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Illinois creates Blockchain Technology Act
On August 23, the Illinois governor signed HB 3575 to create the Blockchain Technology Act. Under the Act, “blockchain” is defined as “an electronic record created by the use of a decentralized method by multiple parties to verify and store a digital record of transactions which is secured by the use of a cryptographic hash of previous transaction information.” Among other things, the Act specifies permitted uses of blockchain technology in transactions and proceedings, such as in smart contracts, electronic records and signatures, and provides several limitations, including a provision stipulating that if a law requires a contract or record to be in writing, the legal enforceability may be denied if the blockchain transaction cannot later be accurately reproduced for all parties. Moreover, local government units are prohibited from imposing taxes or fees for the use of blockchain technology, and cannot require a person or entity to obtain a certificate, license, or permit in order to use a blockchain or smart contract. HB 3575 takes effect January 1, 2020.
11th Circuit: Unsolicited text message doesn't establish standing under TCPA
On August 28, the U.S. Court of Appeals for the 11th Circuit held that receiving one unsolicited text message is not enough of a concrete injury to establish standing under the TCPA. According to the opinion, a former client of an attorney received an unsolicited “multimedia text message” from the attorney offering a ten percent discount on services. The client filed a putative class action, alleging the attorney violated the TCPA arguing the text message caused him “‘to waste his time answering or otherwise addressing the message’” leaving his cell phone “‘unavailable for otherwise legitimate pursuits’” and resulted in “‘an invasion of [] privacy and right to enjoy the full utility’” of his cell phone. The attorney moved to dismiss the complaint for lack of standing and the district court denied the motion. However, the court allowed the attorney to pursue an interlocutory appeal.
On appeal, the 11th Circuit looked to the Supreme Court decision in Spokeo, Inc. v. Robins— which held that a plaintiff must allege a concrete injury, not just a statutory violation, to establish standing—as well as the legislative history of the TCPA and determined there was “little support” for treating the client’s allegations as a concrete injury. Specifically, the panel noted that the allegations of “a brief, inconsequential annoyance are categorically distinct from those kinds of real but intangible harms” Congress set out to protect. Moreover, the “chirp, buzz, or blink of a cell phone” is annoying, but not a basis for invoking federal court jurisdiction. The panel also acknowledged that Congress, not a federal court, is “well positioned” to assess the new harms of technology. Because the client failed to allege a concrete harm by receiving the unsolicited text message, the panel reversed the district court decision.
FFIEC urges standardized cybersecurity approach
On August 28, the FFIEC issued a press release emphasizing the benefits of implementing a standardized cybersecurity preparedness approach. The FFIEC noted that firms who adopt a standardized approach are “better able to track their progress over time, and share information and best practices with other financial institutions and with regulators.” Highlighted are several standardized tools for financial institutions to use when assessing and improving their level of cybersecurity preparedness, including the FFIEC Cybersecurity Assessment Tool, the Financial Services Sector Coordinating Council Cybersecurity Profile, the National Institute of Standards and Technology Cybersecurity Framework, and the Center for Internet Security Critical Security Controls.
CFPB releases 2019 Card Report
On August 27, the CFPB released its fourth biennial report on the state of the credit card market as required by Section 502 of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The 2019 report covers the credit card market for the 2017-2018 period. In opening remarks, CFPB Director Kathy Kraninger notes that with the passage of time, it has become “increasingly difficult to correlate the CARD Act with specific effects in the marketplace that have occurred since the issuance of the Bureau’s last biennial report, and, even more so, to demonstrate a causal relationship between the CARD Act and those effects,” and therefore, future reports will focus more on overall market conditions. Key findings of the report include, (i) total outstanding credit card balances continue to grow; (ii) total cost of credit stood at 18.7 percent at the end of 2018, which is the highest overall level observed by the Bureau in its biennial reports; (iii) total credit line across all consumer credit cards reached $4.3 trillion in 2018, which is largely due to the increase in unused credit lines held by superprime score consumers; and (iv) consumers are increasingly using their cards through digital portals, including those accessed via mobile devices.
