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Federal Reserve Banks Publish Report on Regulatory Landscape for Mobile Payments
Recently, the Federal Reserve Banks of Atlanta and Boston published a report on an April 2012 meeting of the Mobile Payments Industry Workgroup and representatives from federal and state banking regulators, the FTC, and the FCC to review the regulatory landscape for mobile payments. The paper notes that (i) remote payments and money transfers are beginning to emerge to facilitate person-to-person payments and cannot be ignored from a regulatory perspective, (ii) growth in nonbank money transfer services is subjecting more nontraditional technology-based companies to state money transmitter licenses and related regulatory oversight, and (iii) the CSBS and the Money Transmitter Regulators Association are creating a nationwide cooperative supervisory system for the coordinated multistate examination of money transmitters. The report also reflects the meeting participants’ consensus that the existing regulatory framework is sufficient for today’s mobile payment services. Still, the report states that the CFPB plans to review mobile payment disclosure practices to ensure that consumers have sufficient information in the event of account discrepancies, assess how disclosures are provided to consumers, and evaluate how the parties in mobile payment transactions handle error resolution and liabilities.
FTC Submits Staff Comments on CFPB's Proposed Prepaid Card Regulation
On July 30, the FTC released staff comments submitted in response to the CFPB’s Advance Notice of Proposed Rulemaking regarding the regulation of prepaid cards. The CFPB issued the Notice in May, noting its intention to extend Regulation E to cover general purpose reloadable gift cards and seeking comment, data, and information about such cards. In response, the FTC staff comments review the current regulation of payment cards, and identify for the CFPB’s consideration several consumer protection issues that may arise with regard to prepaid cards, including (i) liability limits, (ii) disclosure and fees expiration dates, (iii) error resolution procedures, (iv) authorization standards for recurrent payments, and (v) consumer access to account information.
Federal Court Ruling on Placement of ATM Fee Notice Favors Consumers
On July 25, the U.S. District Court for the District of Minnesota granted summary judgment to a consumer alleging that the placement of an ATM fee notice on the inside of a “hooded ATM” was not “prominent and conspicuous” as required under the Electronic Fund Transfer Act (EFTA). Brown v. Wells Fargo & Co., No. 11-1362 2012 WL 3030294 (D. Minn. Jul. 25, 2012). The consumer, on behalf of a putative class, alleged that the ATM fee disclosure was placed on the inside of the hood protecting the screen, and not in a more conspicuous position. The consumer did not contest that the disclosure was provided electronically on the screen, as also required by the EFTA, and that he was aware before completing the transaction that he would be charged a fee. Because the EFTA does not define “prominent and conspicuous,” the court looked to other consumer protection statutes to determine that the disclosure must be displayed such that a reasonable person ought to have noticed. In this case, the court held that a reasonable person would not conclude that the notice was prominent and conspicuous because (i) the disclaimer was not in capital letters, (ii) the type and background of the notice were in a coordinating, not contrasting color, (iii) the notice was placed inside the hood as opposed to on top of the machine, and (iv) the notice generally did not stand out relative to other information on or near the ATM. While the court granted the consumer’s motion for summary judgment on the EFTA claims, the court disposed of his claim for unjust enrichment, and refused to certify the class, holding that the consumer failed to meet the requirements of either Rule 23(a) or (b). As we have reported in recent weeks, the U.S. Congress is considering legislation that would eliminate the physical fee disclosure requirement, and instead require that ATM operators only provide an on-screen notice.
Federal Reserve Board Finalizes Rule Allowing Debit Fraud-Prevention Adjustments
On July 27, the Federal Reserve Board issued a final rule that amends Regulation II. The rule allows a debit issuer that is subject to the interchange fee standards to charge—in addition to interchange fees—a fraud-prevention fee to defray costs associated with implementing policies and procedures that reduce fraudulent electronic debit transactions. The fee cannot exceed one cent per transaction, unchanged from the Federal Reserve’s interim final rule on this issue. The final rule details fraud-prevention program requirements that an issuer must meet in order to charge the fee. An issuer charging such a fee must annually review and update its fraud-prevention program and notify its payment card networks that it complies with the rule’s fraud prevention standards. The rule takes effect October 1, 2012.
Arizona Attorney General Settles Action Against Internet Payday Loan Lead Generator
On July 30, Arizona Attorney General Tom Horne announced an agreement with an Internet lead generator that requires the firm to halt operations through which it solicited information on behalf of payday lenders. Under state law, lenders have been prohibited from offering payday loans to Arizona consumers since July 2010. The Attorney General alleged that the settling company operated a website that collected Arizona consumers’ personal information and then sold that information to payday lenders who subsequently offered illegal payday loans to those consumers. While the agreement requires that the lead generator cease collecting and transmitting consumer information in connection with any type of consumer loan, it does not include any monetary payment beyond attorney fees.
FTC Considers Additional Revisions to Children's Online Privacy Protection Rule
On August 1, the FTC announced that it is seeking public comment on additional proposed changes to the Children’s Online Privacy Protection Rule (COPPA Rule). In September 2011, the FTC sought comments on certain proposed changes to its COPPA Rule. In response to the hundreds of comments received, as well as subsequent efforts to enforce the rule, the FTC now is proposing to modify certain definitions to enhance protections related to the online collection, use, or disclosure of children’s personal information. The revised definitions include: (i) “operator”, (ii) “website or online service directed to children”, and (iii) “personal information.” For example, with regard to “personal information”, the definition would be altered to include a persistent identifier where it can be used to recognize a user over time or across different websites. The FTC is accepting comments on the proposal through September 10, 2012.
