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Special Alert: California Supreme Court Invalidates Widely Used Arbitration Provisions and Curtails the Scope of Proposition 64
On April 6, the California Supreme Court published its opinion in McGill v. Citibank, N.A., finding unenforceable arbitration agreements that purport to waive claims for public injunctive relief brought under California’s Consumer Legal Remedies Act (CLRA), Civ. Civ. Code, § 1750 et seq., its Unfair Competition Law (UCL)(Bus. & Prof. Code, § 17200), and its false advertising law (id., § 17500 et seq.). In so holding, the court resisted arguments that the Federal Arbitration Act (FAA) preempts California state law, notwithstanding the United States Supreme Court’s landmark holding in AT&T Mobility v. Concepcion (Concepcion). In a second significant holding, the court materially limited the effect of Proposition 64 on claims brought under the UCL, finding that actions for public injunctive relief need not satisfy California requirements for class certification. The court’s decision presents significant questions as to the validity of widely used consumer arbitration clauses, creates the prospect of considerable future litigation regarding the scope of preemption under the FAA, and narrows the effect of Proposition 64 on future litigation under the UCL.
Click here to read full special alert***
If you have questions about the court’s holding or other related issues, visit our Complex Civil Litigation and Class Actions practices for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
SEC’S FCPA Chief to Leave Agency Later in April
On April 4, the SEC announced that FCPA Unit Chief Kara Brockmeyer will leave the agency later this month. Ms. Brockmeyer joined the SEC in 2000 and has led the FCPA Unit since September 2011. Under her supervision of the unit, the SEC brought 72 FCPA enforcement actions resulting in judgments and orders totaling more than $2 billion in disgorgement, prejudgment interest, and penalties.
FDIC Fines Two California Bank Employees for BSA/AML Violations
On March 31, the FDIC released a list of enforcement actions taken against banks and individuals in February 2017. Among those listed was a February 14 stipulated order imposing a $70,000 civil money penalty against an employee of a California bank (Respondent) for allegedly engaging or participating in actions that caused the bank to violate the Bank Secrecy Act, thus resulting in financial loss or damage. According to the FDIC, the violations reflected a “continuing disregard for the safety or soundness of the bank” and were evidence of the Respondent’s “unfitness to serve as a . . . person participating in the conduct of the affairs, or as an institution-affiliated party of the bank [or] any other insured depository institution.” In addition to the civil money penalty, the Respondent is prohibited from further participation “in any manner in the conduct of the affairs of any financial institution or agency.”
The FDIC also imposed a $30,000 civil money penalty against the bank’s executive vice president of corporate and international banking for breaching his fiduciary duty during the period of 2011 – 2012 by failing to ensure his staff fully complied with the Bank Secrecy Act and its implementing regulations. And, as previously reported in InfoBytes, in July 2015 the bank was fined $140 million by the FDIC and the Commissioner of the California Department of Business Oversight for allegedly failing to implement and maintain a satisfactory BSA/AML compliance program.
CFPB Releases Updated Supervision and Examination Materials
On March 31, the CFPB released updates to sections of its Supervision and Examination Manual as required by the updated Federal Financial Institutions Examination Council’s Uniform Interagency Consumer Compliance Rating System. The revised CFPB Supervision Examination Cycle Overview highlights the continuous exam cycle from pre-examination/scoping procedures to the monitoring and corrective actions stage, and provides additional details on its “prioritization” approach to examining, which considers the “large number, size, and complexity of entities falling under its supervisory authority.” Updates were also made to the Examination Process which offers further details on the exam cycle. The updated Scope Summary template provides examination background information on the entity as well as details regarding prudential and state regulators, communication plans, institution product lines to be reviewed, complaints, outstanding enforcement actions or other open matters, and risk summaries. Lastly, updates have also been made to the Examination Report Template—which provides the scope of review and consumer compliance rating based on the findings of the exam—and the Supervisory Letter Template—which references matters requiring attention or that need to be corrected based on the Bureau’s review.
April is National Financial Capability Month; FDIC Highlights Free Financial Education Tools
On April 3, the FDIC released a list of its free financial education tools in recognition of National Financial Capability Month. The tools were developed to help educate people of all ages and expand their financial knowledge and skills. A few of the offered tools include: (i) Money Smart age-appropriate, multi-lingual financial education materials; (ii) Money Smart for Small Businesses for new entrepreneurs; (iii) Money Smart News featuring resources for financial educators; and (iv) FDIC Consumer News, which offers practical guidance on ways to use financial services.
National Bank Agrees to $110 Million Class Action Settlement for Improper Sales Practices
On March 28, a national bank announced that it will pay $110 million to settle a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. The settlement class includes all consumers who claim that the bank—without their consent—opened an account, enrolled them in a product or service, or submitted an application for a product or service in their name during the time period from January 1, 2009 through the execution date of the settlement agreement, which must still be approved by the court. The settlement amount will be set aside for consumer compensation and is in addition to remediation amounts already paid to the Los Angeles City Attorney and the fees paid pursuant to consent orders entered into with the CFPB and OCC. The bank also noted that it agreed to the settlement notwithstanding an arbitration clause contained in the Bank’s deposit agreement. The bank is also conducting a voluntary review of accounts from 2009 - 2010 to determine and remediate any consumer harm.
