Digital Transformation: eSignature and ePayment News and Trends - 10 October 2022
Achieving Digital Transformation and Securing Digital AssetsA fact of business today is that customers – both consumers and other businesses – and employees expect to transact digitally. To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses.
Successfully implementing this transformation requires careful planning to ensure regulatory compliance, a smooth integration with existing business technology and a positive customer experience.
Each issue will feature in-depth insight on a timely and important current topic.
In this issue, our Insights piece highlights the White House framework for responsible development of digital assets and its underlying reports. This issue also includes reports on other recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.
For related information regarding blockchain and digital assets, please see our monthly bulletin Blockchain and Digital Assets News and Trends.
UPCOMING EVENTS
Please make plans to join us November 15-17 for the annual Electronic Records and Signatures Association (ESRA) Annual Meeting. The meeting will be held at DLA Piper’s Washington, DC offices. For more information and to register, please visit the ESRA Conference website. We look forward to seeing you there.
INSIGHT
White House releases framework for responsible development of digital assets
The White House recently announced release of a "First-Ever Comprehensive Framework For Responsible Development of Digital Assets." This framework referenced a series of nine reports issued in response to President Biden's Executive Order on Ensuring the Responsible Development of Digital Assets.
According to the announcement, these reports collectively "articulate a clear framework for responsible digital asset development and pave the way for further action at home and abroad." The announcement includes legislative proposals and commitments for future reports, as well as describes additional actions to be taken by the Biden Administration, including:
- encouraging regulators " to aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space" and "redouble … efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices" and
- considering agency recommendations to "create a federal framework to regulate nonbank payment providers" and evaluate "whether to call upon Congress to amend the Bank Secrecy Act (BSA), anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and nonfungible token (NFT) platforms."
These Insight articles examine three key aspects of the EO:
- In overseeing digital assets, the CFTC should use its existing authority, White House fact sheet says
- Commerce Department lays out US path to global leadership on digital assets
- Responding to Biden Executive Order, OSTP report addresses climate and energy implications of digital assets and blockchain technology
For direct access to the seven reports which have released to date, please click the links below. We are working on analyses of the additional reports and will release the analyses as they become available.
- Crypto-Assets: Implications for Consumers, Investors, and Businesses issued by the Department of the Treasury (see our analysis above)
- Responsible Advancement of U.S. Competitiveness in Digital Assets issued by the Department of Commerce (see our analysis above)
- Climate and Energy Implications of Crypto-Assets in the United States issued by the White House Office of Science and Technology (see our analysis above)
- How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets issued by the Department of Justice
- The Future of Money and Payments issued by the Department of the Treasury
- Action Plan to Address Illicit Financing Risks of Digital Assets issued by the Department of the Treasury
- The Role of Law Enforcement in Detecting, Investigating, And Prosecuting Criminal Activity Related to Digital Assets issued by the Department of Justice
REGULATORY DEVELOPMENTS
FEDERAL
Payments
Federal Reserve Board finalizes rule amending Regulation II regarding card-not-present transactions. Effective July 1, 2023, the Board of Governors of the Federal Reserve System adopted a final rule that specifies that the statutory requirement that each debit card transaction must be able to be processed on at least two unaffiliated networks applies to card-not-present transactions (eg, online transactions) and clarifies that debit card issuers must ensure that at least two unaffiliated networks have been enabled to process a debit card transaction.
CFPB issues report on “buy now, pay later” products, including discussion on use of autopay. In September, the Consumer Financial Protection Bureau (CFPB) issued a report titled “Buy Now, Pay Later: Market trends and consumer impacts.” The CFPB identified the mandatory use of autopay for all loan payments as a discrete consumer harm. This was, in part, because BNPL lenders permitted consumers to repay using a credit card, and thus “effectively allow[ed] borrowers to pay for credit with credit” and BNPL lenders have different methods and operational policies regarding payment method removal, which the CFPB concluded led to payment “stickiness.” Overall, the CFPB concluded that requiring autopay may adversely limit consumer choice and flexibility to change payment methods or skip a BNPL payment to prioritize and satisfy a separate financial obligation.
Online contracting
FTC issues report describing use of “dark patterns.” On September 15, 2022, the FTC released a report titled “Bringing Dark Patterns to Light,” which focused on four dark pattern tactics that the FTC deemed to be common:
- Misleading consumers and disguising ads: The FTC stated that these tactics include advertisements designed to look like independent editorial content and comparison shopping sites that claim neutrality but rankings are based on compensation.
