a trust need.” Fannie Mae, which won the auction, secured an eviction order and argued that under the National Bank Act (NBA), the bank had the authority to conduct the sale. The court, however, reversed the eviction order after deciding that the bank did not have the authority under Utah law to act as a trustee under a deed of trust.

    In overruling its 2013 decision, the court held that whether a national bank has the authority to act as a trustee to foreclose on property in Utah depends on the OCC’s regulation implementing the NBA, not on Utah state law. According to the OCC’s interpretation of Section 92a of the NBA, a bank is located in the state where it “accepts the fiduciary appointment, executes the documents that create the fiduciary relationship, and makes discretionary decisions regarding the investment or distribution of fiduciary assets.” Previously, the court had found this interpretation to be unreasonable and not entitled to Chevron deference. However, when reconsidering the issue, the court determined that the OCC had the authority to implement the NBA and that the agency’s interpretation of the word “located” was reasonable. “Whatever located means, Congress has instructed that a state has to permit a national bank to act as a fiduciary if institutions that compete with the national bank in the state where it is located can act as a fiduciary,” the court wrote. “This expresses a federal intent to clomp into an area of traditional state concern.” The question, however, remained whether the bank performed its actions in a fiduciary capacity in Texas—a point on which the two parties to the litigation disagreed. “Because the district court has not had the opportunity to address this issue and because of the potential need for factual findings, we remand for the district court to consider this argument,” the opinion stated.

    Courts State Issues OCC National Bank Act Foreclosure

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  • Coalition of state Attorneys General encourages FCC to create rules to block illegal robocalls

    State Issues

    On October 8, a collation of 35 state Attorneys General submitted reply comments in response to a public notice seeking ways the FCC could create rules that will enable telephone service providers to block illegal robocalls. In their comments to the FCC, the coalition encourages the FCC to implement rules and additional reforms that go beyond the agency’s 2017 call-blocking order, which allows phone companies to proactively block illegal robocalls originating from certain types of phone numbers. (See previous InfoBytes coverage here.) “Many illegal robocallers, however, simply do not care about the law and have a more insidious agenda — casting a net of illegal robocalls to ensnare vulnerable victims in scams to steal money or sensitive, personal information,” the coalition stated. “[C]riminals are estimated to have stolen 9.5 billion dollars from consumers through phone scams in 2017.” The coalition encourages collaboration between states, federal counterparts, and the domestic and international telecommunications industry, and applauds recent progress on the implementation of frameworks such as the “Secure Telephone Identity Revisited” and “Secure Handling of Asserted information using toKENs” protocols that assist service providers in identifying illegally spoofed calls.

    State Issues State Attorney General FCC Robocalls Privacy/Cyber Risk & Data Security

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  • New Jersey appeals court says choice-of-law exception may apply in interest rate class action suit

    Courts

    On October 9, the Superior Court of New Jersey Appellate Division reversed a trial court’s decision to revive a proposed class action that challenged, among other things, interest rates of over 30 percent on car title loans. According to the appellate court, the trial court dismissed the case because Delaware, not New Jersey, had a more substantial relationship with the parties’ dispute. While the plaintiff’s contract with the Delaware-based title loan company stipulated that Delaware law applied even though she resided in New Jersey, the appellate court said that under the second exception of the test established by Instructional Systems Inc. v. Computer Curriculum Corp., New Jersey courts will uphold the contractual choice unless the “application of the law of the chosen state would be contrary to the fundamental policy of the state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties.”

    “In her certification, plaintiff asserted that she applied for the title loan from her home in New Jersey and that defendant advised her that the loan had been approved by calling and advising her that all she had to do to pick up the money was to come to Delaware and sign the contract.” The appellate court stated that these additional facts may be sufficient to satisfy the second exception’s prerequisites, and that from a procedural standpoint, the trial court should have either converted the title loan company’s motion to dismiss to a motion for summary judgment in order to consider the new information or granted the plaintiff’s motion to file a second amended complaint.

    Courts State Issues Class Action Interest Auto Finance Usury

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  • District Court allows certain check authorization recommendation claims against consumer reporting agency to proceed

    Courts

    On October 2, the U.S. District Court for the Western District of Texas granted in part and denied in part a request for judgment on the pleadings brought by a nationwide specialty consumer reporting agency (defendant) that provides check authorization recommendations used by merchants when determining whether to honor a consumer’s check. According to the order, the plaintiff’s attempts to cash checks were denied based upon guidelines for authorization established by the defendant. The plaintiff subsequently (i) complained to the defendant that consumers did not have access to the recommendation guidelines; (ii) disputed the accuracy of the recommendations; and (iii) requested that denied transactions be reinvestigated. In its second amended complaint, the plaintiff claimed the defendant violated the Fair Credit Reporting Act (FCRA), the Texas Consumer Credit Reporting Act (TCCRA), and the Texas Deceptive Trade Practices Act, asserting that the consumer file prepared by the defendant contained two inaccuracies and that the defendant failed to conduct a reasonable reinvestigation of his consumer file or did not have procedures in place to correct inaccurate information. While the court dismissed the FCRA and TCCRA §20.07 claims to the extent they were based on allegations that the defendant did not have reasonable procedures in place to correct inaccurate information, it held that the allegations regarding the defendant’s failure properly to reinvestigate the consumer’s file did state a plausible claim for relief.

    Courts Consumer Reporting Agency FCRA State Issues Consumer Finance

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  • California state appeals court partially reverses proposed class action suit addressing arbitration terms

    Courts

    On October 2, a California state appeals court partially reversed a trial court’s denial of class certification in a putative class action alleging that a written cardmember agreement issued by a credit card company contained unconscionable and unenforceable arbitration terms. According to the opinion, after the cardmember and his company failed to make timely and sufficient payments on their accounts, the credit card company closed the accounts and filed a collection action. The cardmember subsequently filed a putative class action cross-complaint against the credit card company and two other card issuers, alleging the arbitration terms in the cardmember agreements he signed are unlawful under California’s Unfair Competition Law, and asserting, among other things, that the legally unenforceable contract terms prevented negotiations, prohibited injunctive relief, and failed to communicate to cardholders what the rules would be at the time of arbitration. The cardmember further alleged that cardholders were overcharged annual credit card fees or purchase fees “as consideration for the promises contained in the cardmember agreement.” During the course of the litigation, the credit card companies sent certain cardmembers modified contract terms, which allowed cardmembers the option to reject arbitration altogether if a written rejection notice was provided within a specific time period.

    The trial court denied class certification, finding, among other things, that the cardmember was not an adequate class representative and did not have claims typical of the putative class because there was no evidence he paid annual fees and that individual issues would predominate with respect to procedural unconscionability and each individual class member’s entitlement to declaratory relief. On appeal, the court held that the trial court “used improper criteria and erroneous assumptions” when reaching its decision that “procedural unconscionability would involve predominantly individualized issues.” Moreover, the appellants and absent class members were linked by common questions, including whether it was unreasonable for the respondent to modify its arbitration terms during pending litigation, since this denied cardholders who opted out of arbitration the right to join the class.

    Courts Appellate Arbitration State Issues Credit Cards Class Action

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  • Washington state Attorney General says debt buyers are collection agencies, files lawsuit for operating without a license

    State Issues

    On September 21, the Washington state Attorney General announced that it filed a lawsuit against several collection agencies and their owner (defendants) for allegedly purchasing and suing on charged-off consumer debts in violation of the Washington Collection Agency Act (WCAA) and the Washington Consumer Protection Act (WCPA). The complaint alleges that defendants bought and then obtained judgements on at least 3,500 consumer debts without first obtaining a collection agency license under the WCAA. Under the WCAA, a debt buyer is a collection agency and must therefore “be licensed as a collection agency if it enters into contracts with sellers of debt accounts or takes other affirmative steps to acquire accounts for collection, either directly or through an agent.” Failure to obtain a license as required under the WCAA  amounts to a per se violation of the WCPA. Because defendants bought and sued on consumer debts before obtaining a license in 2013, the Attorney General claimed that they violated the WCAA and the WCPA. The complaint seeks civil money penalties of up to $2,000 per violation for each violation of the WCPA, restitution for affected consumers, and reimbursement of legal costs and fees.

    State Issues State Attorney General Debt Buyer Licensing Consumer Finance

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  • New York prohibits auto lenders from remotely disabling a vehicle without providing notice

    State Issues

    On October 2, the New York governor signed SB 2484, which prohibits auto lenders from remotely disabling a vehicle without first providing notice of the disabling to the debtor. The act amends the state’s uniform commercial code and the general business law, in significant part, by: (i) defining a “payment assurance device” (“any device installed in a vehicle that can be used to remotely disable the vehicle”); (ii) requiring written notice of the possible remote disabling of a vehicle “in the method and timetable” agreed in the initial contract between the parties; (iii) identifying permissible methods of notice transmittal; and, (iv) specifying the permitted period between the postmarking of the notice and the date on which the auto lender or its agent obtains the right to disable the vehicle. The act takes effect immediately.

    State Issues State Legislation Auto Finance

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  • NYDFS adds check cashing and virtual currency businesses to nationwide licensing system

    State Issues

    On October 1, NYDFS announced the commencement of the final phase of its initiative to manage the license application and regulation of all non-depository financial institutions operating in the state through the Nationwide Multistate Licensing System and Registry (NMLS). As such, NYDFS now allows financial services companies holding check casher and virtual currency business activity licenses to transition those licenses to NMLS. Additionally, companies applying for new licenses may now submit applications through NMLS. As previously covered in InfoBytes, licensed budget planners, sales finance agencies, money transmitter licensees, and mortgage providers have already made the transition to NMLS. 

    State Issues NYDFS NMLS Licensing Virtual Currency

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  • California to appoint “blockchain” working group

    State Issues

    On September 28, the California governor signed AB 2658, which requires the Secretary of the Government Operations Agency to appoint a blockchain working group by July 1, 2019. (The act defines blockchain as “a mathematically secured, chronological, and decentralized ledger or database.”) The working group is charged with evaluating, among other things, (i) the risks and benefits associated with the use of blockchain by state government and California-based businesses; (ii) the legal implications of the use of blockchain; and (iv) best practices for enabling blockchain technology to benefit the state and its businesses and residents. The act, which has a sunset date of January 1, 2022, requires the working group to provide a report to the legislature by July 1, 2020.

    State Issues State Legislation Blockchain Fintech

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