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On July 2, three Republican senators introduced a bill that would make electronic transactions easier by simplifying how consumers signal their acceptance of them. Sens. John Thune, Jerry Moran, and Todd Young introduced S.4159, the “E-SIGN Modernization Act,” which would allow companies to use electronic documents instead of paper ones if they secure the consumer’s consent to the substitution. Under the original E-SIGN Act passed 20 years ago, consumers also had to demonstrate to the company that they could access the records in the electronic form.
“Computers, smart phones, and other devices are more reliable and accessible than ever before,” Thune said in a press release accompanying the bill. “This legislation makes necessary updates to E-Sign to reflect these advancements in technology and make it easier for consumers to receive documents electronically.”
The bill also would no longer require transaction parties to obtain new consents when hardware or software changes. Instead, the company would simply disclose the updated requirements and notify the consumer of their right to withdraw consent without penalty.
On June 3, the CFPB released a statement on temporary and targeted flexibility for credit card issuers regarding electronic provision of certain disclosures during the Covid-19 pandemic. The statement highlights that certain credit card issuers are receiving far more calls from consumers seeking relief as a result of the pandemic, but are unable to provide such relief without first providing certain written disclosures required by Regulation Z. Because such disclosures can only be provided electronically after consent sufficient under the Electronic Signatures in Global and National Commerce Act (E-Sign Act) is obtained, credit card issuers may be unable to move quickly to assist consumers. To address this issue, the statement provides that the CFPB “will take a flexible supervisory and enforcement approach during this pandemic regarding card issuers’ electronic provision of disclosures required to be in writing for account-opening disclosures and temporary rate or fee reduction disclosures mandated under provisions governing non-home secured, open-end credit.”
Specifically, the Bureau states that it does not intend to cite a violation in an examination or bring an enforcement action against an issuer that, during a phone call, does not obtain the formal E-Sign consent required by Regulation Z to receive electronic written disclosures, as long as the issuer obtains both (i) oral consent to electronic delivery of the written disclosures, and (ii) oral affirmation of the consumer’s ability to access and review the electronic written disclosures. The Bureau states that it expects issuers to take “reasonable steps during the phone call to verify consumers’ electronic contact information,” including verifying the accuracy of email addresses already on file.
On May 19, the U.S. District Court for the Northern District of California granted a debt collector’s motion to dismiss a lawsuit with prejudice brought by a plaintiff alleging violations of the Electronic Signatures in Global Commerce (E-SIGN) Act and the FDCPA. The defendant sent an email to the plaintiff attempting to collect an unpaid debt that contained a validation notice. The plaintiff argued that the email violated the E-SIGN Act because she did not consent to receive email from the defendant, and that it also violated the FDCPA “because the email referred to ‘send[ing]’ a copy of the verification of the debt whereas § 1692g(a)(4) specifies that a copy of the verification will be ‘mailed.’” Among other arguments, the plaintiff claimed that the email’s subject line, which stated “This needs your attention,” violated the FDCPA because it did not convey that the message was seeking to collect a debt, and that she received several more emails during the validation period, which confused her and “overshadowed” the validation notice in the initial communication.
The court disagreed, stating that because there are “no express restrictions” within the FDCPA about how the initial communication must be made, allowing it to be made electronically is a “reasonable argument.” Specifically, the court noted that the CFPB has recognized that certain communication technologies such as email did not exist when the FDCPA was passed, and referred to the Bureau’s commentary on its proposed debt collection rule that stated “a validation notice as part of an initial communication can be conveyed via email.” [Emphasis in the original.] The court also determined that the plaintiff lacked standing with respect to her claim that the initial email’s subject line violated the FDCPA since she opened the email and clicked on the link. Furthermore, the court noted that using the word “send” instead of “mailed” in the initial communication would not have confused the least sophisticated debtor because the “debtor, if concerned about getting a verification of debt via email, could always ask for a copy to be sent via physical mail instead.”
On August 8, the U.S. Court of Appeals for the 7th Circuit affirmed a summary judgment ruling in favor of a consumer, concluding that a debt collector’s emails did not constitute a “communication” under the FDCPA. According to the opinion, the debt collector sent a consumer two emails about separate medical debts containing hyperlinks to the debt collector’s website, which then required the user to click through various screens to access and download a document containing the disclosures required under Section 1692g(a) of the FDCPA. The consumer did not open the emails. After finding out about the debt collection effort from the hospital, the consumer called the debt collector for more information; however, the required disclosures were not provided over the phone or sent in a written notice within the next five days. The consumer filed suit against the debt collector alleging it violated Section 1692g(a) by not providing the disclosures during her phone call or within five days after the call as required by law. The company argued that the emails were the FDCPA’s “initial communications” and contained the mandatory disclosures. The lower court granted the consumer’s motion for summary judgment.
On appeal, the 7th Circuit rejected the debt collector’s arguments that the emails constituted a “communication” under the FDCPA, noting that other appellate courts have held the message “must at least imply the existence of a debt,” and the emails only contained the name and email address of the debt collector. Moreover, the appellate court took issue with the multistep process required to access the validation notice, concluding “[a]t best, the emails provided a digital pathway to access the required information. And we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.”
Notably, the CFPB filed an amicus brief in the action, seeking affirmation of the lower court’s ruling on the separate theory that the debt collector allegedly failed to satisfy the conditions of the E-Sign Act. However, because the court affirmed the decision on other grounds, it chose not to address the E-Sign Act.
On November 28, the Financial Industry Regulatory Authority (FINRA) filed a proposed rule change with the SEC to amend paragraph (a)(3) of FINRA Rule 4512(a)(3)—“Customer Account Information”—which will permit the use of electronic signatures consistent with the E-SIGN Act. Specifically, under the proposed rule, firms will be allowed to obtain electronic signatures of personnel exercising discretionary trading authority over customer accounts maintained by a member. FINRA acknowledges that “[g]iven technological advances relating to electronic signatures, including with respect to authentication and security” it now believes that the requirement for manual signatures is obsolete. If approved by the SEC, the proposed rule change will be published in a regulatory notice no later than 60 days following approval, and will take effect within 30 days following publication.
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