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NYDFS Approves Virtual Currency Firm's Application: First Company to Receive BitLicense
On September 22, NYDFS Acting Superintendent Anthony Albanese announced that the New York Department of Financial Services (NYDFS) granted its first BitLicense from its current applicant pool. In June 2015, the NYDFS finalized the BitLicense framework, requiring existing virtual currency companies to apply by August 10. Via blog post, the first licensee acknowledged receiving the license. To date, the NYDFS has received 25 BitLicense applications and, according to Albanese, “will continue to move forward on evaluating and approving additional BitLicenses.”
CFPB Finalizes Rule Allowing Small Creditors to Increase Lending in Rural and Underserved Areas
On September 21, the CFPB issued a final rule, amending certain mortgage rules and comments relating to lending activities by small creditors in rural and underserved areas. Initially proposed in January 2015, the final rule, among other things (i) increases the loan origination limit for determining eligibility for small-creditor status from 500 loans to 2,000 non-portfolio loans; (ii) includes the assets of the creditor’s affiliates, which regularly make covered transactions, in calculation of the creditor’s assets to determine whether the creditor is within the $2 billion threshold for small-creditor status; (iii) restores the one-year look back period in place of the three-year look back period for the time period that determines whether a creditor is operating predominantly in rural or underserved areas; (iv) revises escrow exemptions to prevent creditors from losing eligibility for the escrow exemptions as a result of escrow accounts before the effective date of the rule; (v) broadens the definition of “rural” to include (a) counties that meet the current definition of rural county, and (b) census blocks that are not in an urban area (as defined by the Census Bureau); (vi) adds safe harbor provisions to facilitate the determination of “rural” by permitting automated address search tools provided by the CFPB and the Census Bureau; and (vii) extends the temporary two-year transition period, which permits certain small creditors to make balloon-payment qualified mortgages and balloon-payment high-cost mortgages (whether or not they operate predominantly in rural or underserved areas), to include applications received by April 1, 2016.
The final rule will take effect on January 1, 2016.
CFTC Issues Cease and Desist Order to Unregistered Bitcoin Options Trading Platform, States Bitcoin and Other Virtual Currencies are Commodities
On September 17, the Commodity Futures Trading Commission (CFTC) issued an Order against an unregistered San Francisco-based bitcoin options trading platform and its CEO for alleged violations of the Commodity Exchange Act (CEA) and CFTC Regulations. According to the Order, from March 2014 to at least August 2014, the company and its CEO operated an online website that allowed for the trading or processing of swaps between buyers and sellers of bitcoin options contracts. For the first time, bitcoin and other virtual currencies “are encompassed in the definition and properly defined as commodities,” making them subject to the same regulations as options or swaps. According to the CFTC, the company operated without being properly registered as a swap execution facility or designated contract market, violating the CEA and CFTC regulations. The CFTC’s Director of Enforcement Aitan Goelman noted, “While there is a lot of excitement surrounding Bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets.” The Order did not impose any monetary sanctions on the company, but required the company to cease and desist any action violating the CEA and CFTC regulations and to cooperate in future investigations conducted by the CFTC or other governmental agencies.
OFAC Updates Cuban Assets Control Regulations Easing Sanctions on Cuba
On September 18, OFAC issued a final rule amending the Cuban Assets Control Regulations (CACR) to reflect policy changes previously announced by the Obama administration. With respect to financial transactions, the amendments, among other things, (i) permit certain additional persons subject to U.S. jurisdiction to open and maintain bank accounts in Cuba to use for authorized purposes; (ii) removes limitations on donative remittances to Cuban nationals, on certain authorized remittances that authorized travelers may carry to Cuba, and on the amount of remittances that a Cuban national permanently resident in Cuba who is departing from the U.S. may carry to Cuba; (iii) adds a new general license authorizing remittances from Cuba and Cuban nationals to the United States; (iv) adds a new general license authorizing the unblocking and return of certain previously blocked remittances and funds transfers in certain circumstances; and (v) authorizes U.S. depository institutions to maintain accounts for Cuban nationals while the Cuban-national account holder is located outside the United States, provided that the account holder may only access the account while lawfully present in the United States, and removes a cap on payments from blocked accounts held by Cuban nationals in the United States in a nonimmigrant status to use for living expenses. The amendments also relax restrictions previously set forth in the telecommunications and internet sector, on travel between the U.S. and Cuba, and other various activities. Revisions to the CACR take effect on September 21, 2015.
At the same time, OFAC published a set of new and revised FAQs addressing the changes set forth in the updated CACR.
U.S. Attorney General Discusses DOJ's Global Cybercrime Initiatives at Europol
On September 16, U.S. Attorney General Loretta Lynch addressed the European Cybercrime Center at Europol, where she highlighted recent and planned DOJ initiatives related to global cybercrime and cyber threat efforts and stressed the DOJ’s commitment to information-sharing with international law enforcement authorities. Lynch noted that the U.S. and the European Union recently signed an “Umbrella” Data Privacy and Protection Agreement aimed at strengthening the countries’ ability to take on crime and terrorism while protecting personal privacy. In addition, Lynch revealed that the DOJ intends to temporarily assign a U.S. attorney from the DOJ’s Criminal Division to work alongside European authorities to enhance collaboration and information-sharing.
