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Oregon removes sunset on GAP waiver statutes
On May 24, the Oregon governor signed SB 366, which repealed the sunset provision on statutes establishing the conditions under which creditors can offer guaranteed asset protection (GAP) waivers in connection with the sale of an automobile. Chapter 523, Oregon Laws 2015 allows creditors to offer GAP waivers to consumers outside of the regulation of the Insurance Code while specifying certain requirements for offering the waivers. Section 11 of Chapter 523, would have repealed these GAP waiver provisions on January 2, 2020. The bill repeals Section 11, allowing for the GAP waiver provisions to remain in effect. The bill is effective January 1, 2020.
9th Circuit holds shipping company’s online arbitration agreement is valid
On May 30, the U.S. Court of Appeals for the 9th Circuit denied a plaintiff’s writ of mandamus challenging the district court’s order compelling arbitration of the plaintiff’s claims against a national shipping company. According to the opinion, a customer filed a putative class action complaint alleging the company “systematically overcharges” customers by applying delivery surcharge rates through third-parties, which are higher than the company’s advertised rates. The company moved to compel arbitration because the customer enrolled in a free, optional program offered by the company that provides tracking and managing services of packages; and that enrollment in the program required the customer to agree to arbitrate all claims related to the company’s shipping services. The customer argued that while he checked the box agreeing to the service terms and technology agreement when enrolling, he should not be bound by the arbitration agreement because it was, among other things “so inconspicuous that no reasonable user would be on notice of its existence.” The district court rejected the customer’s arguments and granted the motion to compel arbitration.
On review of the writ of mandamus, the appellate court acknowledged that “locating the arbitration clause at issue here requires several steps and a fair amount of web-browsing intuition,” detailing that “...the first hyperlink [is] to the 96-page Technology Agreement. The user must then read the [service terms] and understand that they incorporate [additional terms and conditions of service]…. the user must visit the full [company] website, intuitively find the link [to the additional terms and conditions of service] at the bottom of the webpage, select it, and locate yet another link to the [terms and conditions of service]” in order to read the document and locate the arbitration clause. The appellate court held that the “extraordinary remedy of mandamus” could not be awarded because it could not say “with ‘definite and firm conviction’ that the district court erred by finding the incorporation [of the terms and conditions of service] valid” and found that there is no question the customer affirmatively assented to the terms. While it did not impact its analysis, the appellate court noted that the company’s service terms document now includes a hyperlink to the terms and conditions of service and expressly informs the user that the terms contain an arbitration provision.
NYDFS creates Cybersecurity Division
On May 22, NYDFS announced its newly created Cybersecurity Division, led by Justin Herring as Executive Deputy Superintendent, that is, according to NYDFS, “the first of its kind to be established at a banking or insurance regulator.” The new division will focus on enforcing and issuing guidance on NYDFS’ cybersecurity regulation 23 NYCRR Part 500, advising on cybersecurity examinations, conducting cyber-related investigations, and disseminating information related to cyber-attack trends and threats. NYDFS highlighted Herring’s experience in supervising cybercrime and digital currency cases as Chief of the U.S. Attorney’s Office for the District of New Jersey Cyber Crimes Unit and a member of the Economic Crimes Unit, including investigating money laundering using digital currency and prosecuting unlicensed digital currency exchanges.
OCC wants final judgment in NYDFS fintech charter challenge
On May 30, the OCC filed a letter with the U.S. District Court for the Southern District of New York notifying the court that it intends to work with NYDFS to issue a proposed final order to the court in the action challenging the OCC’s decision to allow fintech companies to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, in May, the court denied the OCC’s motion to dismiss, concluding that, among other things, the OCC failed to rebut NYDFS’s claims that the proposed national fintech charter posed a threat to the state’s ability to establish its own laws and regulations, and therefore, the challenge “is ripe for adjudication.” In its letter, the OCC states that while it “disagrees with the Court’s decision, and reserves its right to appeal, it believes that the decision renders entry of final judgment in this matter appropriate.” An entry of final judgment, would allow the OCC to challenge the decision with the U.S. Court of Appeals for the 2nd Circuit.
Oregon requires consumers to repay title, payday loans before lender makes new loan
On May 30, the Oregon Governor signed HB 2089, which, among other things, prohibits title loan and payday loan lenders from making a new loan to a consumer until seven days after the consumer has fully repaid a previous title loan or payday loan. In addition, lenders may not make or renew a title loan or payday loan with an interest rate exceeding 36 percent annually, excluding a one-time allowable origination fee. These amendments apply to loan contracts, including renewals, executed on or after January 1, 2020.
Pennsylvania court holds mobile giving app not required to be licensed as a money transmitter
On May 30, the Commonwealth Court of Pennsylvania reversed an order by the Pennsylvania Department of Banking and Securities Commission (Commission) issued against a mobile giving app and two of its executives (petitioner), holding that the petitioner was not required to be licensed by the Commission because it was not transmitting money under the court’s interpretation of the Pennsylvania Money Transmitter Act (Act). In 2016 the Compliance Office of the Department of Banking and Securities (Department) issued an order to cease and desist against the petitioner for transmitting money in the state without a license as required under the Act. At issue was whether petitioner’s activities constituted “transmitting money” under the Act, or merely involved collecting and supplying information. The Department claimed the petitioner’s app was “an indispensable part of a chain of events through which money was transferred from the donors to the recipients of the donations.” However, the petitioner argued that the app simply connected donors to the recipients, and that the actual transmission of money was outsourced to a payment processor who conducted the actual transactions.
