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Financial Services Law Insights and Observations

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  • Colorado issues rule concerning remote notarization

    State Issues

    On June 26, the Colorado Department of State issued temporary amendments to the Notary Program Rules to authorize and establish minimum standards for remote notarization for individuals located within the state of Colorado. The amendments, which took immediate effect, set forth requirements for using remote notarization, including requirements surrounding the remote notarization system used to perform the notarizations and requirements for ensuring satisfactory evidence of identity.

    State Issues Covid-19 Colorado Fintech Notary

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  • NYDFS launches virtual currency initiatives

    State Issues

    On June 24, NYDFS launched several virtual currency initiatives, including a Memorandum of Understanding with the State University of New York to launch a virtual currency program, a proposed conditional licensing framework, final guidance concerning a licensee’s ability to self-certify the use of new coins, and additional resources intended to help virtual currency market participants. Among other things, NYDFS requested comments on the proposed framework, which will allow an entity to apply for a conditional license when partnering with an existing NYDFS-authorized entity to engage in virtual currency business activity during the term of the conditional license. NYDFS seeks comments on, among other things, the types of operational, staffing, and other support the existing licensed entity should provide to the conditional licensee until it is able to obtain a full NYDFS virtual currency license of its own. Comments on the proposed framework are due August 10.

    NYDFS also announced final guidance regarding licensees’ ability to self-certify the use of new coins. As previously covered by InfoBytes, last December NYDFS issued proposed guidance regarding coin adoption or listing options for virtual currency licensees. The final guidance provides a framework for entities to create firm-specific policies for the adoption or listing of new coins through self-certification, without NYDFS’s prior approval, and establishes that NYDFS will maintain a list of coins approved for use, and their permitted uses, available for adoption and use by licensees more generally. 

    Finally, NYDFS released additional resources, including a notice of NYDFS practices designed to create “a more transparent and timely process” for evaluating virtual currency license applications, as well as new virtual currency-related Frequently Asked Questions that will be updated on an ongoing basis.

    State Issues NYDFS Virtual Currency Licensing

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  • Illinois reissues and extends several Covid-19 executive orders

    State Issues

    On June 26, the Illinois governor issued Executive Order 2020-44, which reissues several executive orders issued to date, and extends a majority of the provisions therein through July 26, 2020. Among other things, the executive order extends Executive Order 2020-30, previously covered here, which prohibits residential evictions, subject to certain limited exceptions, through July 26.

    State Issues Covid-19 Illinois Mortgages Evictions

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  • Florida Office of Financial Regulation issues emergency order regarding certain filing deadlines

    State Issues

    On June 26, the Florida Office of Financial Regulation issued Emergency Order 2020-04, which extends filing deadlines for certain licenses. Specifically, any deadlines falling in May 2020 for mortgage brokers and lenders to file mortgage call reports, money services businesses to file quarterly reports, and for both to file financial reports have been suspended and tolled for a period of 30 days from the existing filing deadlines, unless extended by subsequent order. Additionally, the deadline occurring in the months of March, April, or May for any holder of a securities registration to file an annual updating amendment or financial statement is suspended and tolled through June 30, 2020, unless extended by subsequent order.

    State Issues Covid-19 Florida Licensing Mortgage Broker Mortgages Mortgage Lenders Money Service / Money Transmitters Securities

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  • New York AG settles with debt relief company for $3.6 million

    State Issues

    On June 23, the New York attorney general announced a $3.6 million proposed settlement with a debt relief operation for allegedly making exaggerated advertisements in violation of a 2011 consent order with the state. According to the press release, the 2011 consent order was based on allegations that the company engaged in “illegal, fraudulent, and deceptive practices” related to advertising. The 2011 consent order permitted the company to advertise certain savings if those savings were achieved by a defined group of New York consumers and if the company “clearly disclosed which consumers were in that group and what approximate percentage of the whole group of New York consumers the defined group represented.” However, the attorney general alleges the company failed to follow this requirement and continued to advertise consumer savings without disclosing the details of the group who achieved the savings, noting that “the majority of New York consumers achieved less than half of the savings [the company] advertised.”