Imaging Company Offers $1.6 Million to Settle FCPA Investigation
Analogic Corp., a manufacturer of airport security equipment, offered the SEC $1.6 million to settle the agency’s FCPA investigation of the company, according to a company press release. The company previously reported that the DOJ and SEC had “substantially” completed their investigations of potential bribery involving transactions by the company’s Danish subsidiary, BK Medical ApS. The transactions at issue involved distributors paying BK Medical more than was owed, and then BK Medical transferring the excess money to third parties identified by the distributors. At the time of its 2011 disclosure of the potentially problematic transactions, the company stated that it had not ascertained the ultimate beneficiaries or purpose of the transfers. According to the company it had not yet engaged in similar settlement discussions with the DOJ or Danish government.
Federal District Court Articulates Criteria for Effective Presentation of Electronic Contracts
In Berkson v. Gogo LLC, 2015 WL 1600755 (E.D. NY 2015), the Eastern District of New York denied a motion to dismiss and compel arbitration filed by an in-flight wifi provider. The provider was accused in a class action suit of duping customers into signing up for a monthly service without their knowledge. The plaintiffs alleged that the graphics and text of the website misled them to believe that they were purchasing only a single month of use, while concealing that the agreement was actually a subscription agreement for monthly services and a recurring monthly charge. At issue in the motion to dismiss was the enforceability of two separate agreements used to enroll customers, and in particular terms in those agreements related to mandatory arbitration and exclusive venue, which the defendant sought to invoke. The first contract presented a “Clickwrap” agreement—whereby the consumer checked a box presented next to the phrase “I accept the terms of use.” The second contract presented a “Signwrap” agreement—whereby the consumer clicked a sign-in button presented below a statement indicating that by signing in, the consumer agreed to the “terms of use.” In both instances, the phrase “terms of use” was a hyperlink presented in plaintext that would take the consumer to the contract terms, if clicked. Also in both cases, the actual button used to enroll customers was considerably larger than the hyperlink and presented in color. The plaintiffs argued that the agreements should not be enforced because the website pages on which they appeared were designed so that the terms were deliberately hidden and were never seen or agreed to by them.
As part of its analysis, the court reviewed a number of prior judicial decisions involving electronic consumer contracts, which closely scrutinized the manner in which agreement terms are disclosed to consumers on electronic platforms. The court also reviewed a number of empirical studies analyzing viewing and reading behavior (including eye tracking patterns) where consumers were presented with materials on a computer screen. The court concluded that in general an electronically presented agreement will be enforceable if (i) the website presenting the agreement puts a reasonably prudent user on inquiry notice of the terms of the contract; (ii) the user is encouraged by the design and content of the website and webpage to examine any agreement terms that are made available via a hyperlink; and (iii) the link to the agreement is placed where the user is likely to see it.
The court also observed that in this case the agreements qualified as “contracts of adhesion”, and so should also not be enforced unless it could be demonstrated that the user was, by virtue of the design of the agreement pages on the website, given adequate warning of adverse terms in the agreements, such as mandatory arbitration or exclusive venue.
Based on its analysis and review of the web pages presenting the agreements at issue, the court denied the defendant’s motion, concluding that the Signwrap agreement was unenforceable because the design and content of the web page did not make the agreement readily and obviously available, and its importance was obscured by the process (which involved clicking a button labeled “sign in,” rather than one labeled “accept” or “I agree”), and the defendant had not demonstrated that the Clickwrap agreement actually required the consumer to check the “I agree” box before enrolling the consumer in monthly services. The court also noted that the plaintiffs were not given an opportunity to retain a copy of the agreement, nor was one automatically provided to them.
Buckley Hosts Webinar on TRID for Investors
On September 15, Buckley hosted a webinar, "TRID for Investors" presented by Buckley. The webinar addressed what purchasers of mortgage loans need to know about the TILA-RESPA Integrated Disclosure rule (TRID rule) that goes live on October 3, 2015. Specifically, evolving assignee liability, identifying risks, correcting errors, and identifying apparent errors. They also discussed ambiguous liabilities and common misconceptions, and focused on information that will help investors develop instructions and procedures that reduce litigation risk without unnecessarily limiting the pool of loans meeting those standards. For additional information and resources on the TRID rule, please visit our TRID Resource Center.
CFPB Sues World Law Group Over Illegal Fees and False Promises in Debt-Relief Scheme
On September 15, the CFPB announced a preliminary injunction obtained against World Law Group and its senior leaders for allegedly running a debt-relief scheme that charged consumers costly and illegal upfront fees. According to the CFPB, “the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers’ debts.” Specifically, the complaint alleges that defendants charged consumers upfront fees before providing debt-relief services in violation of the Telemarketing Sales Rule. The complaint also alleges that World Law Group falsely promised legal representation to consumers who did not receive the promised legal representation. The underlying lawsuit remains pending following the granting of the preliminary injunction.
FIFA Investigation Expands In Scope; Former FIFA VP Extradited to United States
On September 14, U.S. Attorney General Loretta Lynch announced that the DOJ is expanding its FIFA investigation to pursue additional charges against individuals and companies. AG Lynch made these comments at a press conference in Zurich with Switzerland’s Attorney General, Michael Lauber. The DOJ has been working closely with Swiss officials in its investigation, and has charged 14 FIFA officials with racketeering, wire fraud, and money laundering.
Additionally, on September 17, the Swiss Federal Office of Justice approved the extradition of Eugenio Figueredo, a former vice president of the South American Football Confederation and former vice president of FIFA, to the United States. Figueredo was one of seven defendants fighting extradition from Switzerland. In July, Jeffrey Webb, a former vice president of FIFA, agreed to be extradited to the United States, but the remaining five defendants are awaiting decisions on extradition.
Previous BuckleySandler coverage of this investigation can be found here.