Congress Approves Joint Resolution to Repeal FCC’s Broadband Privacy Rules, Signed into Law by President Trump
On April 3, President Trump signed into law a measure (S.J.Res. 34) rescinding the new Federal Communications Commission (FCC) broadband privacy rules related to Internet service providers (ISPs). As previously covered on InfoBytes, the privacy rules—passed last year in a 3-2 party-line vote under former Democratic FCC Chairman Tom Wheeler—require, among other things, that ISPs receive express consent from users concerning the use of their personal data for marketing purposes. FCC Chairman Ajit Pai has taken the position that the new FCC regulations are inconsistent with the Federal Trade Commission’s (FTC) framework. The rules had been partially stayed by the FCC in response to multiple reconsideration petitions. Approved last week in the Senate by a 50-48 margin, and subsequently passed by a 215-205 House vote, S.J.Res. 34 was sent to President Trump on Friday for his signature. The President signed the joint resolution into law on Monday evening, thereby repealing the FCC regulations pursuant to the Congressional Review Act, 5 U.S.C. §§ 801-808. Notably, per the language of the resolution—which was originally introduced by Sen. Jeff Flake (R-AZ) in early March—the FCC is also prohibited from re-issuing new rules without the passage of a new law authorizing them.
Prepaid Card Company Settles FTC Charges, Agrees to Provide $53 Million in Consumer Relief
On March 31, the FTC announced that it had reached a $53 million settlement with a prepaid card company over charges that the company deceived consumers about access to funds deposited on its debit cards in violation of the FTC Act. The 2016 complaint alleged that the company participated in deceptive advertising claims by informing consumers that they would be able to immediately access funds stored on reloadable prepaid debit cards. Many consumers claimed, however, that they were unable to access their money for weeks or at all because the company either “denie[d] or delay[ed] activation of the card, or because it block[ed] consumers from using it,” and that as a result, many of them suffered severe financial hardships. Moreover, the complaint also claimed that some consumers who closed accounts and requested refunds had to wait several weeks for their money or were informed their funds were allegedly depleted by “account inactivity fees.” The settlement requires the company to provide the $53 million settlement amount to consumers in refunds.
The Commission vote approving the settlement was 2-1. Commissioner Terrell McSweeny issued a statement in support of the settlement, noting that he “believe[s] that the proposed stipulated order provides both injunctive and monetary relief that effectively addresses the challenged conduct. The order prohibits [the company] from misrepresenting to consumers how long it will take, or what conditions are necessary, to activate prepaid cards and have access to funds.” Acting Chairman Maureen Olhausen dissented, explaining, “[f]irst, the majority fails to consider the context of [the company’s] representations in concluding that [the company] made false claims to consumers. Second, the settlement order imposes monetary relief unrelated to [Defendant’s] allegedly deceptive advertising.” Olhausen further explained that, in her view, “[c]ontext often has a significant effect on what reasonable consumers take away from representations in advertising. As FTC law has long recognized, ‘the tendency of advertising to deceive must be judged by viewing it as a whole, without emphasizing isolated words or phrases apart from their context.’”
OFAC Sanctions a Coal Company and 11 “Agents” Linked to North Korea’s WMD Proliferation and Financial Networks
On March 31, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it was imposing sanctions on eleven North Koreans and one associated entity involved in that country’s efforts to develop weapons of mass destruction. The sanctions prohibit any U.S. individual from dealing with the designated North Koreans, and further states that “any property or interests in property of the designated persons in the possession or control of U.S. persons or within the United States must be blocked.” Treasury Secretary Steven Mnuchin explained that the “sanctions are aimed at disrupting the networks and methods that the Government of North Korea employs to fund its unlawful nuclear, ballistic missile, and proliferation programs.”
Arizona Governor Signs Blockchain Records Bill
On March 29, Arizona Governor Doug Ducey signed H.B. 2417, which recognizes blockchain signatures and smart contracts under state law. H.B. 2417 amends Title 44, Chapter 26, of the Arizona Revised Statutes, and defines “blockchain technology” as “distributed ledger technology . . . protected with cryptography . . . [that] provides an uncensored truth.” The amendment, cleared by the Senate in a 28-1 vote on March 23, addresses signatures and records and states “a signature that is secured through blockchain technology is considered to be in an electronic form and to be an electronic signature.” Furthermore, the amendment also discusses the legality and enforceability of a smart contract, defined by the bill as an “event-driven program, with state, that runs on a distributed, decentralized, shared and replicated ledger . . . that can take custody over and instruct transfer of assets on that ledger.” Smart contracts, therefore, “may exist in commerce . . . and may not be denied legal effect, validity or enforceability,” thus presenting a new option of delivering information via blockchain.