Michigan Appellate Court Affirms Validity of Electronic Signature Under UETA
Recently, the Michigan Court of Appeals affirmed summary judgment in favor of a defendant insurance company seeking to dispose of a challenge to an electronic signature executed by a policyholder. Zulkiewski v. Am. Gen. Life Ins. Co., No. 299025, 2012 WL 2126068 (Mich. Ct. App. Jun. 12, 2012). In this case, shortly before a life insurance policy holder died, the beneficiary information on his policy was changed through the insurance company’s online account management service. The former beneficiaries challenged the new beneficiary designation, arguing that although the Uniform Electronic Transactions Act (UETA) permits an electronic signature, to validate the authenticity of such a signature the insurance company must prove the efficacy of its security procedures. On appeal, the court held that the trial court did not err when it relied on evidence provided by the insurance company showing the extent of the personal information required to change the beneficiary, combined with an affidavit that the new beneficiary did not change the beneficiary designation. The court further explained that the appellants misread the relevant portions of the UETA when they argued that the lower court improperly accepted the insurance company’s assertions that its security procedures were “adequate to prevent deception by an imposter.” The court explained that the insurance company need not prove the efficacy of its online security procedures to authenticate a customer’s signature since under the UETA doing so is merely one method by which to show attribution.
House Members Seek Information from Data Brokers
On July 24, a bipartisan group of members of the House of Representatives, led by Representatives Barton (R-TX) and Markey (D-MA), sent letters to nine firms the members identified as “major data brokerage companies.” The letters ask each firm to provide information about how it collects, assembles, and sells consumer information. Among the series of specific inquiries, the letters seek information about collection processes and sources, data security measures, and consumer fees and notices. The House members asked each company to respond by August 15, 2012.
Oregon Supreme Court Agrees to Address Electronic Mortgage Registry's Role as Beneficiary; Two California Appellate Courts Affirm Electronic Registry's Beneficiary Role
On July 19, the Oregon Supreme Court accepted certified questions arising from four cases pending in the U.S. District Court for the District of Oregon related to the role of an electronic mortgage registry as beneficiary. Brandrup v. ReconTrust Company, N. A. (S060281) (question certified from D. Or. Case No. 3:11-cv-1390-JE). The judge in those matters asked Oregon’s highest court to determine whether under state law (i) such a registry, that is neither a lender nor successor to a lender, may be a "beneficiary," (ii) an electronic registry may be designated as beneficiary where the trust deed provides the registry holds only the legal title to the interests granted by the borrower, but, if necessary to comply with law or custom, the registry has the right to exercise any or all of those interests, (iii) the transfer of a promissory note from the lender to a successor results in an automatic assignment of the securing trust deed that must be recorded prior to the commencement of nonjudicial foreclosure, and (iv) an electronic registry can retain and transfer legal title to a trust deed as nominee for the lender, after the note secured by the trust deed is transferred from the lender to a successor or series or successors. The court’s decision on these questions may also have implications for a recent decision in which the a state appellate court held that, under Oregon law, the term beneficiary can only mean the person named or otherwise designated in the trust deed as the person to whom the secured obligation is owed. Niday v. GMAC Mortgage LLC, No. CV 10020001, 2012 WL 2915520 (Or. App.Ct. Jul. 18, 2012). As such, the court held, a beneficiary that uses an electronic registry, and does not publicly record assignments of a trust deed, cannot avail itself of the state’s nonjudicial foreclosure process. That holding is contrary to substantialOregon case law.
Recently, in matters pending in California regarding similar issues, two appellate courts rejected challenges to an electronic registry’s role as beneficiary brought by borrowers as a defense in their foreclosure actions. Taasan v. Family Lending Services, Inc. No. A132339, 2012 WL 2774967 (Cal. Ct. App. 1st. Dist. Jul. 10 2012); Skov v. U.S. Bank N.A., No. H036483, 2012 WL 2054996 (Cal. Ct. app. 6th Dist. Jun. 8, 2012). For example, in Taasan, the court held that the foreclosing entity need not have physical possession of the note in order to initiate a nonjudicial foreclosure.
Major Settlement Reached in Consolidated Interchange Fee Litigation
On July 13, the parties to the long-running consolidated class action litigation against the two major payment network providers and 17 banks filed a proposed settlement to resolve allegations that the defendants unlawfully conspired to fix the fees that merchants are charged each time a customer uses a card for a purchase, so-called “swipe” or “interchange” fees. Class Settlement Agreement, In re Payment Card Interchange Fee & Merchant Discount Antitrust Litigation, No. 05-MD-1720 (E.D.N.Y. Jul. 13, 2012). In total, the settlement is valued at $7.25 billion. Of that total amount, roughly $6 billion would be paid to a class of millions of merchants and certain individual merchants. Another $1.2 billion of the total amount would be used to provide merchants with a temporary reduction in interchange fees. Further, the agreement allows merchants, for the first time, to apply a surcharge to customer transactions processed over the payment networks.