11 September 2024 • 21 minute read

Digital Transformation: eSignature and ePayment News and Trends - July/August 2024

Written by:Margo Tank David Whitaker Elizabeth (Liz) Caires Emily Honsa Hicks

Today’s ever-shifting business environment means that consumers, businesses, employers, and employees all expect to transact digitally. To remain efficient and competitive, companies must digitally transform their businesses. Successful transformation and maintenance require careful planning and up-to-date knowledge to ensure smooth integration with existing business technology, positive customer experience, and ongoing regulatory compliance.

This newsletter includes legal insights and brief summaries of recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent, and other important news to keep you up to date in the ever-evolving electronic environment.

If you’d like to discuss one of these items, or a project you’re considering, please reach out to one of the authors – and, if there is a topic you’d like us to cover in a future Insight, we’d love to hear from you.

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63 percent of respondents view AI as the most important frontier for growth.
Yet, AI adoption is not being driven by CEOs.
50 percent report that ESG is more of a priority now than in 2022.
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REGULATORY DEVELOPMENTS

FEDERAL

CFPB

Proposed interpretive rule would classify earned wage access and similar products as credit subject to TILA and Regulation Z. On July 18, 2024, the Consumer Financial Protection Bureau (CPFB) issued a Proposed Interpretive Rule on Truth in Lending (Regulation Z); Consumer Credit Offered to Borrowers in Advance of Expected Receipt of Compensation for Work. The proposed rule was published in the Federal Register on July 31, 2024. The CFPB indicated that the proposed rule is an attempt to “help market participants determine when certain existing requirements under Federal law are triggered” and to address the treatment of “expedited delivery fees and costs” marketed by some earned wage access (EWA) providers as “tips.” The proposed rule would affect providers of EWA services as well as other financial services that include “both (1) the provision of funds to the consumer in an amount that is based, by estimate or otherwise, on the wages that the consumer has accrued in a given pay cycle; and (2) repayment to the third-party provider via some automatic means, like a scheduled payroll deduction or a preauthorized account debit, at or after the end of the pay cycle,” labeling them as credit for purposes of the Truth in Lending Act (TILA) and its implementing regulations, Regulation Z. The proposed rule also classifies common EWA fees as finance charges. Comments to the CFPB are due August 31, 3024.

CFPB comments on RFI regarding AI. On August 12, 2024, the CFPB submitted a comment in response to the Request for Information on Uses, Opportunities, and Risks of Artificial Intelligence (AI) in the Financial Services Sector. The CFPB noted that existing federal consumer financial protection laws apply to new technologies, and identified AI types that they view as potential compliance risks, particularly automated customer service processes including chatbots, fraud detection models, and potential discrimination in loan origination.

CFPB issues advisory opinion that “contract for deed” is credit. On August 13, 2024, the CFPB issued an advisory opinion identifying “contracts for deed” as closed-end credit for purposes of TILA and Regulation Z. Contracts for deed (also known as land contracts or installment land contracts) are a form of seller financing that differs from a traditional mortgages in that the seller keeps legal title to the property until an agreed-upon course of payments has been made. The opinion also generally identifies these contracts as TILA and Regulation Z “residential mortgage loans,” while noting that state law related to security interests may affect whether the contract is a “residential mortgage loan.”

NHTSA

Low cost of electronic storage allows NHTSA to extend record retention to ten years. The National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT) issued a final rule on August 16, 2024 extending the record retention period to ten years for manufacturers of motor vehicles, child restraint systems, and tires regarding records surrounding malfunctions that may be related to motor vehicle safety under the National Traffic and Motor Vehicle Safety Act. The current retention period is five years, and the effective date of the amendment is October 15, 2024. NHTSA cited the low cost of electronic record storage as one justification for the extension of the retention period.

NIST

New NIST standards announced. The National Institute of Standards and Technology (NIST) announced three Federal Information Processing Standards that specify key establishment and digital signature schemes designed to resist future attacks by quantum computers that could otherwise jeopardize public-key cryptosystems. The algorithms included within these standards include tools for general encryption and protection of digital signatures.

