Digital Transformation: eSignature and ePayment News and Trends - September/October 2023

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 editors – and, if there is a topic you’d like us to cover in a future Insight, we’d love to hear from you.

INSIGHT

Canadian court: A thumbs-up emoji sent by mobile phone constitutes an electronic signature, forming a binding legal agreement

By Margo Tank, R. David Whitaker, Liz Caires, and Emily Honsa Hicks

In South West Terminal Ltd. v. Achter Land, 2023 SKKB 116 (CanLII) (# QBG-SC-00046-2022, June 8, 2023), the King's Bench for Saskatchewan granted summary judgment for South West Terminal Ltd. (SWT) in a dispute over execution of a deferred delivery commodities purchase contract. SWT had sued for breach of contract and damages of CND82,200.21 plus interest and costs for failure of delivery by Achter Land.

The dispute centered around a text exchange between representatives from SWC and Achter. After a telephone conversation between the two parties, the representative of SWT prepared the contract pursuant to the discussions, signed the paper contract, took a photo of the contract with his phone, and texted the photo to Achter’s representative with the message, "Please confirm flax contract." Achter's representative replied to that text with a thumbs-up emoji: 👍. Read more.

REGULATORY DEVELOPMENTS

FEDERAL

DOJ

One click closer to website accessibility guidance: DOJ proposes new rule for state and local governments. On July 25, 2023, the 33rd anniversary of the Americans with Disabilities Act (ADA), the US Department of Justice (DOJ) announced a proposed rule to improve digital access to services that state and local governments offer on websites or mobile applications.

This marks the first time in the history of the ADA that the DOJ has issued a proposed rule on website accessibility. The DOJ acknowledged that online services have too often excluded individuals with disabilities and that clear standards will assist state and local governments ensure that their programs, services, and activities are accessible.

The proposed rule is expected to provide technical guidance that includes specific website accessibility standards, such as captioning videos, adding text descriptions to images for individuals who use screen readers, and enabling navigation through a keyboard instead of a mouse for individuals with mobility impairments. Read more.

CFPB

CFPB to propose rulemaking expanding FCRA to cover data brokers. In his August 15 speech on artificial intelligence, Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra announced the launch of a rulemaking "to ensure that modern-day digital data brokers are not misusing or abusing our sensitive data." The CFPB proposes to develop rules under the Fair Credit Reporting Act (FCRA) which would include a data broker company that sells certain types of consumer data within the definition of a "consumer reporting agency." Such agencies are subject to the FCRA. Additionally, the rules "will address confusion" around whether "credit header data" is a consumer report, by clarifying the extent to which credit header data constitutes a consumer report. The CFPB expects to publish an outline of proposals under consideration for such a proposed rule in late September.

CFPB focuses on tap to pay. On September 7, the CFPB released an "issue spotlight" article entitled Big Tech's Role in Contactless Payments: Analysis of Mobile Device Operating Systems and Tap-to-Pay Practices. According to the CFPB, "Any restrictions imposed by the dominant operating systems [on point-of-sale (POS) payment functionality]… will have an outsized effect on access to payments systems and may hinder the development of a truly open ecosystem.” The article finds that:

• Use of contactless payments or tap-to-pay at the POS continues to rise in the US. Analysts estimate that the value of digital wallet tap-to-pay transactions will grow by over 150 percent by 2028.
• As adoption of contactless payments on mobile phones continues to increase, the primary cell phone operating system designs adopted by leading mobile phone manufacturers, and the business models and choices the manufacturers employ, will likely have profound impacts on the competitiveness of the payments market and the future of open banking. For instance, certain operating systems prohibit the operation of applications which facilitate POS payments and instead require use of the operating system's proprietary POS services.
• Restrictions installed on mobile devices by device manufacturers can inhibit choice and innovation in consumer payments. Such restrictions may also increase roadblocks to open banking reaching its full potential in the US. For example, such restrictions may hinder lower-cost open banking-powered payment innovations, such as emerging services that enable consumers to make point-of-sale transactions using their bank accounts directly.

