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Illinois Authorizes the Electronic Delivery of Documents in Connection With Premium Finance Agreements
On September 8, Illinois Governor Bruce Rauner signed into law amendments to the state’s insurance code to authorize the electronic storage, presentment, and delivery of notices and other documents required in connection with premium finance agreements. Public Act 100-0495 provides that a premium finance company can electronically deliver notices and other documents if the receiving party has provided its consent and the premium finance company has made certain required disclosures. The amendments take effect January 1, 2018.
On July 13 the United Nations Commission on International Trade Law (UNCITRAL) adopted the Model Law on Electronic Transferable Records (MLETR). If broadly enacted by nations, the MLETR would provide uniform legal framework for the use of electronic records in connection with transferable records—including bills of lading, bills of exchange, promissory notes and warehouse receipts. By establishing uniform standards under which electronic records of such documents may be the equivalent to paper, the MLETR has the potential to streamline international commerce and provide a higher level of security over paper documents. The model law, among other things, addresses standards for establishing control of an electronic record as the equivalent of possession of a paper instrument, as well as guidance for establishing the reliability of systems and methods used for the generation and transfer of such records. Like the UETA and ESIGN in the United States, the MLETR is meant to be technology-neutral and is designed to work within the framework of existing laws governing transferable records. The full text of the final MLETR and an accompanying Explanatory Note (akin to official comments) will be available here.
Florida Fourth District Court of Appeals Rules in Bank's Favor in Foreclosure Action Based on an eNote
On April 20, a Florida District Court of Appeals issued an opinion affirming a lower court’s final judgment in favor of a bank (Bank) in a foreclosure action against borrowers who signed a mortgage note electronically (eNote). Rivera v. Wells Fargo Bank, N.A., No. 4D14-2273 (Fla. App. April 20, 2016). In the proceedings below, the Bank had presented a sworn certificate of authentication which articulated, among other things, the Bank’s role as servicer of the eNote for Fannie Mae, and describing the Bank’s practices and systems used for the receipt and storage of authoritative copies of electronic records and for protecting electronic records against alteration. The Bank also provided evidence from the same system records and the records of MERSCORP, Inc., as provided for in the terms of the eNote itself, showing that the eNote was last transferred to Fannie Mae and that the authoritative copy of the eNote was maintained in the Bank’s systems as Fannie Mae’s custodian. On appeal, the borrowers challenged the adequacy of the Bank’s demonstration that the eNote had properly transferred to Fannie Mae, thus challenging the Bank’s standing to enforce the eNote and foreclose the mortgage as Fannie Mae’s authorized representative. Applying the Florida enactment of the Uniform Electronic Transaction Act (UETA) and relying on the evidence provided in the certificate of authentication, the court held that the Bank presented competent evidence proving that Fannie Mae owned the eNote and had authorized the Bank to pursue the foreclosure. The court noted that under the UETA, the person with control of a “transferable record” has the same rights as a holder and went on to hold that the eNote is a "transferable record" within the meaning of the UETA because it is an electronic record that would be a note if it were in writing, and its issuer expressly agreed on its face that it was a transferable record. The court observed that the Bank established that its records system stored the eNote in “such a manner that a single authoritative copy of the e-note exists which is unique, identifiable, and unalterable” and that the “authoritative copy, introduced into evidence by the [B]ank as Fannie Mae's designated custodian, identified Fannie Mae as the entity to which the transferable record was most recently transferred.” The court concluded that because the Bank proved that Fannie Mae had control of the eNote, and that the Bank was Fannie Mae's designated custodian, the Bank had standing to foreclose and affirmed the judgment of the lower court.
On April 13, Governor Terry Branstad signed into law SF 2228, the Motor Vehicle Records and Dealer Licensing Act. The act amends Chapter 321 of Iowa Code 2016 to, among other things, require that the full price of the “documentary fee” included in the purchase of a motor vehicle be “clearly and conspicuously disclosed in any motor vehicle purchase agreement with the customer.” Defined as “a fee that may be charged to a customer by a motor vehicle dealer for the preparation of documents related to an application for motor vehicle registration and an application for issuance of a certificate of title, and the performance of other related services for the customer,” a documentary fee excludes costs or fees charged to a motor vehicle dealer or a dealer’s customer by a third party. For each vehicle sold in a transaction, a documentary fee is limited to $180, unless a form of electronic applications, titling, registering, and transfers is involved, at which point the documentary fee cannot exceed $155. Pursuant to SF 2228, the Department of Transportation must establish and implement a program to allow for electronic applications, titling, registering, and funds transfers for vehicles subject to registration by January 1, 2018.