DOJ

DOJ announces pilot whistleblower program. The Department of Justice (DOJ) launched a Corporate Whistleblower Awards Pilot Program on August 1, 2024, in which whistleblowers may be eligible for awards up to $50 million for providing DOJ with information related to corporate misconduct including violations by financial institutions, such as regulatory fraud or non-compliance, money laundering, violation of anti-money laundering (AML) compliance obligations, and issues surrounding registration of money transmitting businesses. Awards are subject to program guidance and eligibility requirements. Incentives were also announced for voluntary self-reporting if/when an internal whistleblower report is received.

FHA/HUD

Remote/electronic meeting with distressed mortgagors permanently permitted. On August 2, 2024, the Federal Housing Administration (FHA) published a final rule entitled Modernization of Engagement with Mortgagors in Default, updating the Department of Housing and Urban Development’s (HUD) current requirement for in-person meetings with borrowers in default on mortgage payments. The rule will permanently allow the use of electronic and other remote methods of communication to meet the HUD requirement, leveraging advances in technology for electronic communication and maintaining consumer protection, while also reflecting borrower engagement preferences. Existing waivers that were put into place during the COVID-19 pandemic are currently in effect to allow mortgagees to use electronic and remote means of communication. Those waivers do not expire until January 1, 2025, the same date the final rule becomes effective.

FTC

FTC eyeglass rule permits certain electronic delivery. The Federal Trade Commission (FTC) amended the “Eyeglass Rule” to require eye care practitioners to automatically obtain a signed confirmation after releasing a prescription, a consumer protection law designed to ensure consumers are provided with a copy of their prescription to allow them to shop for eyeglasses. Under the rule, prescribers are permitted to comply with the automatic release of the prescription via electronic delivery if they first obtain verifiable affirmative consent from the patient. The rule also allows for electronic signatures.

FTC announces dark pattern findings. On July 10, 2024, the FTC and two international consumer protection networks – the International Consumer Protection and Enforcement Network (ICPEN) and Global Privacy Enforcement Network (GPEN) – announced the results of a recent review of the use of dark patterns, using principals from the Organization for Economic Cooperation and Development. Per the FTC announcement, the ICPEN report published on July 2, 2024 found that dark patterns are widespread: “nearly 76 percent of the sites and apps examined as part of the review employed at least one possible dark pattern, and nearly 67 percent used multiple possible dark patterns…The potential dark patterns most often encountered during the review were sneaking practices, which involve hiding or delaying the disclosure of information that might affect a consumer’s purchase decision, and interface interference, techniques such as obscuring important information or preselecting options that frame information in a way that steers consumers toward making decisions more favorable for the business.”

FCC

FCC proposes AI call rules. On August 8, 2024, the Federal Communications Commission (FCC) issued a draft Notice of Proposed Rulemaking (NPRM) to implement new rules regarding AI in calls and texts. The proposed rule establishes a new definition for AI-generated calls and would require new associated disclosures. The proposed rule also provides certain exemptions for assistive technology related to speech or hearing disabilities.

HHS

HHS proposes rule to advance access to electronic health information. The Office of the National Coordinator for Health Information Technology, Health and Human Services (HHS) proposed a rule to advance interoperability, improve transparency, and support the access, exchange, and use of electronic health information including prescription-related electronic transactions. The proposal adopts (1) technological standards, (2) certification criteria for advancing public health data exchange, patient access, care management, and care coordination, and (3) information sharing under information blocking regulations.

EPA

EPA finalizes changes to hazardous waste manifest regulations. The Environmental Protection Agency (EPA) amended the hazardous waste electronic manifest regulations to modernize and streamline the manifest process. The regulations incorporate hazardous waste export manifests into the e-Manifest system, and require electronic signatures for the manifest system, which are the legal equivalent of paper manifests signed with conventional ink signatures.