Regarding current trends, the report notes that over the last few years, the total amount of credit card spending has grown “much faster” than the total volume of balances carried on the cards. In addition, while cardholders with prime or superprime credit scores still account for most debt and spending, lower credit score consumers have been increasing their debt at a faster rate than cardholders with higher credit scores. Notably, delinquency and charge-off rates still remain lower than they were prior to the recession, even though they have slightly increased in recent years. Additionally, since the last report, issuers have lowered their daily limits on debt collection phone calls for delinquent accounts and average daily attempts remain “well below” stated limits. Issuers are also beginning to supplement communications for account servicing with email and text messages.
CFPB settles with Illinois debt collector
On August 28, the CFPB announced a settlement with an Illinois-based debt collection company to resolve allegations that the company engaged in improper debt collection tactics in violation of the Consumer Financial Protection Act and the FDCPA. Among other things, the company allegedly engaged in deceptive acts and practices by (i) threatening consumers with arrest, lawsuits, liens on their homes, and wage garnishment that the company did not plan on initiating; (ii) misrepresenting to consumers that company employees were attorneys; and (iii) informing consumers that their credit reports would be negatively affected if they failed to pay even though the company does not report consumer debts to credit-reporting agencies. While the company neither admitted nor denied the allegations, it has agreed to pay $36,878 in redress to harmed consumers and a $200,000 civil money penalty.
Illinois updates Consumer Installment Loan Act and Payday Loan Reform Act
On August 23, the Illinois governor signed SB 1758, which amends the state’s Consumer Installment Loan Act and the Payday Loan Reform Act. Generally, payday loans must be repayable in substantially equal and consecutive installments. The amendment clarifies that a “‘substantially equal installment’ includes a last regularly scheduled payment that may be less than, but not more than 5% larger than, the previous scheduled payment according to a disclosed payment schedule agreed to by the parties.” The amendments take effect immediately.
6th Circuit: Collection fee authorized under contractual agreement valid under FDCPA
On August 21, the U.S. Court of Appeals for the 6th Circuit affirmed a district court’s determination that a collection fee charged by a debt collector seeking to recover past due homeowner’s association fees was expressly authorized by a contractual agreement and did not violate the FDCPA. According to the opinion, after the plaintiffs fell behind on their homeownership association assessments and fees, the account was placed for collection with the defendant, who sought to collect both the past-due amount plus additional fees it charged the association for its collection services. The plaintiffs filed a lawsuit alleging that the debt collector violated the FDCPA by collecting the collection fees directly from the plaintiffs without authorization and attempting to collect an amount after agreeing to a settlement. The district court held a bench trial, which returned a verdict in favor of the defendant, finding that collecting the fees directly from the plaintiff was expressly authorized by the language in an agreement creating the debt (the Declaration). The plaintiffs appealed, arguing, among other things, that (i) the Declaration did not expressly authorize the collection of fees directly from them, and that moreover, because the association had not yet incurred the costs the additional fees should not have been collected until the original debt was paid; and (ii) the costs should have been limited to legal fees and costs.
On appeal, the 6th Circuit agreed with the district court, citing a provision in the Declaration providing that “‘[e]ach such assessment, together, with interest, costs, and reasonable attorney’s fees’. . . ‘shall also be the personal obligation’ of the property owner.” Additionally, the 6th Circuit noted that if the defendant waited to collect the additional fees, it would create an impractical, never-ending cycle of collections. Moreover, the appellate court was not persuaded by the plaintiffs’ argument that the Declaration limited the authorization of costs, noting that “[b]ecause collection often occurs outside of litigation, it makes little sense to read the Declaration to silently limit ‘costs’ to ‘legal costs’ associated only with litigation.”
11th Circuit reverses dismissal of EFTA action alleging inadequate overdraft notice, denies EFTA safe harbor defense
On August 27, the U.S. Court of Appeals for the 11th Circuit reversed the dismissal of a consumer’s action against her credit union, in which the consumer alleged the credit union used the wrong balance calculation method to impose overdraft fees. According to the opinion, the consumer filed suit against the credit union for using an “available balance” calculation method to impose overdraft fees on her account when the credit union allegedly agreed to use the “ledger balance” method at the time of account opening, in violation of the Electronic Fund Transfer Act (EFTA) and various state law contract claims. The district court dismissed the action, concluding that the agreements “unambiguously permitted [the credit union] to assess overdraft fees using the available balance calculation.”
On appeal, the 11th Circuit disagreed with the district court’s interpretation of the agreements. The court noted that while the opt-in overdraft agreement used by the credit union is based on Regulation E’s (the EFTA’s implementing regulation) Model Form A-9, the model does not address which account balance calculation method is used to determine whether a transaction results in an overdraft. The language chosen by the credit union, according to the appellate court, is “ambiguous because it could describe either the available or the ledger balance calculation method for unsettled debits” and therefore, does not describe the calculation in a “clear and readily understandable way” as required by Regulation E. Because the language was ambiguous, the consumer did not have the opportunity to affirmatively consent to the overdraft service. Moreover, the appellate court concluded that the credit union was not protected under the EFTA’s safe harbor because it used the Model Form A-9 text. Specifically, the appellate court reasoned that the “safe-harbor provision insulates financial institutions from EFTA claims based on the means by which the institution has communicated its overdraft policy,” but does not provide a shield from allegations of inadequacy. Because the consumer argued that the credit union violated the EFTA due to its failure to prove enough information to allow for affirmative consent, the safe-harbor provision does not preclude liability.
FDIC adds to risk management exam policies
On August 27, the FDIC issued Financial Institution Letter FIL-47-2019 announcing an update to its Risk Management Manual of Examination Policies to incorporate a new section titled “Risk-Focused, Forward-Looking Safety and Soundness Supervision.” According to the letter, the new section covers the FDIC’s “long-standing examination philosophy” that the focus of supervision should be on areas that present the greatest risk. The letter notes that the risk-focused approach is “forward-looking,” with the intent to look beyond the condition of an institution at a specific point in time to just how well the institution will be able to respond to a changing market and assist examiners in identifying and correcting “weaknesses in conditions or practices before they impact an institution’s financial condition.”
FTC settles with lead generator
On August 27, the FTC announced a settlement with an Illinois-based educational services company and its subsidiaries (defendants) to resolve deceptive marketing allegations in violation of the FTC Act and the Telemarketing Sales Rule. In the complaint, the FTC claimed the defendants used third-party lead generators that posed as military recruiters or job-finding services to encourage consumers to provide contact information via websites. The websites did not clearly inform the consumers that the personal information entered into online forms might be sold or used in training or educational programs. Rather, the FTC asserted that the lead generators falsely informed consumers that their information would not be shared. According to the FTC, the defendants then purchased these leads to call consumers in an attempt to enroll them in post-secondary schools, with many of these calls made to consumers on the National Do Not Call Registry. While the defendants did not carry out the deceptive practices to generate the leads, the FTC stated that the defendants established control over the marketing materials and reviewed telemarketing scripts that allegedly directed lead generators to falsely identify themselves as military recruiters. The FTC’s press release emphasized that “[t]his case demonstrates that the FTC will seek to hold advertisers liable for the deceptive or illegal practices of their affiliates, publishers, or other lead generators. We expect companies purchasing leads to implement strong vendor management programs and stay on the right side of the law.” Under the terms of the settlement, the defendants are: (i) ordered to pay $30 million; (ii) required to implement a system to review any marketing materials used by lead generators; (iii), prohibited from calling numbers on the National Do Not Call Registry without obtaining written consent; and (iv) banned from falsely stating that they represent the military or prospective employers.