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Financial Action Task Force Issues Guidance Urging Risk-Based Approach to Virtual Currencies and Services
On June 29, the Financial Action Task Force (FATF) issued a report, Guidance for a Risk-Based Approach to Virtual Currencies,part of a staged approach focusing on the points of intersection that provide gateways to the regulated financial system, in particular, convertible virtual currency exchangers. The Guidance explains the application of the risk-based approach to AML/CFT measures in the virtual currency context, identify the entities involved in virtual currency payment products and services (VCPPS), and clarify the application of the relevant FATF Recommendations to convertible virtual currency exchangers. The guidance provides, among other things, recommendations and encourages member nations to adopt regulations and guidelines similar to those applicable to traditional financial institutions to reduce risk exposure to the banking system.
Court Holds That Evidence of Clickwrap Assent Not Always Sufficient When Evidence Disputing Assent is Presented
On June 29, in Jim Schumacher, LLC v. Spireon, Inc., Civ. Action No. 3:12-cv-00625-TWP-CCS, a Tennessee federal judge denied the motion for partial summary judgment as to the breach of contract claim because there was evidence that the plaintiff did not use the defendant’s portal or authorize an agent to use the defendant’s portal to manifest assent to the modified contract terms even though the defendant had digital evidence of such assent to the clickwrap agreement, thus creating a factual dispute. In 2005, the plaintiff became a reseller of the defendant’s vehicle location devices. In 2009, the defendant modified its agreement, and placed the modified agreement on its customer portal website through which resellers manage purchases, sales, and customer data. Visitors to the portal were required to click “I Accept” or “I Decline” before being permitted to access any other information on the portal. The defendant produced digital evidence demonstrating that someone with the correct login and password accepted the 2009 agreement, and further digital evidence that someone with the correct login and password accepted an agreement in 2010 as well. The plaintiff claims that he did not use the portal after the defendant placed the 2009 agreement on the portal, and thus could not have assented to the clickwrap agreement. During this time, the plaintiff also did not authorize his representative to agree to the terms of the 2009 amendment, nor did he give any other users the ability to execute the agreement on his behalf. The plaintiff filed a lawsuit alleging a breach of contract claim and a fraud claim based on the 2005 agreement.
The defendant argued that the 2005 agreement was superseded by the plaintiff’s acceptance of the 2009 agreement, which itself was superseded by the plaintiff’s acceptance of the 2010 agreement, and that the defendant had digital evidence of the plaintiff’s assent. The plaintiff contended that neither argument was properly executed on his behalf. The defendant argued that the plaintiff cannot avoid summary judgment by asserting a failure to see, read, or sign the 2009 or 2010 agreements. In so doing, the defendant relied on two cases where the terms of the “clickwrap” agreement were enforced against a party who claimed lack of agreement to the terms. The court distinguished this case from those two cases by noting that in both of those cases, undisputable evidence existed that the party assented to the terms of the clickwrap, either because the party used the website to make travel arrangements or because the party incorporated software into its own products that could only have been installed if the party agreed to the clickwrap agreement. Here, the court noted, the plaintiff did not use the portal after the defendant posted the amended agreements. Regarding the defendant’s argument that some with apparent authority executed the agreements, the court found that no evidence existed that the plaintiff granted anyone but his representative authority to act on his behalf and that the record was silent regarding whether the plaintiff’s representative did execute the agreements. Therefore, the court denied the defendant’s motion for summary judgment regarding the breach of contract claim because a factual dispute existed regarding which contract controlled. Finally the court allowed the plaintiff’s fraud claims to proceed only regarding alleged statements made between January 2011 and March 10, 2011, when the defendant claims it terminated the 2010 agreement with the plaintiff.
Maryland Court of Appeals Rules Borrowers Barred By Three-Year Statute of Limitations in HELOC Decision
On June 23, The Court of Appeals of Maryland reversed the judgment of the Court of Special Appeals in Windesheim v. Larocca, 2015 WL 3853500 (MD. 2015), holding that the statute of limitations for a mortgage origination fraud case began to run at origination because the borrowers had inquiry notice of the loan terms. Under the alleged “buy-first-sell-later” scheme, the borrower-plaintiffs contend that the realtor and lender-defendants encouraged the borrowers to open home equity lines of credit (HELOCs) on their current homes while simultaneously selling their current homes. The lenders allegedly forged documents and signatures in order to approve both the HELOCs and the mortgages on new homes. The trial court initially found that the claims were time-barred, as the plaintiffs should have discovered the alleged fraud when the loans were originated. On appeal to the Court of Special Appeals, Maryland’s intermediate appellate court, the plaintiffs succeeded in reversing the decision of the trial court. The defendants then filed their own appeal, and the Court of Appeals sided with the trial court in holding that the three-year statute of limitations had run. In particular, the Court of Appeals held that the borrowers had inquiry notice at origination because they signed the loan applications and thus were “presumed to have read and understood their contents.” Furthermore, the statute of limitations was not tolled by Maryland law or the fiduciary rule “because there is neither evidence that the Petitioners encouraged Borrowers not to read the Applications nor evidence that the Borrowers and Petitioners were in a fiduciary relationship.” The Court of Appeals further held that the defendants neither engaged in nor conspired to engage in false or misleading indirect advertising regarding secondary mortgage loans.
CFPB Tackles Credit Card Vendors For Alleged Unfair Billing of Ancillary Products
Today, the CFPB filed proposed consent orders against two credit card add-on product vendors for allegedly billing consumers for credit monitoring and identity theft protection services they did not receive. Under the proposed consent orders, one vendor will provide nearly $7 million in restitution to the holders of approximately 73,000 accounts, and pay a $1.9 million civil money penalty. The other vendor will provide almost $55,000 in restitution to consumers who were incorrectly billed for identity theft or credit monitoring services, and pay a $1.2 million civil money penalty. The Bureau specifically noted that today’s announcement is the “first time the Bureau has brought actions directly against the companies” that market or administer ancillary products.