Interagency statement on proposed AML rulemaking. On July 19, 2024, the Financial Crimes Enforcement Network (FinCEN) joined the Board of Governors of the Federal Reserve System (Federal Reserve Board), the Federal Deposit Insurance Corporation (FDIC) the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) to issue a joint statement on notices of proposed rulemakings intended to strengthen and modernize financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. These rulemakings would affect financial institutions including money services businesses, among others. Per the June 28, 2024 announcement of the proposed rulemaking, the proposed rules would:

Amend the existing program rules to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process
Require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, as well as provide for certain technical changes to program requirements, and
Promote clarity and consistency across FinCEN’s program rules for different types of financial institutions.

Interagency announcement of final rule on automatic valuation models.
On August 7, 2024, the CFPB, FDIC, Federal Housing Finance Agency (FHFA), Federal Reserve Board, NCUA, and OCC issued a final rule effective October 1, 2025 that will, according to the FHFA press release, “require institutions that engage in certain transactions secured by a consumer’s principal dwelling to adopt policies, practices, procedures, and control systems designed to:

ensure a high level of confidence in estimates;
protect against data manipulation;
seek to avoid conflicts of interest;
require random sample testing and reviews; and
comply with nondiscrimination laws.”

STATE

Biometrics

Amendment to Illinois BIPA. SB 2979, an amendment to the Illinois Biometric Information Privacy Act (BIPA) that will reduce damages related to class action violations of BIPA, was signed into law on August 2, 2024. The amendment will limit the number of violations that an individual can claim under BIPA, as the Illinois Supreme Court previously held in Cothron v. White Castle Systems stating that a violation of BIPA accrued each time a private entity scans a persons' biometric identifier and each time that entity transmits the scan to a third party. The amendment also expressly allows the use of electronic signatures for the execution of BIPA releases. As we have noted in prior newsletters, the Illinois courts have been flooded with BIPA class action cases in part because of the extensive damages allowed under the law. For more information on the Cothron case, see our prior alert.

CPPA issues working draft of modernizing amendments. The California Privacy Protection Agency (CPPA) Board issued a discussion draft of a planned formal rulemaking to amend existing regulations under the California Consumer Privacy Act. The draft amendments would integrate and address a number of emerging issues including dark patterns, automatic decision-making models, AI, and biometric profiling. However, no formal rulemaking process has been initiated.

Money transmission

Two more states adopt Model Money Transmission Modernization Act. As of August 26, 2024, two more states – South Carolina and Vermont – passed legislation based on the 2021 Model Money Transmission Modernization Act (Model Act). Nineteen other states have already enacted bills based on the Model Act. For more information on state adoptions of the Model Act, see our April 2024 and June 2024 issues.

Digital assets and virtual currency

NYDFS issues complaint and customer service guidance. The New York State Department of Financial Services (NYDFS) issued guidance on May 30, 2024 emphasizing its expectation that Virtual Currency Entities (BitLicensees and certain other entities) “address and resolve customer service requests and complaints in a timely and fair manner.” The guidance, which goes into effect November 1, 2024, includes detailed expectations of, at minimum, a customer service phone number and email or chat-based contact method, response and resolution, and reporting requirements.

State licensing

CSBS plans to modernize NMLS. On July 20, 2024, the Conference of State Bank Supervisors (CSBS) released the first phase of Nationwide Multistate Licensing System and Registry (NMLS) enhancements and updates for the industry users of the NMLS, including entities that use NMLS for state licensing or federal registration. Those updates include new logins and a single username and password for all NMLS accounts, as well as other system and page improvements. Further enhancements are planned to improve efficiency for mortgage industry license applicants.

Digital licensures

IDFPR to offer digital licensures. The Illinois Department of Financial and Professional Regulation (IDFPR) announced on August 6, 2024 that it will create a new digital professional licensing system for individuals with careers requiring an Illinois license (including many healthcare workers) in partnership with NIC Licensing Solutions, LLC. The new online system is intended to allow application, review, notification, and fee payment online, while aiming to significantly improve licensee experience and creating efficiencies for the Illinois Division of Professional Regulation. The IDFPR also began hosting virtual appointments regarding licensure application updates on July 24, 2024.

