Digital Transformation: eSignature and ePayment News and Trends - 1 July 2020

June 30, 2020: National ESIGN Day

June 30, 2020 was National ESIGN Day, marking 20 years since ESIGN was signed into law by President Bill Clinton. In commemoration, please see the following two items. First is a webinar held by the Electronic Records and Signatures Association in which key industry players reflect on the achievements of the last 20 years. Second is the following post from DocuSign – ESIGN ACT – Paving the Way for Digital Innovation – which addresses the fundamental changes throughout commerce that ESIGN helped usher in and offers some thoughts on what else may change in the coming years.

A 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 of this newsletter features in-depth insight on a timely and important current topic.

In this issue, we provide updates on recent regulatory and court decisions affecting the bank partnership model. In addition, this edition 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.

INSIGHT

Bank partnership updates: FDIC finalizes its “valid when made” rule; Colorado court says privilege of interest-rate exportation does not apply to third-party assignees; OCC to propose “true lender” rule

First, on June 25, 2020, the Federal Deposit Insurance Corporation (FDIC) finalized its clarification that whether interest on a loan is permissible under section 27 of the Federal Deposit Insurance Act is determined at the time the loan is made, and interest on a loan permissible under section 27 is not affected by a change in state law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan.

Second, a Colorado district court held on June 9, 2020, that a third-party non-bank assignee of loans made by a state-charted bank could not charge the interest rate permitted to the assigning bank under federal law. This decision arose from a motion by the administrator of Colorado’s Uniform Consumer Commercial Code for a determination of law.

Third, on June 11, 2020, the Online Lending Policy Institute (OPLI) held a discussion with the Acting Comptroller of the Currency, Brian Brooks, in which the Acting Comptroller discussed both the Office of the Comptroller of the Currency’s (OCC) recent “valid when made” rule and that the OCC will release a notice of proposed rulemaking regarding what constitutes a “true lender” in the bank partnership model.

REGULATORY DEVELOPMENTS

FEDERAL

ESIGN and electronic signatures

Department of Labor adds new safe harbor for using electronic media for employee benefit plans: On May 27, 2020, the Department of Labor finalized a rule that adds an additional safe harbor for employee benefit plan administrators to use electronic media, as a default, to furnish information to participants and beneficiaries of plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). The rule allows plan administrators who satisfy specified conditions to provide participants and beneficiaries with a notice that certain disclosures will be made available on a website, or disclosures will be furnished via email. Individuals who prefer to receive disclosures on paper can request paper copies of disclosures and opt out of electronic delivery entirely. The rule takes effect July 27, 2020.

Money transmission and remittances

OCC states that national banks conducting federally authorized fiduciary activities do not need a state money transmitter license: In June, the Office of the Comptroller of the Currency released an interpretive letter, in response to questions raised by Jeffrey L. Hare of DLA Piper, stating that “(1) the Bank may conduct federally authorized fiduciary activities in any state, even if aspects of its activities fall within the state’s definition of money transmission and the Bank is not licensed by the state as a money transmitter; (2) any state law purporting to impose licensing requirements on the Bank’s exercise of its fiduciary powers is preempted; and (3) the Bank does not need to satisfy a state licensing exemption to conduct its activities.”

CFPB updates small entity compliance guide for remittance transfers: In June 2020, the Bureau of Consumer Financial Protection (CFPB) updated its small entity compliance guide for remittance transfers to reflect revised requirements to the Remittance Transfer Rule, including two new permanent exceptions that permit banks and credit unions to use estimates in disclosures of certain fees and exchange rates in certain circumstances.

STATE

Virtual currency

New York Department of Financial Services announces virtual currency initiatives: On June 24, 2020, the New York Department of Financial Services (NYDFS) announced a series of virtual currency initiatives: (1) a conditional licensing framework that would allow new entrants to work in collaboration with an authorized BitLicensee or a holder of a New York limited purpose trust charter; (2) final guidance regarding licensees’ ability to self-certify the use of new coins, and establishing an approach by which NYDFS will provide a list of approved coins that all licensees can easily adopt; and (3) a memorandum of understanding with the State University of New York (SUNY) that expresses SUNY’s intent to launch a new SUNY-related virtual currency program.