STATE

Money transmission - ePayments

California DFPI finds receiving and forwarding payment instructions not money transmission. The California Department of Financial Protection and Innovation issued an interpretive opinion on July 25 opining that a data processor which receives ACH instructions from customers and merchants to transmit money to each other and forwards those instructions to partner banks does not require licensure under the state Money Transmission Act. According to the opinion, “receiving money for transmission” triggers licensure. However, “to ‘receive money for transmission,’ a person must actually or constructively receive, take possession, or hold money or monetary value for transmission; merely receiving instructions, orders, or directions to transmit money or monetary value does not constitute ‘receiving money for transmission.’” Here, the financial institutions in which customers and merchants held their respective accounts and the data processor’s partner banks were solely responsible for payment and settlement.

Several more states adopt the Model Money Transmission Modernization Act. In an effort to create a single set of nationwide standards and requirements for money transmitters and payments companies, the Conference of State Bank Supervisors (CSBS) developed the Model Money Transmission Modernization Act (Model Act) two years ago. If adopted broadly, the Model Act would create cohesion and uniformity amongst states with respect to regulatory scope, including definitions of regulated activity, prudential requirements (eg, net worth), and triggers and processes with respect to changes of control. The Model Act also seeks to standardize exemptions from licensure, recognition of which varies across states. To that end, the Model Act includes an exemption for a service provider to an exempt bank as well as an exemption for an entity that processes payments solely between and among exempt entities and/or money transmission licenses. Significantly, the Model Act also contains an exemption for agents of a payee. The Model Act further includes an optional article regarding the regulation of virtual currency.

While states have taken varying approaches to adoption of the Model Act – some implementing only bits and pieces, and others adopting it in its entirety – all states that have already enacted legislation adopting all or parts of the Model Act either have already recognized or will recognize (upon the effective date of the legislation) the agent of a payee exemption. Below we very briefly summarize the status of each of the 12 states to have enacted legislation in 2023 based on the Model Act:

• Arkansas: HB 1438 added significant provisions of the Model Act regarding control, definitions, net worth, and permissible investments.
• Georgia: Effective July 1, 2023, HB 55 added significant provisions of the Model Act, including definitions, payroll processing exemptions, net worth requirements, permissible investments, and requirements with respect to criminal background checks.
• Hawaii: Effective July 1, 2023, Hawaii adopted companion bills SB 1325 and HB 1027, which added definitions, net worth requirements, exemptions, surety bond requirements, and permissible investment language from the Model Act.
• Indiana: Effective January 1, 2024, SB 458 provides for complete adoption of the Model Act, excluding the optional article on virtual currency regulation.
• Iowa: Effective July 1, 2023, HF 675 provides for complete adoption of the Model Act, excluding the optional article on virtual currency regulation.
• Minnesota: Effective August 1, 2023, SF 2744 provides for complete adoption of the Model Act, including the optional article that pertains to regulation of virtual currency under the money transmission law.
• Nevada: Effective July 11, 2023, AB 21 provides for complete adoption of the Model Act, excluding the optional article on virtual currency regulation.
• New Hampshire: Effective July 18, 2023, HB 522 amends the existing money transmission law to include many of the exemptions in the Model Act, including the agent of a payee.
• North Dakota: Effective August 1, 2023, SB 2119 provides for complete adoption of the Model Act, including the optional article that pertains to regulation of virtual currency under the money transmission law.
• South Dakota: Effective July 1, 2023, SB 43 added numerous definitions from the Model Act. South Dakota previously adopted SB 47, which enacted several provisions of the Model Act in 2022, including definitions of control, passive investor, and tangible net worth sliding scale requirements. SB 47 also requires licensees transmitting virtual currency to hold like-kind virtual currency of the same volume as that held by the licensee.
• Tennessee: Effective January 1, 2024, SB 268 provides for complete adoption of the Model Act, excluding the optional article on virtual currency regulation.
• Texas: Effective September 1, 2023, SB 895 provides for complete adoption of the Model Act, excluding the optional article on virtual currency regulation.