CASE LAW

FEDERAL

Electronic signatures

In United Spinal Ass’n v. O’Malley, No. 20-cv-2236, 2024 U.S. Dist. LEXIS 121504 (D.D.C July 11, 2024), a US District Court granted the Social Security Administration’s (SSA) motion for summary judgment, finding that the SSA’s practices did not violate the E-SIGN Act. The SSA required applicants who electronically signed applications for social security disability insurance to telephonically verify their identity. The plaintiffs alleged that the requirement violated the mandates of the E-SIGN Act by not giving legal effect to an electronic signature. According to the court, the electronic signature was given legal effect because the SSA would only deny an application with an electronic signature if the applicant failed to telephonically verify the application. Therefore, according to the court, the electronic signature was not in and of itself the proximate cause of the agency’s denial of a signature’s legal effect.

In Calderon v. Sixt Rent a Car, LLC, No. 22-13539, 2024 WL 3823210 (11th Cir. Aug. 15, 2024), a putative class action with plaintiffs in three different states, all customers of a car rental company alleged that the company sent invoices for damages that conflicted with the company’s contract terms and conditions. The United States Court of Appeals for the Eleventh Circuit held that, under Arizona, Colorado, and Florida law, the customers were bound by the terms of the signed “Face Page” of a car rental company's agreement even if they did not read what they were signing or ask to read what they were was signing with electronic signature pad. The face page, which included material terms specific to the rental, incorporated its terms and conditions (T&Cs), including provisions surrounding a customers' responsibility for damages to or loss of vehicles. The face page stated the following above the signature line: “By signing below, you agree to the Terms and Conditions printed on the rental jacket and to the terms found on this Face Page, which together constitute this Agreement. You acknowledge that you have been given an opportunity to read this Agreement before being asked to sign it, and that all information you have provided is true and correct.” The T&Cs were not separately signed by the customer. The typical practice, as agreed by the parties, is that the Face Page and a folder containing the T&Cs are provided for customer review, after which the customer signs their name via an electronic signature pad (a black box that displays only a blank space where the customer can put their signature without any text from the rental agreement) – the customer is signing a digital copy of the Face Page that is digitally stored by the company. In this case, there was no suggestion that the employees of the company attempted to explain the T&Cs to the customers.

STATE

Electronic signature and online contract formation

Court denies admission into evidence copies of scanned ink-signed documents where signatures contested. In Midwest Neurosurgeons, LLC v. Cain, No. ED 111932, 2024 WL 3262918 (Mo. Ct. App. July 2, 2024), the Missouri Court of Appeals for the Eastern District, Division 1, upheld a Missouri trial court’s exclusion of photocopies of an electronic file of two documents that were allegedly executed in ink by a former patient and then scanned. During the litigation and trial, the patient disputed signing the documents, and the providers did not present the allegedly executed original documents. The Missouri Court of Appeals held that the trial court did not err in excluding the photocopied records, because a proper foundation had not been laid by the providers under the rules of evidence for admission under the business records exception to the hearsay rule. The providers seeking admission argued the photocopies should nonetheless be admissible, in part, on the basis that the Missouri Uniform Electronic Transactions Act (MO UETA) prohibited exclusion of the records solely because they were in electronic form. However, the court found that the MO UETA did not apply because no evidence of consent to transact through electronic means was presented. The court further explained that the providers were required to demonstrate that the best evidence rule was satisfied by presentation of the original, signed documents into evidence to overcome the patient’s objections.

Trusts

Emails insufficient to effectuate amendment to trust. In Trotter v. Trotter Van Dyck, 103 Cal. App. 5th 126, 322 Cal. Rptr. 3d 622 (June 27, 2024), a successor trustee petitioned a probate court for guidance as to whether emails from the prior trustee, his mother, were valid amendments to the list of the trust’s beneficiaries when she died prior to executing formal documentation. The probate found that they were insufficient to constitute amendments, and the successor trustee appealed. The California Court of Appeals held that a trust amendment by a sole trustor was a “unilateral act” excluded from the California Uniform Electronics Transaction Act (CA UETA). The court noted that, while the CA UETA allows electronic records and signatures to satisfy requirements for writings, the UETA only applies to transactions involving two or more persons, which would exclude unilateral acts. The court also noted that the UETA does not apply to the creation and execution of wills, codicils, or testamentary trusts – which the trial court construed to cover revocable living trusts.

DLA PIPER NEWS

The Financial Times recognizes DLA Piper as one of the Most Innovative Law Firms in North America.

The Legal 500 United States 2024 List ranks DLA Piper Tier 1 in FinTech: Crypto and Cyber Law (including Data Privacy and Data Protection), and as Tier 2 in FinTech. Margo Tank and Jeffrey Hare were also ranked as "Leading Individuals."

Chambers FinTech Legal ranks DLA Piper in all four categories including Band 2 for Blockchain and Digital Assets, with Margo Tank individually recognized in Band 3 in the Blockchain & Digital Assets and Payments & Lending areas.

Emily Honsa Hicks was recently named to the D.C. Bar Association’s 2023 Capital Pro Bono Honor Roll, among many other DLA Piper attorneys.

RECENT EVENTS

Please join DLA on Wednesday, September 25, 2024 for our next webinar in our Global Expansion and Operation series. The webinar will focus on IP issues related to international expansion, and will feature Victoria Lee, Co-Chair, of the Technology and Life Sciences Licensing and Commercial Transactions group, and Tim O’Leary, the former Vice President Worldwide Commercial Legal at NetApp.

David Whitaker and Emily Honsa Hicks spoke at The Conference on Consumer Finance Law’s Spring Consumer Financial Services Conference on May 30-31, 2024 at Loyola University Chicago School of Law.

RECENT PUBLICATIONS

Margo Tank and David Whitaker co-authored The Law of Electronic Signatures, 2024 Edition (Thomson Reuters), an essential guide to electronic signatures and records laws, including the context in which the laws were adopted and the ways in which the authors believe the drafters intended them to be interpreted. The authors have more than 30 years combined experience, including involvement with the drafting and passage of Electronic Signatures in Global and National Commerce Act (ESIGN), the preparation of the Uniform Electronic Transactions Act (UETA), the creation of the Standards and Procedures for electronic Records and Signatures (SPeRS™), and serving as counsel to the Electronic Signatures and Records Association. The insights they provide will be indispensable to anyone seeking to understand the impact of, and the liability associated with, using electronic signatures and electronic records.

These insights include:

Details on the legal requirements for using electronic signatures and records, including delivery, presentation, signing and record retention
Comprehensive tables itemizing the state variations to the uniform UETA language
Special considerations for using electronic signatures and records in connection with emerging and evolving technology
Using electronic records and signatures in specialized transactions and documents, such as securities, chattel paper and mortgages
Analysis of the interplay between ESIGN, UETA and many other key laws and regulations
Identification and summaries of recent legal developments and court cases impacting electronic signatures and records

David Stier, Emily Honsa Hicks, and Eric Hall co-authored the chapter on AML, know-your-customer guidelines, and the Bank Secrecy Act and provided general editorial assistance on other chapters in the newly published book, Banking [on] Blockchain: A Legal and Regulatory Primer, published by the American Bar Association. The book is a comprehensive guide to the legal and regulatory landscape surrounding the use of blockchain technology, decentralization, and digital assets within the financial services industry and explores the potential benefits and challenges of using these technologies as well as offers guidance on how financial institutions can navigate the complex regulatory environment.

Emily Honsa Hicks co-authored the “Electronic Signatures and Records” chapter in the Consumer Financial Services Answer Book, 2024 Edition, published by Practicing Law Institute.

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 as well as by Margo H.K. Tank.

The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by Liz Caires and Margo H.K. Tank, 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 – otherwise, companies can purchase information about individual states as needed.