LEGISLATIVE DEVELOPMENTS

STATE

Remote online notarization

Colorado 26th state to adopt RON. On June 26, Colorado became the 26th state to enact remote notarization (SB20-096). The RON provisions of the bill take effect December 31, 2020. Notably the bill prohibits the use or sale of personal information of a remotely located individual by a remote notary and the provider of a remote notarization system except in limited circumstances.

Louisiana adopts RON. On June 11, Louisiana became the 25^th state to enact remote online notarization (HB274). The effective date of the act is the later of the enactment of the federal proposed SECURE Notarization Act or August 1, 2020, provided that if the SECURE Notarization Act is not enacted by February 1, 2022, the effective date shall be February 1, 2022. (Senate Bill 3533, the Securing and Enabling Commerce Using Remote and Electronic Notarization Act of 2020 (the SECURE Act), was introduced on March 18, 2020 as bipartisan legislation to authorize and establish minimum standards for electronic and remote notarizations that occur in or affect interstate commerce. A substantially identical version of the bill was introduced in the House on March 23, 2020 as H.R.6364.)

Blockchain

Kentucky creates blockchain workgroup: On April 24, 2020, the Kentucky signed SB 55 into law, which creates a working group that will evaluate the feasibility and efficacy of using blockchain technology to enhance the security of and increase protection for Kentucky’s critical infrastructure, including items such as the electricity grid.

Electronic signatures

Louisiana enacts law providing for the enforcement of electronic signatures by financial institutions: On June 9, 2020, the governor of Louisiana signed into law HB 722 which states that if a signer disputes that an electronic signature is valid or enforceable, the financial institution may submit evidence that the electronic signature is valid and enforceable. Such evidence may include that the purported signer received a direct or indirect benefit from the transaction, such as the deposit of funds into an existing account or the receipt of loan proceeds.

CASE LAW

FEDERAL

Telephone Consumer Protection Act, electronic signatures and general online contract formation

Ninth Circuit finds caller liable for reassigned number: In N.L. v. Credit One Bank, 960 F.3d 1164 (9^th Cir. June 3, 2020), the court upheld the lower court’s jury instructions that the defendant needed the current subscriber’s consent under the Telephone Consumer Protection Act (TCPA) to receive calls, and not the intended recipient’s consent. Here, the defendant attempted to call its customer, but the customer’s number had been reassigned and the person to whom it was reassigned let her son use the phone as his own. The defendant attempted to argue that it should not be liable under the TCPA because it had the consent of the “intended recipient.” The court disagreed with the defendant’s argument, finding that the defendant’s interpretation is not the “best one” regarding the TCPA’s consent requirements and that the TCPA’s usage of “called party” throughout the statute is best interpreted to mean the receiving party of the call.

Court finds that an electronically signed provision allowed for telemarketing text messages: In Lundbom v. Schwan’s Home Service, Inc., 2020 WL 2736419 (D. Ore. May 26, 2020), the court ruled that the plaintiff provided “prior express written consent” to receive telemarketing messages when the plaintiff clicked “Complete Registration” because prior to that button was a prechecked box next to the following statement – “You agree and consent via your electronic signature by clicking the check box to receive calls at the provided number which will deliver automated, live and/or prerecorded messages, text messages, and text alerts by or on behalf of Schwan's Home Service.” Noting that “magic” language such as “advertisement” or “telemarketing” do not need to be used, the court stated that the defendant provided the disclosures required for “prior express written consent” via two methods: (1) when the defendant used language such as “important updates” and “program news” on the registration page to describe the types of communications recipients would receive; and (2) in the mobile terms policy, which was clearly disclosed to the plaintiff and to which she agreed, and which contained sufficient disclosures in large font on the first page. Regarding whether the plaintiff “signed” the consent as required by the TCPA, the plaintiff stated that she could not have signed it because (1) the box was pre-checked and (2) the language next to the box stated “via your electronic signature by clicking the check box” (emphasis added). The court stated that “a reasonable consumer would have notice of the check-box because a user would necessarily have to scroll past those disclosures…[and the] plaintiff chose to click ‘Complete Registration.’” Regarding the language used for the disclosure, the court stated that from the objective perspective of a “reasonably prudent smartphone user,” the language reasonably conveyed that the checked box would indicate consent. In so doing, the court granted the defendant’s motion of summary judgment.