California amends money transmission regulations. On September 11, the California legislature enacted AB1116 which, if signed by Governor Gavin Newsom, would amend the state Money Transmission Act to exempt certain processing intermediaries and registered futures commission merchants from the Act, require applicants to file annual reports through the Nationwide Multistate Licensing System, increase the amount of tangible net worth required of applicants, revise requirements when adding or replacing key individuals, among other things. AB1116 would become effective on January 1, 2024, for new applicants, and would allow a transition period through January 1, 2025 for current registrants.

Electronic and remote notarization

Washington, DC enables IPEN. On July 10, the DC Office of the Secretary sent a notice to in-person electronic notarization (IPEN) vendors that, effective immediately, the Office is accepting applications for notaries public to become in-person electronic notaries in the District of Columbia. Pursuant to the DC Office website, the Office has been accepting such IPEN notary applications since March 30.

California legislature enacts RON. On September 13, the California legislature enacted SB696 which adopts remote online notarization (RON) in the state. If signed by Governor Newsom, the law will become effective on the earlier of January 1, 2030, or the date the Secretary of State certifies that its technology has been updated to implement the law's requirements. The law includes civil monetary penalties of $1,500 per violation for certain non-compliance, provides for a private right of action against RON platform providers, requires notaries to maintain a $25,000 bond, and requires registration of RON platform providers.

North Carolina extends emergency video notarization until RON regulations are adopted. On June 23, North Carolina adopted S552 to extend permitted use of "emergency video notarization" through June 30, 2024. The new law provides additional time for the state Secretary of State to adopt regulations supporting the state's RON law, the Electronic Notary Act, which became effective July 1, 2023.

UCC Article 12

Nevada adopts 2022 UCC Amendments. Through its enactment of AB231 on June 15, Nevada adopted the 2022 amendments to the Uniform Commercial Code (UCC), including the provisions of Article 12 regarding controllable electronic records. The new law becomes effective October 1.

California poised to adopt 2022 UCC Amendments. On August 31, the California legislature passed SB95 which adopts the 2022 UCC Amendments, including Article 12. The bill is pending before Governor Newsom.

Uniform Electronic Transactions Act (UETA)

California amends exceptions to its UETA. On September 11, the California legislature enacted AB1697 which, if signed by Governor Newsom, revises the state Confidentiality of Medical Information Act to allow the use of electronic records and signatures on authorizations for the release of medical information and authorizations for the release of genetic test results, and removes from the state UETA exceptions to the state Civil Code which previously prevented the use of electronic signatures for such authorizations.

Data privacy

Delaware enacts consumer data privacy law. On September 11, Delaware enacted HB154, the Delaware Personal Data Privacy Act, which provides consumers the right to know what information is being collected about them, see the information, correct any inaccuracies, or request deletion of their personal data. Consumers can also opt out of use of their data for targeted advertising, the sale of their data, and profiling. The new law goes into effect January 1, 2024 and applies to entities that conduct business in Delaware who controlled or processed the personal data of no fewer than 35,000 consumers, or processed the personal data of no fewer than 10,000 consumers and derived more than 20 percent of their gross revenue from the sale of personal data. Notably the law does not include a private right of action, but instead provides a 60-day cure period for violations until December 31, 2025.

eWills

Illinois amends eWill law. On July 28, Illinois adopted HB 2269 which modifies, effective January 1, 2024, the state law regarding electronic wills to enable the electronic execution of nontestamentary estate planning documents, such as trusts, powers of attorney, advance directives, and " any other record intended to carry out an individual’s intent regarding property or health care while incapacitated or on death."

Minnesota’s eWill law takes effect. The Minnesota Electronic Wills Act, signed into law on March 30, became effective as of August 1. The Act allows the use of certain electronic processes in the execution of a will (but not trust agreement) by the modification of definitions of terms such as "signed," "presence," "writing," and "witnessing." Additionally, self-proving will attestations may be notarized via remote online notarization.

