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  • FTC Unveils Agenda for Upcoming FinTech Forum

    Federal Issues

    On October 17, the FTC released the agenda for its upcoming FinTech forum, which is the second in an ongoing event series. The FTC’s half day event will take place on October 26 in Washington, DC from 1:00 to 4:30 pm. The event will consist of panel discussions relating to (i) peer-to-peer payment systems, which allow consumers to exchange money electronically; and (ii) crowdfunding, which is the use of online platforms to fund a project or venture by raising money from a large number of people.

    Federal Issues Digital Commerce FTC Payments Fintech Marketplace Lending

  • CFPB Releases Final Rule on Prepaid Financial Products; Chamber of Digital Commerce Comments on Scope of the Rule

    Federal Issues

    On October 5, the CFPB released its final rule on prepaid financial products, including traditional prepaid cards, mobile wallets, person-to-person payment products, and other electronic accounts with the ability to store funds. The rule is intended to provide consumers with additional federal protections under the Electronic Fund Transfer Act analogous to the protections checking account consumers receive. The following federal protections are included in the new rule: (i) financial institutions will be required to provide certain account information for free via telephone, online, and in writing upon request, unless periodic statements are provided; (ii) financial institutions must work with consumers who find errors on their accounts, including unauthorized or fraudulent charges, timely investigate and resolve these incidents, and restore missing funds when appropriate; and (iii) consumers will be protected against unauthorized transactions, such as withdrawals or purchases, if their prepaid cards are lost or stolen. The rule contains new “Know Before You Owe” prepaid disclosures similar to those used for mortgages and student financial aid offers. In addition to requiring two (one short, the other long) disclosure forms, the new rule requires that prepaid account issuers post agreement offers made available to the general public on their websites, submit all agreements to the CFPB, and make agreements that are not required to be posted on their website available to relevant consumers. The new rule also includes credit protections stemming primarily from the Truth in Lending Act and the Credit Card Accountability Responsibility and Disclosure Act, including providing consumers with monthly credit billing statements, giving consumers reasonable time – at least 21 days – to repay their debt before incurring late fees, ensuring that consumers are able to repay the debt before making a credit offer, and limiting the fee and interest charges to 25% of the total credit limit during the first year an account is open. The rule, which has not yet been published in the Federal Register, has a general compliance date of October 1, 2017, but includes certain accommodations, one of which is an October 2018 effective date for the requirement that agreements be submitted to the CFPB.

    The Chamber of Digital Commerce submitted comments to the CFPB in December advocating that virtual currency products and services should fall outside the scope of the prepaid rule. Pursuant to the final rule, the CFPB found that “application of Regulation E and this final rule to such products and services is outside the scope of this rulemaking.”

    Federal Issues Consumer Finance Credit Cards CFPB Digital Commerce TILA Prepaid Cards Electronic Fund Transfer Agency Rule-Making & Guidance

  • DOJ Issues Supplemental Advance Notice of Proposed Rulemaking on Web Accessibility Requirements

    Fintech

    On April 29, the DOJ issued a Supplemental Advance Notice of Proposed Rulemaking (SANPRM) titled Nondiscrimination on the Basis of Disability; Accessibility of Web Information and Services of State and Local Government Entities. According to the SANPRM, the DOJ “is considering revising the regulation implementing title II of the Americans with Disabilities Act (ADA or Act) in order to establish specific technical requirements to make accessible the services, programs, or activities State and local governments offer the public via the Web.” Due to advances in technology and website accessibility, the recently released SANPRM replaces a 2010 Advance Notice of Proposed Rulemaking and poses 123 questions related to, among other things, (i) the potential application of technical accessibility requirements to the websites of title II entities; (ii) the appropriateness of proposing alternate conformance levels, compliance date requirements, or other methods designed to minimize significant economic impact on small public entities; and (iii) additional costs imposed on public entities to ensure compliance with the 2008 version of Web Content Accessibility Guidelines. The SANPRM is scheduled to be published in the Federal Register on May 9, 2016; comments are due 90 days after publication.