    In addition to the $3.6 million in restitution for the New York consumers, the proposed settlement reinforces the 2011 consent order’s injunctive provisions and requires the company to (i) acknowledge that certain high savings numbers are not typical by “[e]xpressly stating the percentage of consumers who achieve the high end range of savings claims”; and (ii) ensure that future savings claims are based on consumers’ total debt with the company’s program.

    State Issues State Attorney General New York Settlement Debt Relief

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  • Privacy initiative makes California ballot

    State Issues

    On June 24, the California Privacy Rights Act of 2020 (CPRA) ballot initiative was submitted to the California Country Clerk’s office as an initiative qualified for the November 2020 General Election ballot after receiving more than the 623,212 valid signatures required to qualify. The initiative was drafted by Alastair Mactaggart, the Founder and Chair of the Californians for Consumer Privacy, and would amend the CCPA in several significant ways. Notably, Mactaggart also drafted the initiative that ultimately resulted in the California Consumer Privacy Act (CCPA). The ballot initiative would, among other things:

    • Provide consumers with the right to require a business to correct inaccurate personal information;
    • Revise the definition of “business” to: (i) clarify that the time period for calculating annual gross revenues is based on the prior calendar year; (ii) provide that an entity meets the definition of a “business” if the entity, in relevant part, alone or in combination, annually buys, sell, or shares the personal information of 100,000 or more consumers or households; (iii) include a joint venture or partnership composed of businesses in which each business has at least a 40 percent interest; and (iv) include a person who does not otherwise qualify as a “business” but voluntarily certifies to the California Privacy Protection Agency (described below) that it is in compliance with, and agrees to be bound by, the CPRA;
    • Create the California Privacy Protection Agency, which would have the authority to implement and enforce the CCPA (powers that are currently vested in the attorney general). The agency would be governed by a five-member board, including a single Chair, with members being appointed by the governor, the attorney general, and the leaders of the senate and assembly; and
    • Expand on the CCPA’s opt-out provisions and prohibit businesses from selling a consumers’ “sensitive personal information”—a new term introduced by the initiative— without affirmative authorization.

    Additional details regarding the proposed changes are available in the September 2019 InfoBytes post announcing the initiative. Since originally filing the initiative in September 2019, Mactaggart has amended the initiative several times, without significant change.

    State Issues Privacy/Cyber Risk & Data Security State Legislation State Attorney General CCPA

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  • OCC: National banks do not need state money transmitter licenses to exercise fiduciary powers

    Federal Issues

    In June, the OCC posted an interpretive letter to establish that a national bank, subject to certain limits established by 12 U.S.C. § 92a and 12 C.F.R. part 9, may exercise fiduciary powers in any state without obtaining a state money transmitter license. Interpretive Letter #1167 responds to a request for clarification as to whether a bank, whose fiduciary powers are derived from and governed by the National Bank Act and OCC regulations, is required to obtain a state money transmitter license or exemption in order to exercise its fiduciary capacity. The OCC determined that under 12 U.S.C. § 92a, national banks are authorized to act in specific fiduciary capacities “and any other fiduciary capacity permitted for state institutions when acting in the capacity is not in contravention of state law.” The OCC noted that while a national bank’s fiduciary capacities are determined by reference to state law, 12 U.S.C. § 92a (i) “imposes no geographic limits on where a national bank with fiduciary powers may act in a fiduciary capacity”; and (ii) “does not limit where a national bank may market its fiduciary activities, where its fiduciary customers may be located, or where the property being administered may be located.” As such, a national bank may conduct federally authorized fiduciary activities in any state, even if aspects of the bank’s activities fall within a state’s definition of money transmission and the bank is not licensed as a money transmitter in that state. According to the OCC, state laws that are intended to impose licensing requirements on a national bank’s exercise of fiduciary powers are preempted and satisfaction of an exemption from those requirements is not required. However, the OCC cautioned that “[d]ifferent facts and circumstances or consideration of different laws and regulations could result in a different conclusion.”