DOJ Seeks Civil Forfeiture of $34 Million in Bribe Payments Made to Chadian Diplomats by Griffiths Energy
On June 30, the DOJ filed a Complaint to forfeit shares of Griffiths Energy International, a Canadian energy company accused of bribing various Republic of Chad diplomats to receive oil development rights in Chad. The diplomats include the former Chadian Ambassador to the United States and Canada, and Chad’s Deputy Chief of Mission to the United States. The assets at issue are currently frozen in the U.K.
The DOJ is seeking roughly $34 million in Griffiths Energy shares, as the cash value amount “traceable to, and involved in the laundering of, bribe payments made to the Chadian diplomats” for the rights to develop oil blocks in Chad. According to the Complaint, the former Ambassador, serving from 2004 to 2012, and the Deputy Chief of Mission, serving from approximately 2007 through the end of 2014, used their official positions to assist Griffiths Energy in securing development rights to oil blocks in Chad. The bribes were allegedly paid in several ways, including through issuance of company shares and payments to companies nominally owned by the wives and associates of the diplomats. The Complaint highlighted that before the company pursued the shell company avenue, legal counsel had warned the company that a planned consulting agreement directly with the Ambassador was illegal. This Complaint follows a separate suit by the DOJ in 2014, with sought a “civil forfeiture of over $100,000 in allegedly laundered funds traceable to the $2 million bribe payments.”
FFIEC Releases Cybersecurity Assessment Tool
As previously covered in InfoBytes, on June 30, the FFIEC released a Cybersecurity Assessment Tool (Assessment) to provide a “repeatable and measurable process” for financial institutions to measure their cybersecurity readiness. The Assessment aims to help financial institutions determine their cybersecurity preparedness and make informed decisions regarding their risk management practices. In addition to the Assessment, the FFIEC also released an executive overview, a user’s guide, a pre-recorded webinar, a glossary of terms, and appendices to assist financial institutions in understanding supervisory expectations, increasing awareness of cybersecurity risks, and assessing and mitigating the threats facing their institutions. As an interagency body representing the Fed, FDIC, OCC, CFPB, and the NCUA, the FFIEC prescribes uniform principles, standards, and reporting forms for the federal examination of financial institutions, and makes recommendations to promote uniformity in the supervision of financial institutions.
OFAC Releases Guidance on the Continuation of Certain Temporary Sanctions Relief Under the JPOA
On June 30, the P5 + 1, European Union, and Iran agreed to extend the Joint Plan of Action for seven days, furthering negotiations to reach a solution to reduce Iran’s nuclear program. In conjunction with the announcement of the seven day extension, OFAC published Guidance on the Continuation of Certain Temporary Sanctions Relief Implementing the Joint Plan of Action, as Extended. The guidance continues the JPOA sanctions relief period, provided in November 2014 as implemented via Guidance, FAQs, and Statement of Licensing Policy, from June 30 through July 7, 2015.
Federal Banking Agencies Issue Final Flood Insurance Rule
On June 22, the federal banking agencies issued a joint final rule that modifies the mandatory purchase of flood insurance regulations to implement some provisions of the Biggert-Waters and Homeowner Flood Insurance Affordability Acts. Notable highlights include that the final rule, among other things: (i) expands escrow requirements for lenders who do not qualify for a small lender exception, (ii) clarifies the detached structure exemption, (iii) introduces new and revised sample notice forms and clauses relating to the escrow requirement and the availability of private flood insurance, and (iv) clarifies the circumstances under which lenders and servicers may charge borrowers for lender-placed flood insurance coverage. The escrow provisions and sample notice forms will become effective on January 1, 2016, and all other provisions will become effective October 1, 2015. The agencies reminded that the escrow provisions in effect on July 5, 2012, the day before Biggert-Waters was enacted, will remain in effect and be enforced through December 31, 2015.
The agencies also indicated that they plan to address Biggert-Waters’ private flood insurance provisions through a separate rulemaking.
OCC Releases Semiannual Report Highlighting Key Risks Facing National Banks and Federal Savings Associations
Today, the OCC announced the release of its semiannual report, Semiannual Risk Perspective for Spring 2015, highlighting key risk areas affecting national banks and federal savings associations. Based on 2014 year-end data, the report identifies issues that pose a potential threat to the safety and soundness of banks and thrifts. It also sets forth the OCC’s supervisory priorities for the next 12 months, including, among others, (i) cybersecurity awareness and preventative controls, (ii) Bank Secrecy Act/Anti-Money Laundering compliance, (iii) fair access to credit, and (iv) underwriting practices, particularly with respect to leveraged loans, indirect auto lending, HELOCs, and credit related to the oil and gas sector. The report also notes declining revenues and profitability overall in OCC-supervised institutions.
FTC Resolves Claims Against Auto Dealers Based on Alleged Deceptive Advertising
On June 29, the FTC filed two administrative complaints and issued proposed orders against two Las Vegas auto dealers to resolve allegations that they engaged in misleading advertising practices that misrepresented the purchase price or leasing offers of their vehicles, as well as the amount actually due at signing. In addition, the FTC also contends that the auto dealers failed to disclose other key information in its advertisements, such as the need for a security deposit, whether a down payment was required, and the terms of repayment. Under the proposed consent orders, the FTC will require both dealerships to refrain from misrepresenting the actual cost to purchase or lease a vehicle, and to comply with requirements of the Consumer Leasing Act and the Truth in Lending Act. No monetary judgment is proposed for either auto dealership.