INDUSTRY DEVELOPMENTS

Virtual currency

FASB updates rules for accounting of cryptocurrencies and digital assets. On September 6, the Financial Accounting Standards Board (FASB) tentatively voted to finalize updates to FASB accounting standards. The updates will require companies to account for digital assets at fair market value on the balance sheet; capture price fluctuations and record gains and losses on their income statement; and expand disclosure requirements, including cost basis, restrictions on sale, and reconciliation of cryptoasset activity. The updated standards apply to cryptocurrencies such as bitcoin and ether, and to stablecoins backed by fiat currencies. However, they will not apply to non-fungible tokens (NFTs) and tokens representing a claim on other digital assets. The updated standards will take effect for fiscal years beginning after December 15, 2024.

Swift reports successful blockchain experiments. On August 31, the Society for Worldwide Interbank Financial Telecommunication (Swift) announced the release of results from a series of experiments "that show its infrastructure can seamlessly facilitate the transfer of tokenised value across multiple public and private blockchains." Swift worked with several major financial institutions and a leading Web3 services platform to conduct the experiments which "successfully demonstrated that [Swift] can provide a single point of access to multiple networks using existing, secure infrastructure" and "that existing Swift infrastructure can provide a secure, scalable way for financial institutions to connect to multiple types of blockchain."

CASE LAW

FEDERAL

Telemarketing Sales Rule

The FTC partners with federal and state law enforcement to crack down on illegal telemarketing calls. On July 18, the Federal Trade Commission (FTC) announced a joint federal and state initiative known as Operation Stop Scam Calls to crack down on illegal telemarketing calls, including robocalls, by operations responsible for billions of calls to US consumers. According to the announcement, "[t]he initiative not only targets telemarketers and the companies that hire them but also takes action against lead generators who deceptively collect and provide consumers’ telephone numbers to robocallers and others, falsely representing that these consumers have consented to receive calls. The effort also targets Voice over Internet Protocol (VoIP) service providers who facilitate illegal robocalls every year, which often originate overseas." The announcement included FTC-filed complaints against Fluent, LLC; Viceroy Media Solutions, LLC; Yodel Technologies, LLC; Solar Xchange LLC; and Hello Hello Miami, LLC. 

STATE

Remote online notarization (RON)

New York court uses RON recording to uphold notarization. In E.V.g v. M.G., 2023 WL 4537113 (Sup.Ct. NY, Bronx Cty., July 13, 2023), the Supreme Court of New York in Bronx County upheld a notarized divorce stipulation of settlement after review of the video recording and transcript of the virtual notarization process used when the plaintiff digital signed the stipulation. The plaintiff contended that the stipulation should be set aside as the use of a virtual notary was improper and insufficient to meet statutory formalities. The remote notarization process used was that implemented in the state by Executive Order in response to the COVID-19 pandemic. The court found that the transcript and recording "clearly demonstrated" that the plaintiff identified herself and the document being signed, confirmed that she signed the document of her own free will and understood the document, and was legally binding herself to the document. Further, plaintiff stated that she had agreed to use a digital signature, and she had clicked the box indicating she signed the agreement. Based on the presented evidence, the court held that the stipulation of settlement was properly notarized and signed under New York law.

Privacy

Court enjoins enforcement of California child online safety bill. On September 18, the US District Court for the Northern District of California granted a preliminary injunction blocking the state from enforcing the California Age-Appropriate Design Code Act (CAADCA) which places limits on any covered business that "provides an online service, product, or feature likely to be accessed by children." The CAADCA was enacted with the unanimous support of the California legislature and Governor on September 15, 2022, and covered businesses would have been required to comply with its provisions as of July 1, 2024. The CAADCA expands beyond the federal Childrens' Online Privacy Protection Act (COPPA), which limits the collection of user data by operators of websites and services "directed to children" under the age of 13. The CAADCA instead requires that its protections be imposed on "all online products and services [children under the age of 18] are likely to access," and includes other enumerated mandates and prohibitions. Violators are subject to civil penalties of $2,500 per child for each negligent violation and $7,500 for each intentional violation.