- Difficult to cancel subscriptions or charges: The FTC stated that this tactic involves tricking someone to pay for goods or services without consent.
- Burying key terms and junk fees: The FTC described this tactic as hiding or obscuring material information from consumers, such as burying key limitations or fees.
- Tracking consumers into sharing data: The FTC stated that this tactic appears to give consumers choice about privacy settings and sharing data but instead are designed to intentionally steer consumers towards options that give away the most personal information.
STATE
Money transmission and virtual currency
Arizona DOI issues bulletin summarizing new money transmission law.
The Arizona Department of Insurance and Financial Institutions (DIFI) released Bulletin 2022-12, to summarize major, newly enacted legislation, including the fully replaced Arizona law governing money transmission and licensure (Az. Rev. Stat. § 6-1201 et seq.). The bulletin highlights that the law establishes the powers and duties of the DIFI, including administration and enforcement, and authorization for DIFI to participate in multistate supervision.
California governor vetoes bill intended to enact a new state cryptocurrency licensing regime. On September 23, 2022, California Governor Gavin Newsome vetoed Assembly Bill 2269, the Digital Financial Assets Law. The governor explained that his veto was due to his desire to first consider feedback related to his April Executive Order to “create a transparent regulatory and business environment for Web 3 companies” as well as concerns over compatibility with potential federal legislation. The law, as enrolled, would have established a license for digital financial asset activity and contained substantial reserve requirements and limitations for entities holding the proposed California license. Some of the limitations (including the limitation on approved sources of stablecoins) were intended to phase out over time.
Missouri money laundering statute modernized to include cryptocurrency. Effective August 28, 2022, Missouri’s statute criminalizing money laundering (Mo. Rev. Stat. 574.105) has been amended to define cryptocurrency and include cryptocurrency within the definition of “monetary instruments,” in addition to a number of other amendments that incorporate crypto currency within the purview of the statute.
CASE LAW
FEDERAL
Electronic signature and contract formation
Browsewrap and clickwrap must demonstrate knowledge and assent. In Harsh Alkutkar, Plaintiff, v. Bumble Inc., et al. Slip Copy 2022, WL 4112360 (N.D. Cal. Sept. 8, 2022), the court contemplated the effect of hybrid forms of clickwrap and browsewrap while considering a motion to compel arbitration in a suit where the plaintiff was a user of the Bumble dating app. The plaintiff had been a user prior to the introduction of the arbitration agreement, but was sent an email indicating that continued use of the app would constitute acceptance of updated terms (including the agreement). The court concluded that the notice email was comparable to a browsewrap agreement, but found that here, because Bumble did not maintain records of the actual emails sent, or records indicating the emails were received or opened, it did not establish actual or constructive knowledge of the updated terms by the plaintiff and so failed to show the plaintiff had accepted. However, Bumble also utilized an in-app non-bypassable pop-up screen titled “Updated terms and conditions of use” including text indicating that the terms had been updated to include a class action waiver with an arbitration agreement. The blocker card contained hyperlinks to the agreements, and the user of the app had to press an “I agree” button. The court found this to be closer to a clickwrap agreement. The fact that the card contained a “robust” summary of the contents of the changes (including the presence of an Arbitration Agreement) convinced the court that clicking “I accept” and proceeding past the non-bypassable screen constituted affirmative action demonstrating assent. The court found that the plaintiff had assented to the arbitration agreement and granted the defendant’s motion to arbitrate.
STATE
California Court of Appeals finds website is not a “place of public accommodation” under the ADA. In Martinez v. Cot'n Wash, Inc., 297 Cal. Rptr. 3d 712 (Cal. App. 2d Dist. 2022), review filed (Sept. 12, 2022), a blind consumer brought an action against the operator of a retail website under the California Unruh Civil Rights Act, alleging that the operator maintained an intentionally inaccessible website not fully compatible with screen reading software. The court found that the operator’s failure to take adequate action to remove accessibility barriers was a sufficient basis for inferring intentional discrimination and that the phrase “place of public accommodation” and the term “facility” were ambiguous. In affirming the dismissal, the court indicated that “regardless of what the DOJ has said in amicus briefs, it has opted not to issue any regulations or formal guidance to this effect, even after repeated requests from Congress that the DOJ do so. This weighs against, not in favor, of Martinez's proposed interpretation. We do not disagree that facilitating access to retail websites would serve the goals of the ADA. Nonetheless, compatibility with the goals of legislation is not the only consideration in interpreting it. We cannot ignore the canons of statutory interpretation…” Id at 715.