    Federal Issues OCC Money Service / Money Transmitters Licensing State Issues

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  • Nevada governor issues Emergency Directive to assist landlords and tenants impacted by Covid-19

    State Issues

    On June 25, the Nevada governor issued Emergency Directive 025 to assist landlords and tenants in Nevada that have been directly or indirectly impacted by the economic environment caused by Covid-19.  The directive, among other things: (i) strongly encourages the use of form Lease Addendum/Promissory Note for Rental Arrearages Due to COVID-19, to cure rental payment defaults of the original lease agreement, whether written or oral; (ii) strongly encourages landlords and tenants to enter into a voluntary repayment agreement for defaults in rental payments related to COVID-19; (iii) orders landlords to cease any eviction proceeds in a repayment agreement is entered into; (iv) authorizes limited residential summary eviction actions as outlined in the directive; (v) clarifies that the prohibition on charging late payment fees or penalties for nonpayment under the terms of a lease or rental agreement will terminate on August 31, 2020, but cannot be applied retroactively to late rental payments due between March 30 and August 31; and (vi) authorizes unlawful detainer actions for other than commercial tenancies as set forth in the directive.  The Executive Department also issued General FAQs, Residential Landlord FAQs, Residential Tenant FAQs, and Commercial FAQs for the Directive.

    State Issues Covid-19 Nevada Mortgages Evictions

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  • Michigan extends Executive Order regarding remote transactions

    State Issues

    On June 24, the Michigan governor announced Executive Order 2020-131, which extends a previous order that temporarily allowed e-signatures on official documents and remote notarizations (previously discussed here).  Any notarial act may be performed by a notary that holds a valid notarial commission in Michigan using two-way real-time audiovisual technology if certain conditions are met. The order sets forth additional requirements for remote notarizations and continues through July 31, 2020 at 11:59 p.m.

    State Issues Covid-19 Michigan Transactions ESIGN Fintech Notary

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  • New Jersey Supreme Court holds that state fiduciary law does not permit affirmative cause of action against bank

    Courts

    On June 17, the New Jersey Supreme Court reversed an appellate division’s judgment and dismissed a complaint against a bank after concluding that the New Jersey Uniform Fiduciaries Law (UFL) does not permit an affirmative cause of action against banks but rather provides them with limited immunity for failing to take notice of and action on the breach of a fiduciary’s obligation. In 2015, the plaintiff filed a complaint on behalf of himself and his dental practice against two of his employees who allegedly took insurance company checks issued to the plaintiff and his practice totaling “several hundred thousand dollars,” forged his endorsement on them, and deposited the checks into personal accounts held by a bank who was sued in the same lawsuit for common law claims of conversion and negligence. The trial court dismissed the cause of action against the bank for failure to state a claim, reasoning that “‘common law negligence is not such a remedy’ in the absence of a ‘special relationship’ between [the plaintiff] and the bank.” The trial court also rejected the plaintiff’s argument that the UFL provided the basis for a cause of action, concluding that the individuals acted as “errant employees”—not as fiduciaries—and that the bank had no fiduciary relationship with the plaintiff who was not a bank customer. The appellate division partially reversed, concluding that plaintiff should be allowed to plead a UFL claim. Among other things, the plaintiff argued that the employees were acting in a fiduciary capacity as “constructive trustees” of the funds and the bank met a bad faith requirement under the UFL in depositing the checks.

    The New Jersey Supreme Court disagreed, holding that “[n]othing in the plain language of the UFL suggests that the UFL is itself the basis for an affirmative cause of action.” Moreover, the “UFL does not provide for a recovery through a private action or set forth remedies or a statute of limitations—all indicia of a statutory cause of action.” According to the New Jersey Supreme Court, “[w]hen an action is brought against a bank, the UFL provides that a bank’s liability depends on whether the bank acted with actual knowledge or bad faith in the face of a fiduciary’s breach of his obligations.”

    Courts State Issues Fiduciary Duty

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