The court found that "specifically, … the CAADCA likely violates the First Amendment" by:

(1) regulating protected speech through the CAADCA's provisions which prohibit covered businesses from "[c]ollect[ing], sell[ing], shar[ing], or retain[ing] any personal information" for most purposes, thereby limiting the "availability and use" of information by certain speakers and for certain purposes; and

(2) regulating the distribution of speech through the CAADCA's mandates requiring covered businesses to create reports identifying and assessing, for each offered online service, product, or feature likely to be accessed by children, any risk of material detriment to children, and creating a "timed plan to mitigate or eliminate" such risks "before the online service, product, or feature is accessed by children." The court further noted that the CAADCA's mandates essentially "press private companies into service as government censors, thus violating the First Amendment by proxy."

Electronic signature and online contract formation

• Perdido Properties LLC v. Devon Energy Production Company, LP, 669 SW3d 535 (Ct.App. Tex. May 18, 2023): The court held that, under the Texas Uniform Electronic Transactions Act, "either a typed name or a signature block at the end of an email is sufficient to constitute a signature."

RECENT EVENTS

Global Digital Forum – Adapting to a digital future for real world assets and content, which took place September 28, 2023, and brought together leading representatives from government, regulatory bodies, and international business to discuss the implications of operating in the new digital environment and how likely it is to change the way products and services are structured, traded, held, and delivered in global markets and economies. Margo Tank was a panelist for “The regulatory outlook for real world assets.” 

Margo Tank presented at NFT Legal Deep Dive: Copyright, trademark, and Uniform Commercial Code (Articles 2 & 12) [Part II], on May 17, 2023 alongside Gina Durham.

Margo Tank and David Whitaker co-presented at the Electronic Signatures and Records Association (ESRA) Spring Member Meeting, held April 25-26 at DLA Piper’s Washington, DC offices. They presented the Legal Update and Regulatory Review, a summary of key legal developments affecting electronic signatures and records, which covered digital asset regulation, contract issues for digital assets platform providers, recent judicial and regulatory activity affecting digital assets, and state adoption of UCC Article 12.

The Legal 500 ranks DLA Piper Tier 1 in FinTech: Crypto. DLA Piper was also ranked in Tier 2 for FinTech, and Margo Tank was ranked as a "Leading Individual."

DLA Piper ranked in 2023 Chambers FinTech Guide. DLA Piper is pleased to announce that the firm's FinTech Legal practice has been ranked nationwide by the prestigious legal publisher Chambers and Partners. Margo Tank and David Whitaker both received individual FinTech rankings. Overall, the firm received 21 practice rankings and 16 individual lawyer rankings in the Chambers FinTech 2023 edition.

DLA Piper’s Commodities, Digital Assets, and Carbon Compliance and Enforcement team draws on decades of collective experience in the commodities and securities industry to help companies navigate new and complex commodities enforcement matters, including those related to agriculture, metals, energy, digital assets, and carbon/sustainable commodities, among others.

RECENT PUBLICATIONS

Emily Honsa Hicks co-authored the “Electronic Signatures and Records” chapter in the Consumer Financial Services Answer Book, 2024 Edition, to be published by Practicing Law Institute in August 2023. If you are interested in purchasing a copy of the book, please contact Emily Honsa Hicks for more information.

"Terms of Service Are Instrumental in Determining Rights to Digital Assets – The Holding in Celsius Network LLC," published in The Computer & Internet Lawyer, May 2023, by Margo Tank, David Whitaker, Liz Caires and Emily Honsa Hicks.

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 Tank.

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

CFPB and European Commission joint statement – a cautious transatlantic first date

IRS and Treasury issue proposed regulations outlining new digital asset reporting regime

Transferring digital assets under UCC Article 8

Creating an insider trading policy for your company’s digital assets: why to write one and what to consider

In case you missed it

Read the latest issue of our bulletin Blockchain and Digital Assets News and Trends

Read the latest issue of our bulletin Consumer Finance Regulatory News and Trends

Contacts

Learn more about our eSignatures and ePayments practice by contacting:

Margo Tank

David Whitaker

The editors send their thanks and appreciation to Marc Aronson and Raymond Janicko for their contributions to this and prior issues.