Court upholds arbitration agreement:

• In Hidalgo v. Amateur Athletic Union of United States, 2020 WL 3442029 (S.D. N.Y. June 24, 2020), the court upheld the motion to compel arbitration even though the document containing the arbitration provision was located via a hyperlink found within the online terms and conditions. To become a member, the plaintiff was required to click a checkbox next to the following sentence: “I understand and agree to all terms and conditions listed.” Above that sentence and checkbox was a yellow box titled “Terms and Conditions – Digital Signature.” Within that box were two links to the defendant’s code book, which contained the arbitration provision. To proceed to the next page of the sign-up process, the plaintiff had to click a green Continue button at the bottom of the screen; the button was not operable unless the checkbox had been checked. The court found that the plaintiff had reasonable notice of the arbitration provision in the code book for the following reasons: (i) the application page was relatively uncluttered and terms and conditions box was prominently placed in the center of the page; (ii) an applicant would be unable to avoid the part of the application containing the hyperlinks to the code book because the applicant would necessarily have to proceed linearly through the application; (iii) the agreement was a clickwrap agreement because the applicant had to check a box before being able to click “Continue”; and (iv) notice about the terms was both spatially and temporally coupled to the submission of the application. The plaintiff next argued that because he used his smartphone, he did not have reasonable notice because he had to move the screen back and forth for each line of text and zoom in and out because the full application was not visible on his screen at one time. The court stated that the plaintiff does not dispute that he still had to click the checkbox and that therefore the plaintiff had “reasonable notice” of the terms. Regarding whether the plaintiff had notice of the arbitration agreement within the “roughly 170-page” code book, the court said the fact that the plaintiff had to click through multiple hyperlinks does not mean that the plaintiff cannot be bound by it. Under New York law, a customer is still bound to an agreement even if he has not read it.
• n Lee v. Ticketmaster LLC, 2020 WL 3124256 (9^th Cir. June 12, 2020), the court affirmed the lower court’s decision granting the defendant’s motion to compel arbitration because the plaintiff validly assented to the defendant’s terms of use each time he clicked “Sign In,” where below the button was the phrase “By continuing past this page, you agree to our Terms of Use,” and each time he clicked “Place Order,” because directly above that button was the phrase “By clicking ‘Place Order,’ you agree to our Terms of Use.”
• In HomeAdvisor, Inc. v. Waddell, 2020 WL 2988565 (Tex. Ct. App. June 4, 2020), the court reversed the trial court’s denial of motion to compel arbitration because the court held that the defendant established the existence of an arbitration agreement between it and the appellees. Specifically, the court concluded that the terms containing the arbitration agreement were conspicuous – the call-to-action language was directly beneath an orange “Submit” button and the text was nearly the same size as the other text on the screen – and that the terms of service prominently displayed the arbitration agreement. Further, the appellees unambiguously assented to the terms of service because the mechanism −the submit button − was “temporally coupled” with receipt of services, and the user was clearly advised that clicking the button indicated assent.
• In Acaley v. Vimeo, (N.D. Ill June 1, 2020), the court concluded that the plaintiff agreed to arbitrate disputes when he received reasonable notice of the terms on at least two occasions: (1) when using the defendant’s app and (2) when signing up for a free subscription service via a web browser. Regarding reasonable notice on the app, when the defendant initially opened the app, the following statement appeared: “By continuing I agree to the terms.” The court found that this would place a reasonable person on notice that there were terms connected to continued use of the app. Regarding the web browser, when the plaintiff accessed a webpage with a button titled “Create account,” there was language in “smaller but still conspicuous font” stating that “By starting you agree to our terms and privacy policy.” The court found that this statement would put a reasonable person on notice that there were terms and conditions connected to creating an account. The plaintiff also argued that the app was confusing, in that on subsequent app pages regarding subscription plans, those pages did not make clear the existence of the terms. However, the court stated that by the time a person viewed the pages the plaintiff found problematic, the person would already have been provided reasonable notice and assented to the terms by continuing past the initial screen. Finally the plaintiff argued that the agreement constituted a “browsewrap” and was thus unenforceable. The court stated that the agreement’s characterization is not dispositive; what mattered was whether the app and website provided users with reasonable notice that use constituted consent to the terms. The court found that the defendant provided the plaintiff with such notice in both the app and the browser.
• In Clark v. American Multi-Cinema, 2020 WL 2764622 (D. S.C. May 27, 2020), the court held that the defendant’s production of a spreadsheet with the plaintiff’s purported electronic signature combined with an affidavit confirming that the record is a typical business record for the defendant was sufficient to establish that the plaintiff signed the arbitration agreement under either Kansas’s or South Carolina’s Uniform Electronic Signature Act.
• In Godhart v. Tesla, 2020 WL 2992414 (D. Nev., June 4, 2020), the court upheld an arbitration agreement even though the plaintiff argued that it was unconscionable because the plaintiff “was guided through 35 pages of material that could only be reviewed after signing in less than one minute.” After reviewing the defendant’s evidence, which consisted of an email containing the agreement and instructing the plaintiff that the process would not be complete until the plaintiff reviewed, signed, and returned the documents by a later date, the court stated that the plaintiff was not deprived of any opportunity to read the contract.

Court upholds validity of electronic signature automatically applied after officer clicked checkbox: In Brungardt v. Kansas Department of Revenue, 2020 WL 3112756 (Kan. Ct. App. June 12, 2020), the court overturned a lower court and held that the officer signed the required form when the officer checked a box on such form, which then applied a previously created electronic signature. Specifically, the officer used a machine – the Intoxilyzer 9000 – which digitizes the breath test process. As part of that process, the machine initially captured the officer’s electronic signature; then, when a form required a signature, the officer would click a checkbox next to the signature line and the machine applied that previously created signature to the form at that location. The court stated that Kansas law acknowledges that in the absence of a mandated signature format, the person’s intent when affixing his or her signature, not its form, controls for the signature’s effectiveness. The court found that, even though the officer did not physically write his name on the form, he effectively adopted and attested to the form when the machine applied his electronic signature after the officer clicked the checkbox. The court stated that the fact that the officer’s physical act of recording the image of his electronic signature occurred before he filled out the form did not invalidate his certification.

Court declines to enforce arbitration agreement because of ambiguity in what checkbox signified: In Dixon v. Michael Kors Retail, Inc., 2020 WL 3404152 (D. Mass. June 19, 2020), the court held that even though existence of the arbitration agreement was conspicuous, the checkbox the plaintiff checked did not unambiguously establish that the plaintiff agreed to the arbitration provision. Specifically, a “Signature Statement” appeared between the link to the arbitration agreement and the “I agree” checkbox, reading “Please acknowledge the receipt of this document and your understanding of the policies contained therein.” The arbitration agreement itself was not self-executing but only became binding when signed by an employee and employer. The court noted that within the full context of the online process, a reasonable person could have confused whether the “I agree” box signified that the person had received and read the arbitration agreement or that they also agreed to be bound by it. Because of this ambiguity, the court held that no agreement to arbitrate exists.

ADA

Court finds website has sufficient “nexus” to physical location to support ADA claim: In Martinez v. San Diego County Credit Union, 2020 WL 3396649 (Cal. Ct. App. June 19, 2020), the court reversed the trial’s court’s dismissal of the plaintiff’s Americans with Disabilities Act (ADA) claims because the court concluded that the defendant’s website had a sufficient nexus to its physical locations. The plaintiff filed a lawsuit under California’s Unruh Act, which provides for a private right of actions for violations of the ADA. The plaintiff alleged that the defendant’s website was formatted such that he was precluded from using screen reading software to read the website’s content and that if the website were accessible, he would be able to independently investigate products and find the appropriate locations to visit. The court found these allegations sufficient to conclude that there existed a nexus between the defendant’s website and its physical locations, thus supporting an Unruh Act claim for an ADA violation. The court remanded the case back to the trial court.

RECENT EVENTS

Margo Tank and Liz Caires took part in a Mortage Bankers Association webinar, “Remote Online Notarization State-of-Play,” on June 2, 2020.

Margo Tank participated in a webinar with Simplifile for Women in Housing & Finance, “Can I Close My Loan Over Zoom?” on May 27, 2020.

Margo Tank participated in a webinar with MERS and the Federal Home Loan Bank of Boston, “eNotes and the Role of the MERS® eRegistry: Guidance from Attorneys for Attorneys,” on March 25.

RECENT PUBLICATIONS

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.

CONTACTS

Learn more about our eSignatures and ePayments practice by contacting:

Margo H.K. Tank

David Whitaker