The six-judge majority stated that the Commission’s interpretation of the Act was too broad, holding that “[o]n a basic and critical level, the Commission erroneously interpreted the terminology ‘engage in the business’ in an overly expansive manner and essentially read it as prohibiting any conduct that contributes toward—or has a tangential involvement with—the concrete and real act of ‘transmitting money.’” Moreover, “the key term in ascertaining the defining characteristic of the conduct that is proscribed by the statute is ‘transmitting,’” and while the petitioner’s “software application can be deemed to have acquired and ‘transmitted’ information vital to the donative transactions to [the payment processor], by no means was [the petitioner] ‘transmitting money’ itself, or transmitting some other ‘method for the payment’ of the donation, ‘from one person or place to another.’”
CFPB releases TRID FAQs for construction loans
On May 31, the CFPB released FAQs to assist with TILA-RESPA Integrated Disclosure Rule (TRID) compliance. The two new FAQs relate to the application of TRID to construction loans. Highlights include:
- Most construction-only and construction-permanent loans are covered by TRID as long as such a loan: (i) is made by a creditor as defined in Regulation Z; (ii) is a closed-end, consumer credit transaction; (iii) is secured in full or in part by real property or cooperative unit; (iii) is not a reverse mortgage; and (iv) is not exempt for any reason under Regulation Z.
- There are three special disclosure provisions for construction-only or construction-permanent loans under TRID: (i) Section 1026.17(c)(6) permits a creditor to issue separate or combined disclosures for construction-permanent loans based on whether each phase is treated as a separate transaction; (ii) Appendix D provides methods that may be used for estimating construction phase financing disclosures; and (iii) Section 1026.19(e)(3)(iv)(F) permits creditors, in certain instances involving new construction, to use a revised estimate of a charge for good faith tolerance purposes when settlement will occur more than 60 days after the original Loan Estimate. The Bureau notes that these provisions apply “even if the creditor does not necessarily label the product as construction-only or construction-permanent, so long as the product meets the requirements discussed in each provision.”
U.S., UK establish “Financial Innovation Partnership”
On May 29, the Department of Treasury announced the establishment of a Financial Innovation Partnership (FIP) between the U.S. and the UK. The FIP will focus on expanding bilateral financial services collaborative efforts to study emerging fintech innovation trends and share information and expertise on regulatory practices. Specifically, the FIP will focus on (i) regulatory engagement, including building upon “existing regulatory cooperation by discussing regulatory developments and sharing experiences on technical issues related to innovation in financial services,” and (ii) commercial engagement, such as providing cross-border opportunities for private sector companies to engage with industry associations as well as market participants. The FIP was announced during a meeting of the U.S.-UK Regulatory Working Group, which, a week earlier, held discussions in Washington, D.C. on the outlook for financial regulatory reforms, future priorities, regulatory cooperation, and possible implications of the UK’s exit from the EU on financial stability and cross-border financial regulation.
District court rules customers bound by arbitration agreement in credit inquiry dispute
On May 28, the U.S. District Court for the Southern District of Florida ruled that customers who financed a vehicle through a Florida car dealership were bound by the arbitration provision contained within a signed purchase order and retail installment sale contact. The customer plaintiffs contended that the defendant car dealership violated the FCRA and state law when it ran a “hard” credit inquiry on them instead of the “soft” credit inquiry they had authorized on a pre-approval financing form completed on the defendant’s website. As a result, the plaintiffs’ credit scores were affected. Based on the arbitration provisions contained in the purchase order and retail sale installment contract, the defendant filed a motion to compel arbitration. The plaintiffs argued that they were not bound by the arbitration agreements because they were signed a few days after the dealership ran the unauthorized credit check. However, the court held that it did not matter when the agreement was signed, stating that the “[p]laintiffs’ sole argument is that the [hard credit report check], does not in any way ‘relate to’ the purchasing documents which contain the arbitration clauses, and thus the arbitration clauses cannot be applied retroactively to encompass disputes arising from that transaction. The [c]ourt disagrees.” In granting the motion to compel arbitration, the court explained that the plaintiffs’ argument was “essentially one relating to scope and arbitrability, issues that the parties clearly and unmistakably agreed to arbitrate.”
3rd Circuit: Commercial purpose does not make unsolicited fax an advertisement under TCPA
On May 28, the U.S. Court of Appeals for the 3rd Circuit, in a consolidated action, affirmed summary judgment that a health care provider database company’s (defendant) unsolicited fax did not violate the TCPA. According to the opinion, the defendant updated its database by sending unsolicited faxes to healthcare providers, requesting that they voluntarily update their contact information, if necessary. The fax included disclaimers that there was no cost to the recipient for participating in the database maintenance initiative and that it was not an attempt to sell a product. The plaintiff sued the defendant alleging a state law claim and that the fax violated the TCPA’s prohibition on sending unsolicited advertisements by fax. The district court entered summary judgment in favor of the defendant and declined to exercise jurisdiction over the state law claim.
On appeal, the 3rd Circuit affirmed the district court’s judgment, rejecting the plaintiff’s third-party liability argument that the fax should be regarded as an advertisement, even though he was not a purchaser of the company’s services. The 3rd Circuit held that to establish third-party based liability under TCPA, the “plaintiff must show that the fax: (1) sought to promote or enhance the quality or quantity of a product or services being sold commercially; (2) was reasonably calculated to increase the profits of the sender; and (3) directly or indirectly encouraged the recipient to influence the purchasing decisions of a third party.” The appellate court found that, even though the defendant had a “profit motive” in sending the fax because it wanted to improve the quality of its product by making its database more accurate, “the faxes did not attempt to influence the purchasing decisions of any potential buyer,” nor did the fax encourage the recipient to influence the purchasing decisions of a third party.