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CFPB Examinations Of Card Rewards Program Underway
On November 15, Bloomberg reported that the CFPB is examining credit card issuers’ rewards programs. The article quotes CFPB Director Cordray stating that rewards programs can involve “detailed and confusing rules” and that the CFPB “will be reviewing whether rewards disclosures are being made in a clear and transparent manner.” The CFPB’s recent Credit CARD Act report identified rewards product disclosures as one of many card practices that “pose risks to consumers and may warrant further scrutiny by the Bureau.”
Bloomberg reported that the examinations cover the marketing of rewards programs, “particularly the marquee promise of a given card, such as cash back, or redeemable airline miles, and what a customer needs to do to get it.” The article notes that there is no apparent sudden rise in consumer complaints about rewards, but the CFPB has targeted the programs because they are, according to the source, the primary reason consumers choose a particular card.
While the CFPB reportedly is not examining the disclosures on the basis that they could present UDAAP risk, the article states that the scope of the targeted examinations includes (i) the time it takes for card holders to redeem their rewards, (ii) the potentially obscure nature of the conditions on redeeming rewards, (iii) programs that require increasing amounts of spending over time to redeem an award, and (iv) forfeiture and reinstatement of rewards.
New York Banking Regulator Plans Virtual Currency Hearing, Considers Licensing Requirements
On November 14, New York State Department of Financial Services (DFS) Superintendent Benjamin Lawsky issued a notice that the DFS intends to hold a public hearing on virtual currency regulation in New York City “in the coming months.” The hearing will focus on the interconnection between money transmission regulations and virtual currencies. Additionally, the hearing is expected to consider the need for and feasibility of a licensing regime specific to virtual currency transactions and activities (i.e. a “BitLicense”), which would include anti-money laundering and consumer protection requirements for licensed entities. The notice makes clear that no decisions on licensing or other regulation of virtual currencies has been made. Rather the hearing and license notice is part of the agency’s broader inquiry launched in August into the need for a regulatory framework specific to virtual currencies. With regard to potential licensing, the DFS would like stakeholders to consider: (i) what, if any, specific types of virtual currency transactions and activities should require a BitLicense; (ii) whether entities that are issued a BitLicense should be required to follow specifically tailored anti-money laundering or consumer protection guidelines; and (iii) whether entities that are issued a BitLicense should be required to follow specifically tailored regulatory examination requirements.
New York Enacts Consumer Protections for Convenience Checks
On November 13, New York Governor Andrew Cuomo signed AB 3601, a bill intended to protect payment card holders from liability for unauthorized use of unsolicited convenience checks. Effective immediately, cardholders are held harmless for unauthorized use of unsolicited convenience checks associated with their account. The New York Bankers Association opposed the bill because its title and the accompanying sponsor’s memo misstate the purpose of the bill as being an outright ban on the unsolicited mailing of convenience checks to consumers when, in fact, the bill does not ban the practice.
NACHA Proposes Rules To Improve ACH Network Quality
On November 12, NACHA, which manages the development, administration, and governance of the ACH network, released two proposed rules that it describes as complementary approaches to improving ACH Network quality by reducing the incidence of exceptions. The first proposal would improve NACHA’s ability to identify and enforce rules against “outlier” originators by: (i) reducing the existing return rate threshold for unauthorized debits from 1% to 0.5%; (ii) establishing a 3% return rate threshold for account data quality returns, and an overall debit return rate threshold of 15%; (iii) clarifying permissible and impermissible practices for the collection of ACH debits returned for insufficient funds and other reasons; and (iv) explicitly applying certain risk management rules to third-party senders. In addition, the proposed rule would expand NACHA’s authority to initiate enforcement proceedings for a potential violation of the NACHA Rules related to unauthorized transactions. The second proposal would establish economic incentives for originating institutions and their originators to improve origination quality, and provide partial cost-recovery to receiving institutions for handling exceptions. Specifically, the rule would apply fees when: (i) the proposed economic incentives are fees that would be applied to instances when a receiving institution; (ii) returns an ACH transaction due to incorrect account data within the transaction; (iii) corrects information within an ACH transaction and sends the correction back; or (iv) returns an ACH transaction due to a problem with the receiver's authorization. NACHA is accepting comments on the proposals until Monday, January 13, 2014.
S.D.N.Y. Holds TILA Short-Form Credit Card Notice Violations Subject to Statutory Damages
On November 4, the U.S. District Court for the Southern District of New York held that credit card holders may pursue statutory damages for alleged violations of Regulation Z’s short-form credit card notice requirement, even though the short-form notice requirement is contained in a section of Regulation Z that is not enumerated under TILA’s statutory damages section. Zevon v. Dept. Stores Nat’l Bank, No. 12-7799, 2013 WL 5903024, (S.D.N.Y. Nov. 4, 2013). A credit card holder filed a putative class action alleging that the monthly short-form notice provided by the issuer was incomplete and omitted provisions required by Regulation Z’s model form provision. The court rejected the card issuer’s argument that because TILA only provides card holders with a cause of action for statutory damages for specifically enumerated statutory provisions, and because the short-form notice provision is not enumerated in the statute but is set only by Regulation Z, the card holder is not entitled to statutory damages. The court explained that following the card holder’s reasoning would immunize card issuers from statutory damages for even the most egregious short-from notice violations. Instead, the court held that because the allegedly violated Regulation Z provision was promulgated pursuant to an enumerated statutory provision—TILA’s long-form notice requirement—card holders are permitted to bring claims for statutory damages for short-form violations. The court rejected the card issuer’s motion to dismiss for these reasons, but granted its motion to limit statutory damages to $500,000, holding that the Dodd-Frank Act’s increase to a $1 million cap cannot be applied retroactively to violations that allegedly occurred prior to the Act’s passage.