    DOJ Digital Commerce Agency Rule-Making & Guidance

  • Lawsuits Alleging Digital Barriers on Websites Continue

    Fintech

    Recently, a legally blind plaintiff filed a class action complaint against a leading home improvement and construction products and services retailer alleging that the company violated state law and the American Disabilities Act (ADA) by denying blind individuals equal access to products, services, and opportunities offered on its website. Diaz v. Home Depot, Inc., No. 15-cv-09178 (S.D.N.Y. Nov. 20, 2015). The complaint asserts that the company’s website contains barriers that “make it impossible for blind users to even complete a transaction on the website . . . thus exclude[ing] the blind from the full and equal participation in the growing Internet economy that is increasingly a fundamental part of the common marketplace and daily living.” The complaint further alleges that the company chooses “to rely on an exclusively visual interface” despite having access to technology that could make the website more accessible, such as limiting the use of tables and javascript and making use of alternative text, descriptive links, and resizable text. The plaintiff seeks (i) a permanent injunction requiring the company to take the necessary steps to ensure its website fully complies with ADA requirements so that it is accessible and usable by blind individuals; and (ii) compensatory damages to the plaintiff and a proposed subclass of blind customers.

    The lawsuit is one of a number filed in 2015 – including a November 6 complaint against the NBA – under the ADA against companies operating websites with alleged digital barriers preventing blind individuals from accessing the electronic marketplace. According to a DOJ statement regarding its regulatory plans, rulemaking initiatives regarding the accessibility of web information and services provided by public accommodations are not scheduled to be included in the agency’s long-term actions until fiscal years 2017 and 2018.

    Class Action DOJ Digital Commerce

  • Federal District Court Articulates Criteria for Effective Presentation of Electronic Contracts

    Fintech

    In Berkson v. Gogo LLC, 2015 WL 1600755 (E.D. NY 2015), the Eastern District of New York denied a motion to dismiss and compel arbitration filed by an in-flight wifi provider. The provider was accused in a class action suit of duping customers into signing up for a monthly service without their knowledge.  The plaintiffs alleged that the graphics and text of the website misled them to believe that they were purchasing only a single month of use, while concealing that the agreement was actually a subscription agreement for monthly services and a recurring monthly charge.  At issue in the motion to dismiss was the enforceability of two separate agreements used to enroll customers, and in particular terms in those agreements related to mandatory arbitration and exclusive venue, which the defendant sought to invoke. The first contract presented a “Clickwrap” agreement—whereby the consumer checked a box presented next to the phrase “I accept the terms of use.” The second contract presented a “Signwrap” agreement—whereby the consumer clicked a sign-in button presented below a statement indicating that by signing in, the consumer agreed to the “terms of use.” In both instances, the phrase “terms of use” was a hyperlink presented in plaintext that would take the consumer to the contract terms, if clicked. Also in both cases, the actual button used to enroll customers was considerably larger than the hyperlink and presented in color. The plaintiffs argued that  the agreements should not be enforced because the website pages on which they appeared were designed so that the terms were deliberately hidden and were never seen or agreed to by them.

    As part of its analysis, the court reviewed a number of prior judicial decisions involving electronic consumer contracts, which closely scrutinized the manner in which agreement terms are disclosed to consumers on electronic platforms. The court also reviewed a number of empirical studies analyzing viewing and reading behavior (including eye tracking patterns) where consumers were presented with materials on a computer screen. The court concluded that in general an electronically presented agreement will be enforceable if (i) the website presenting the agreement puts a reasonably prudent user on inquiry notice of the terms of the contract; (ii) the user is encouraged by the design and content of the website and webpage to examine any agreement terms that are made available via a hyperlink; and (iii) the link to the agreement is placed where the user is likely to see it.

    The court also observed that in this case the agreements qualified as “contracts of adhesion”, and so should also not be enforced unless it could be demonstrated that the user was, by virtue of the design of the agreement pages on the website, given adequate warning of adverse terms in the agreements, such as mandatory arbitration or exclusive venue.

    Based on its analysis and review of the web pages presenting the agreements at issue, the court denied the defendant’s motion, concluding that the Signwrap agreement was unenforceable because the design and content of the web page did not make the agreement readily and obviously available, and its importance was obscured by the process (which involved clicking a button labeled “sign in,” rather than one labeled “accept” or “I agree”), and the defendant had not demonstrated that the Clickwrap agreement actually required the consumer to check the “I agree” box before enrolling the consumer in monthly services. The court also noted that the plaintiffs were not given an opportunity to retain a copy of the agreement, nor was one automatically provided to them.

    Electronic Signatures Digital Commerce

  • Federal Reserve Bank of Boston's Payment Strategies Team Provides Snapshot of Mobile Banking Landscape

    Fintech

    On August 17, the Federal Reserve Bank of Boston published a report that outlines the results of a 2014 survey intended to capture “a point-in-time snapshot of mobile banking and payments at [financial institutions]” across five Federal Reserve bank districts. One of the largest U.S. surveys completed on mobile banking and payment services at financial institutions, the collected data mostly came from banks and credit unions – a combined total of more than 600 – with less than $500 million in assets. The survey showed that with the rise of smartphones, consumers are more easily able to use mobile devices for payments, and they demonstrate “growing comfort with mobile and digital wallets as well as willingness to pay with mobile-based solutions.” As competing mobile technologies emerge, such as non-bank technology service providers, the report found the need for financial institutions to “create mobile banking and payment strategies to respond to [the] changing environment” becomes more relevant. The report highlighted that roughly 75 percent of the financial institutions surveyed offer the following mobile services, with a majority of the remaining 25 percent planning to offer them by 2016: (i) checking balances; (ii) transferring funds between a single owner’s account; (iii) viewing statements and transaction history; (iv) ATM / branch locator; and (v) bill payment. The report further suggested that financial institutions should “keep pace” with the growing mobile banking market and “be proactive and help make the best solutions succeed.”

    Mobile Banking Mobile Payment Systems Digital Commerce

  • Court Holds That Evidence of Clickwrap Assent Not Always Sufficient When Evidence Disputing Assent is Presented

    Fintech

    On June 29, in Jim Schumacher, LLC v. Spireon, Inc., Civ. Action No. 3:12-cv-00625-TWP-CCS, a Tennessee federal judge denied the motion for partial summary judgment as to the breach of contract claim because there was evidence that the plaintiff did not use the defendant’s portal or authorize an agent to use the defendant’s portal to manifest assent to the modified contract terms even though the defendant had digital evidence of such assent to the clickwrap agreement, thus creating a factual dispute. In 2005, the plaintiff became a reseller of the defendant’s vehicle location devices.  In 2009, the defendant modified its agreement, and placed the modified agreement on its customer portal website through which resellers manage purchases, sales, and customer data.  Visitors to the portal were required to click “I Accept” or “I Decline” before being permitted to access any other information on the portal.  The defendant produced digital evidence demonstrating that someone with the correct login and password accepted the 2009 agreement, and further digital evidence that someone with the correct login and password accepted an agreement in 2010 as well.  The plaintiff claims that he did not use the portal after the defendant placed the 2009 agreement on the portal, and thus could not have assented to the clickwrap agreement.  During this time, the plaintiff also did not authorize his representative to agree to the terms of the 2009 amendment, nor did he give any other users the ability to execute the agreement on his behalf.  The plaintiff filed a lawsuit alleging a breach of contract claim and a fraud claim based on the 2005 agreement. 

    The defendant argued that the 2005 agreement was superseded by the plaintiff’s acceptance of the 2009 agreement, which itself was superseded by the plaintiff’s acceptance of the 2010 agreement, and that the defendant had digital evidence of the plaintiff’s assent.  The plaintiff contended that neither argument was properly executed on his behalf.  The defendant argued that the plaintiff cannot avoid summary judgment by asserting a failure to see, read, or sign the 2009 or 2010 agreements.  In so doing, the defendant relied on two cases where the terms of the “clickwrap” agreement were enforced against a party who claimed lack of agreement to the terms.  The court distinguished this case from those two cases by noting that in both of those cases, undisputable evidence existed that the party assented to the terms of the clickwrap, either because the party used the website to make travel arrangements or because the party incorporated software into its own products that could only have been installed if the party agreed to the clickwrap agreement. Here, the court noted, the plaintiff did not use the portal after the defendant posted the amended agreements.  Regarding the defendant’s argument that some with apparent authority executed the agreements, the court found that no evidence existed that the plaintiff granted anyone but his representative authority to act on his behalf and that the record was silent regarding whether the plaintiff’s representative did execute the agreements.  Therefore, the court denied the defendant’s motion for summary judgment regarding the breach of contract claim because a factual dispute existed regarding which contract controlled.  Finally the court allowed the plaintiff’s fraud claims to proceed only regarding alleged statements made between January 2011 and March 10, 2011, when the defendant claims it terminated the 2010 agreement with the plaintiff.

    Electronic Signatures Digital Commerce

  • Mobile App Developer Settles with FTC and New Jersey AG Over Virtual Currency Mining

    Privacy, Cyber Risk & Data Security

    On June 29, a mobile app developer entered into an agreement with the FTC and the New Jersey AG to settle allegations that the developer engaged in deceptive and unfair practices by marketing its rewards app, called “Prized,” as being free of malicious software, also known as “malware.” However, according to the FTC, the true purpose of the mobile app was to uploaded malware onto consumers’ mobile devices capable of mining virtual currencies for the software developer.  This process allegedly reduced the battery life of consumers’ devices and caused consumers to burn through their monthly data plans. Under terms of settlement, the developer and accompanying mobile app are (i) prohibited from creating and distributing malicious software, and (ii) required to pay $50,000 to the state of New Jersey, with $5,200 due immediately, and the remaining $44,800 payable if the developer fails to comply with the terms of the consent order or the New Jersey Consumer Fraud Act within three years of the order.

    FTC State Attorney General Mobile Commerce Enforcement Virtual Currency Digital Commerce UDAAP

  • August 10 Deadline Set for New York Virtual Currency Firms to Apply for BitLicense

    Fintech

    On June 24, the New York State Register published the Department of Financial Services’ BitLicense framework, requiring companies and individuals who provide virtual currency services involving New York or a New York Resident to apply for a BitLicense by August 10, 2015. Virtual currency firms must submit the 31-page application providing information including, among other things, (i) written policies and procedures including, but not limited to BSA/AML, cybersecurity, privacy and information security, (ii) company information, (iii) biographical information on company directors and stockholders, and (iv) an explanation of the methodology used to calculate the value of virtual currency in fiat currency. In addition, the NYDFS released a set of FAQs to help clarify the BitLicense requirements.

    Virtual Currency Digital Commerce NYDFS

  • NY DFS Reveals Final BitLicense Requirements for Digital Currency Firms

    Fintech

    On June 3, New York’s departing superintendent of financial services, Benjamin Lawsky, revealed that the agency has adopted final regulations of the BitLicense, the regulatory framework in which digital currency firms operate within the state. In prepared remarks delivered at the BITS Emerging Payments Forum in Washington, D.C., Lawsky announced that the final BitLicense – which has undergone two previous updates – contains key consumer protection, AML compliance, and cybersecurity requirements. Moreover, Lawsky advised of the latest changes, and provided guidance clarifying that (i) firms that wish to obtain both a BitLicense and a money transmitter license will not have to submit separate applications, if they can satisfy the requirements for both; (ii) firms filing suspicious activity reports (SARS) with federal regulators, such as FinCEN, will not have to file a duplicate set of SARS with the state; (iii) firms must obtain prior approval for changes to their products or business models; (iv) firms will not require prior approval from the regulator for each round of venture capital funding, unless the investor seeks to oversee the company’s management and policies. Lawsky also clarified that the DFS intends to regulate only financial intermediaries who hold customer funds, rather than software developers who specifically focus on developing software, and do not hold customer funds.

     

    Virtual Currency Digital Commerce NYDFS

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