Notice and consent to modification of e-contracts for online businesses: classical contracts analysis remains the standard. In International Markets Live, Inc. v. Matthew Thayer, 2022 WL 4290310 (D.N.V. Sept. 16, 2022), the Nevada court dismissed the claims of a provider of online cryptocurrency trading education services against one of its distributors for lack of personal jurisdiction over the defendant. The case turned on whether an altered choice-of-venue clause in an updated distributor contract was enforceable. In early 2018, the defendant had clicked to indicate its agreement to provide services under the then-current version of the plaintiff’s distributor contract, which called for dispute resolution in New York. The plaintiff subsequently amended its form contract in 2019, and again in June of 2021, the latter including a change of venue for disputes to Clark County, Nevada. Since the evidence did not support a minimum contacts argument, the case turned on whether the 2021 contract was enforceable as to venue. The 2019 revised contract included the plaintiff’s right to unilaterally amend the contract, following 30-days’ notice to a counterparty (including by passive means, ie, posting on the plaintiff’s website). The 2021 revision eliminated the 30-day’s notice period, while retaining the passive notice provision.
The plaintiff relied on the unilateral amendment provision of the revised contracts in the absence of evidence that the defendant ever signed the amended contracts, either manually or electronically. As to notice, the plaintiff argued that the defendant, as a frequent user of the plaintiff’s web portal, would have had ample opportunity to see the updated agreement terms there. The court disagreed, finding no evidence of actual agreement to, or sufficient notice of, the revised form contracts. The court followed the lead of the Ninth Circuit Court of Appeals and reaffirmed long-standing principles of contract formation in the context of online businesses and electronic communications – that a contract party has no affirmative obligation to check to see if the other party has changed contract terms.
Dispute on authenticity of electronic signature is triable, even though underlying agreement calls for arbitration. In Ashton King, et al. v. AptDeco, Inc., 2022 WL 4448679 (S.D.N.Y. Sept. 22, 2022), the New York court distinguished two types of uncertainties about contract formation by electronic means. Two plaintiff delivery drivers challenged compensation and other terms of their services for AptDeco, an online marketplace for secondhand home furnishings. The company’s form contract contained a mandatory arbitration clause for disputes among its parties, under which the defendant asked the court to stay or dismiss the plaintiffs’ action. The first plaintiff made a sworn statement that he had never e-signed the services contract – although the defendant produced an electronic signature in his name – and adamantly recounted his decisions not to sign on more than one occasion. The second plaintiff admitted he had provided a signature to the contract (which had been emailed to him) but said he had not understood it. The court found it a triable question of fact whether the first plaintiff had ever e-signed the services contract as a whole, let alone agreeing to its arbitration clause. By contrast, the court found – as a matter of New York law – that the second plaintiff would be bound by the arbitration clause, as contracting parties are presumed to have known the contents of contracts freely signed, regardless of the contracts’ delivery by electronic means.
RECENT EVENTS
David Whitaker presented at a webinar hosted by MERSCORP Holdings, Inc. and ICE Mortgage Technology on electronic home equity lines of credit and the potential impact of proposed Article 12 of the Uniform Commercial Code on transfers of ownership. A recording of the presentation can be accessed here.
RECENT PUBLICATIONS
Cryptocurrency and Digital Asset Regulation, published by the American Bar Association and co-edited by Deborah Meshulam and Michael Fluhr, including chapters by Meshulam and Fluhr and by Margo H.K. Tank and Andrew Grant.
The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by DLA Piper, provides a comprehensive look at RON requirements in each state that has enacted RON legislation. These fully editable surveys are organized by category of requirements, including registration, technology, seal and signature, certificates of RON acts, journal, authentication, session, recording and additional requirements. Companies can purchase the full package which includes surveys for all states that have enacted RON legislation along with a matrix summarizing state requirements, or companies can purchase information about individual states as needed. Read more.
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For more information
Our Global Tax Reform hub looks at the latest developments regarding US tax legislation.
In case you missed it
The materials from our CLE Privacy Symposium held in partnership with the Electronic Signature & Records Association are available online. Access them here.
Read the latest issue of our bulletin Bank Regulatory News and Trends
Read the latest issue of our bulletin Consumer Finance Regulatory News and Trends
FTC explores sweeping new rules on data privacy and protection
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