On April 19, the Federal Reserve issued a letter announcing a new off-site loan file review program available to banking institutions with less than $50 billion in total assets. According to the letter, recent technological advancements, i.e. secure data transmission and electronic file imaging, allow the Federal Reserve to collect and review loan file information off-site “without compromising the effectiveness of the examination process.” To determine if the off-site loan review program is appropriate for an institution, the Federal Reserve will consider the following: (i) if the institution uses a secure transmission method to submit the loan file data; (ii) if the institution can provide loan data and imaged documents that are legible, easily viewable, and properly organized; and (iii) if the loan files are sufficiently comprehensive, allowing examiners to reach a conclusion regarding the appropriate rating of a credit without requesting additional information. Regarding adjustments to the examination process of an off-site loan review, the letter cautions that examiners will need to allocate sufficient time before an examination begins to ensure loan file data was successfully transmitted to the Reserve Bank, and communicate with institutional management throughout the examination process. Finally, the letter discusses the scope of the off-site examination process verses that of an on-site examination process, noting that (i) certain portions of examination work will remain off-site regardless of whether the institution is participating in the new off-site program; and (ii) at examiners’ discretion, Reserve Banks “may hold either off-site or on-site discussions with the institution’s management regarding preliminary loan review findings such as the appropriateness of individual credit ratings assigned by [a state member bank or foreign banking organization] and the completeness of credit file documentation.”
Connecticut Supreme Court Affirms Judgment of Trial Court; Rules in Favor of Legislature's Right to Triple Mortgage Recording Fees for MERS
Recently, the Connecticut Supreme Court affirmed a trial courts judgment upholding the Connecticut legislatures right to impose increased mortgage recording fees on the Mortgage Electronic Registration Systems (MERS). Merscorp Holdings, Inc. v. Malloy No. 19376 (Conn. Dec. 2015). In June 2013, the states legislature amended the statute governing the states public land records system by creating a two tiered fee structure for a mortgage nominee operating a national electronic database to track residential mortgage loans. The states amendment ultimately demanded a $159 fee for the first page of a document MERS files and a $5 fee for each additional page filed; in contrast, the recording fee for transactions not involving MERS is $53 for the first page and $5 for each additional page. In 2013, MERS sued Connecticut on the grounds that the amendment violated the due process and equal protection provisions of the state and federal constitutions. As a registry conducting business nationwide, MERS further contended that the state violated the dormant commerce clause of the federal constitution by discriminating against interstate commerce. The trial court ruled in favor of the state, and MERS appealed the case. The Connecticut Supreme Court conducted a rational basis review test and determined that the states distinctions in fees are rationally related to legitimate public interests and, therefore, do not offend the equal protection provisions of the state or federal constitution. The court further concluded that the state did not violate the dormant commerce clause of the federal constitution: [W]e cannot say that imposing higher front-end and back-end fees on MERS transactions in order to compensate for the reduced number of recorded mortgage assignments imposes an undue burden on MERS or, by extension, interstate commerce. For reasons similar to its dismissal of MERS appeal under equal protection and commerce provisions, the Court also rejected the challenge that the state violated their substantive due process rights.
Special Alert: CFPB Issues Guidance Regarding Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E
On November 23, 2015, the Consumer Financial Protection Bureau (“CFPB”) released Compliance Bulletin 2015-06 (“Bulletin”), which provides industry guidance on the Electronic Fund Transfer Act (“EFTA”) and Regulation E requirements for obtaining consumer authorizations for preauthorized electronic fund transfers (“EFTs”). The CFPB issued this Bulletin, in part, because it observed during its examinations that some companies are not fully complying with the EFTA and Regulation E. Principally, this Bulletin addresses two areas of concern: (i) obtaining the customer’s authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the customer.