Alabama State Appellate Court Upholds Electronically Executed Agreement
Recently, the Court of Civil Appeals of Alabama upheld an agreement executed electronically, overturning a trial court’s order invalidating a divorce agreement on the grounds that the agreement filed with the court was executed electronically. Ex parte Mealing, No. 2120973, 2013 WL 5776053 (Ala. Civ. App. Oct. 25, 2013). In this case, a husband asked the trial court to vacate a divorce agreement he had willingly entered without legal representation, claiming that his wife’s attorney orchestrated an agreement more favorable to the wife. The trial court decided that the divorce agreement was invalid because it was signed electronically. The appellate court disagreed and held that the trial court erred in relying on an alternative basis—one not even presented by the husband—in an attempt to create for itself an opportunity to render equitable judgment of the matter. The court explained that relevant court rules allow for electronic signatures, and that there was no contention from the husband that the electronic signatures were shams or false. The appellate court directed the trial court to set aside its order and reinstate the electronically signed divorce agreement.
New York Appellate Court Addresses Personal Jurisdiction Based On Online Contacts
Recently, the New York Appellate Division, Second Department, held that out-of-state defendants in a medical malpractice case were not subject to the New York courts personal jurisdiction based on an Internet advertisement viewed in New York and a subsequent series of email and phone contacts between the New York resident patient and the out of state defendants. Paterno v. Laser Spine Inst., No 2011-4654, 2013 WL 5629871 (N.Y. App. Div. Oct. 16, 2013). In this case, the New York trial court had dismissed a medical malpractice suit filed in New York against a Florida-based medical provider over services rendered in Florida, holding that the medical service provider did not transact business in New York. On appeal the Appellate Division agreed, holding that although a defendant need not be physically present in the state to transact any business there in satisfaction of New Yorks statutory requirements for personal jurisdiction, the totality of the circumstances presented did not provide a basis for exercising long-arm jurisdiction over the medical service provider. The appellate court rejected the patients argument that the provider had actively solicited business in New York through an online advertisement, holding that the providers website was passive in nature and that there was no indication it facilitated the purchase of any goods or services. The appellate court also concluded that a series of email and phone contacts between the patient and the provider did not constitute business activity and were not sufficiently purposeful for jurisdictional purposes.
S.D.N.Y. Dismisses Putative TILA Class Action Based on Credit Card Billing Practices
On October 18, the United States District Court for the Southern District of New York dismissed a putative TILA class action alleging that a bank made improper interest rate disclosures on credit card bills and assessed incorrect late fees and interest. Schwartz v. HSBC Bank USA, N.A., No. 13-cv-00769, 2013 WL 5677059 (S.D.N.Y. Oct. 18, 2013). The card holder asserted that despite his timely payments the bank assessed him late fees and incorrectly disclosed the annual interest rate and balances on his monthly statements. The court first rejected the card holder’s disclosure claim, characterizing the alleged violations as “hypertechnical” disclosure defects that did not provide a basis for plaintiff to recover. The court held that, while the applicable TILA rule mandates the disclosure of the applicable rate, the balance to which the rate applied, and the nominal APR, the card holder did not properly allege how his statements lacked or misstated any of these required disclosures. The court also held that dismissal was warranted because the bank had refunded the alleged improper late fees before plaintiff commenced the lawsuit, and therefore plaintiff sustained no actual damages.
Oregon Updates Notary Regulations, Allows Electronic Notarization, Journals
On October 1, the Oregon Secretary of State published a final rule to implement numerous changes to the state’s notaries public regulations, including providing for electronic notarizations and electronic journals. The Secretary also released a summary of the changes. Notaries may notarize documents electronically after informing the Secretary of State of the format the notary will use by submitting notice via email, using the Electronic Notarization Notice form, along with an example of an electronic notarization. Any change to the way a notary conducts electronic notarizations—e.g. new vendor, new technology, changed appearance—requires a notary to provide notice of the change to the Secretary of State. A notary also may document an electronic notarization in either a paper or electronic journal, or both. The new rules took effect on September 1, 2013.
California Court Holds Website Link To Fair Usage Policy Not Conspicuous Enough To Indicate Limits to Term "Unlimited"
On October 4, the California Court of Appeal held that the disclosure of limits to an “unlimited” calling plan in a linked Fair Usage Policy was not sufficiently conspicuous to support a lower court’s judgment as a matter of law that the calling plan was not misleading. Chapman v. Skype, Inc., B241398, 2013 WL 5502960 (Cal. Ct. App. Oct. 4, 2013). The putative class action complaint alleged violations of California’s Unfair Competition Law, false advertising law, and Consumer Legal Remedies Act, in addition to common law intentional and negligent misrepresentation and unjust enrichment claims. The calling plan in question was advertised as “unlimited,” but included a link to a Fair Usage Policy that explained that the plain was limited to 6 hours per day, 10,000 minutes per month, and 50 numbers called each day. The defendant argued that it had adequately disclosed these limits, but the plaintiff claimed that the terms in the Fair Usage Policy contradicted the word “unlimited” in the plan’s description. The trial court had dismissed all claims without leave to amend. The Court of Appeal held that plaintiff had adequately alleged violations of the statutory provisions, and should be permitted to amend her complaint as to her inadequately pled common law claims. The court concluded that the plaintiff had alleged sufficient facts to create a question of fact as to whether consumers were likely to be deceived by the plan terms, noting that under the applicable laws the plaintiff did not need to show that the use of the word “unlimited” was actually false, but rather that such use was misleading. The court thus instructed the trial court to vacate its order sustaining the defendant’s demurrer as to the statutory claims, and to allow plaintiff to amend the complaint as to the common law claims.