On January 30, the FTC and the DOJ announced that a Michigan-based debt buyer had agreed to pay a $2.5 million civil penalty to settle allegations of misconduct in connection with the company’s debt collection activities. The FTC alleged that the debt buyer violated the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act by, among other things, (i) misrepresenting without substantiation that consumers owed a debt, (ii) failing to disclose that certain time-barred debt did not have to be repaid, (iii) knowingly providing false information to credit reporting agencies, and (iv) failing to investigate disputes raised by credit reporting agencies. In addition to paying the civil penalty, the company must address the failures and misconduct alleged by the FTC. For example, it must inform consumers when a debt is too old to be legally enforceable. Further, the company is prohibited from engaging in certain conduct, such as placing debt on consumer credit reports without notifying the consumer. Concurrent with the announcement, the FTC released a publication to help consumers understand their rights with regard to time-barred debt.
On January 17, New Jersey enacted a 2010-2011 session bill, A2565, to modernize the state’s title recordation laws to permit the use of electronic documents and to reorganize and streamline the state’s recordation requirements. Given that the federal E-sign Act and the New Jersey Uniform Electronic Transactions Act both authorize the acceptance of electronic alternatives to paper documents and encourage the development of systems that accept electronic documents, the bill updates state law to, for example, (i) broaden the definition of “document” and “recorded” to allow for electronic recordation; (ii) delete statutory references to separate sets of books or separate databases for different kinds of documents; (iii) remove requirements for marginal notation of documents; and (iv) require development of standard formats for electronic documents.
Recently, the Standards and Procedures for Electronic Records and Signatures version 2.0 (SPeRS 2.0) was released. This new version of SPeRS reflects current e-commerce business practices and updates applicable electronic record and signature case law and federal regulatory developments since SPeRS was originally published in 2003. The update also examines nationwide developments in the evolving area of electronic notarization laws. SPeRS is a technology-neutral set of guidelines and strategies for industry use in designing and implementing systems for electronic transactions under the federal Electronic Signatures in Global and National Commerce Act (ESIGN) and state adoptions of the Uniform Electronic Transactions Act (UETA). SPeRS 2.0 updates the groundbreaking guidance contained in SPeRS 1.0, developed by a broad cross-section of leading financial service companies and trade associations. More information about SPeRS is available at www.spers.org.
Third Circuit Upholds District Court’s Order Enjoining Full Enforcement of New Jersey Gift Card Escheat Law
Recently, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s decision to enjoin New Jersey from fully applying and enforcing its gift card escheat law. N.J. Retail Merchs. Assoc. v. Sidamon-Eristoff, No. 10-4551, 2012 WL 19385 (3d Cir. Jan. 5, 2012). Retailers challenged the constitutionality of a 2010 amendment to New Jersey’s unclaimed property statute that provided for the custodial escheat of store valued cards (SVCs or gift cards). Under New Jersey’s Chapter 25, SVCs are presumed to be abandoned after two years of inactivity and issuers are required to transfer to the state the remaining value on the SVCs at the end of the two-year abandonment period. In addition, issuers are required to obtain the name and address of the purchaser or owner of each SVC issued or sold and, at a minimum, maintain a record of the zip code of the owner or purchaser, and there is a presumption that the address of the owner or purchaser is the same as the address of the place where the SVC was purchased or issued. This latter provision has the effect of causing unused funds to escheat to New Jersey, rather than to the state where the card issuer is domiciled, when the last known address of the purchaser is unknown. In response to challenges under the Supremacy Clause, the Due Process Clause, the Commerce Clause, the Contract Clause, and the Takings Clause of the U.S. Constitution, the Third Circuit upheld the district court’s preliminary injunction enjoining the retroactive application of Chapter 25 to SVCs redeemable for merchandise or services that were issued before Chapter 25’s enactment. It also upheld the district court’s preliminary injunction enjoining the prospective enforcement of the place-of-purchase presumption. The court, however, declined to prospectively enjoin the data collection provision or the two-year abandonment provision, finding that SVC issuers failed to show a reasonable likelihood of success on the merits of these claims and that the data collection provision is severable from the place-of-purchase provision.
On January 27, the U.S. Attorney General officially introduced a special unit that will coordinate federal and state government investigations into residential mortgage-backed securities (RMBS). The unit is being co-chaired by multiple senior officials from the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), as well as New York Attorney General Eric Schneiderman. It will consist of at least fifty-five DOJ attorneys and other investigative staff, and will include the active participation by numerous additional federal and state entities, including the Consumer Financial Protection Bureau. According to a memorandum issued by Attorney General Holder, the working group will focus on, among other things, (i) alleged misrepresentations concerning the quality of mortgages backing the RMBS; (ii) alleged failures by trustees to manage adequately the assets within securitized pools of loans; and (iii) alleged failures by RMBS sponsors to repurchase problematic loans or remit loan proceeds to RMBS trusts. In his remarks introducing the new unit, Attorney General Holder noted that civil subpoenas recently have been issued to eleven financial institutions in connection with this new group’s efforts.