Regarding the first issue, the Bulletin reasserts and expands upon previous guidance provided by the Board of Governors of the Federal Reserve System. The CFPB acknowledges that companies may receive a consumer’s authorization over the telephone, provided that the requirements contained in the Electronic Signatures in Global and National Commerce Act (“ESIGN Act”) for electronic records and signatures are met. Specifically, the Bulletin states that Regulation E may be satisfied if the consumer signs or similarly authenticates the authorization orally, including by entering a code into his or her telephone keypad or by the company recording and retaining the consumer’s oral authorization, so long as in both circumstances the consumer’s intent to sign the electronic record is captured. Importantly, the CFPB confirms that the ESIGN Act’s limited restriction on the use of oral recordings as electronic records—which are not allowed where the law requires that information be provided to a consumer in writing—does not apply to the preauthorization requirements of the EFTA and Regulation E, as set forth in 12 CFR § 1005.10(b), because neither requires that companies provide a writing to consumers when obtaining such authorizations. The CFPB also reminds companies that the recording of consumer conversations must comply with applicable state law.
Next, the Bulletin summarizes the EFTA and Regulation E requirement that persons that obtain an authorization for a preauthorized EFT must provide the consumer with a copy of the terms of the authorization, in either written or electronic form. The copy should contain the “important terms” of the authorization. Per the Bulletin, “important terms” include the recurring nature of the preauthorized EFTs, and the amount and timing of the payments that the customer agreed to make. The CFPB also confirms that as an alternative to providing a copy of the authorization, the company may provide a confirmation form containing the same important terms. Finally, the CFPB notes that it “encourages” companies that obtain a consumer’s authorization to provide a copy of such authorization before the company initiates the first preauthorized transfer.
Questions regarding the matters discussed in this Alert may be directed to any BuckleySandler attorney with whom you have consulted in the past.
On November 6, a legally blind individual filed a complaint against the NBA, alleging a violation of the Americans with Disabilities Act and seeking a permanent injunction requiring the NBA to (i) implement corporate policies that ensure website accessibility for the blind; and (ii) format its website so that it is compatible with screen reading or text-to-audio software, upon which the visually impaired rely to use the internet. Jahoda v. National Basketball Association No. 2:15-cv-01462 (W.D. Pa. Nov. 6, 2015). The complaint asserts that merely formatting the website so that it is compatible with a screen reader will not solve the larger issue: “Web-based technologies have features and content that are modified on a daily, and in some instances an hourly, basis, and a one time ‘fix’ to an inaccessible website will not cause the website to remain accessible without a corresponding change in corporate policies related to those web-based technologies.” According to the complaint, the defendant’s website denies blind individuals equal access to the site because (i) information provided by scripting language is not identified with functional text that can be read by assistive technology; and (ii) people using assistive technology do not have access to the information, field elements, and functionality required to complete and submit an electronic form.
On October 13, the NYDFS announced that it reached its fifth agreement with a bank regarding record keeping requirements and other protections to ensure that the bank is responsibly using Symphony Communication Services, LLC’s chat and messaging platform (Symphony). In September, the NYDFS reached similar agreements with four banks after expressing concern that some Symphony features, most notably its promised service of “Guaranteed Data Deletion,” had the capability to hinder regulators’ and prosecutors’ investigations of misconduct at banks. Per the agreements reached with the NYDFS, the banks must (i) require Symphony to maintain copies of all communications sent through the chat and messaging platform for at least seven years; (ii) provide an independent custodian with a copy of decryption keys for encrypted messages sent through Symphony; and (iii) inform the NYDFS of the location of the decryption keys. Acting Superintendent Anthony Albanese outlined these requirements in the October 13 guidance issued to all NYDFS-regulated institutions, stressing that “any [NY]DFS-regulated institution that is considering using the Symphony platform should ensure that the entity’s anticipated use conforms to the standards included in the Agreements.”
On September 14, the New York State Department of Financial Services (NYDFS) announced that it had reached agreements with four financial institutions on record-keeping requirements and other protections intended to help ensure the institutions’ responsible use of the new Symphony Communications LLC (Symphony) chat and messaging platform. NYDFS had recently expressed concerns that certain Symphony features, such as its promise of “Guaranteed Data Deletion,” could hinder regulatory investigations on Wall Street. Under the agreements, Symphony will retain for seven years a copy of all electronic communications sent through its platforms to or from the four banks, and the banks will store duplicate copies of the decryption keys for their messages with independent custodians.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable