Special Alert: CFPB Issues Guidance Regarding Preauthorized Debit Transactions Under the Electronic Fund Transfer Act and Regulation E

On November 23, 2015, the Consumer Financial Protection Bureau (“CFPB”) released Compliance Bulletin 2015-06 (“Bulletin”), which provides industry guidance on the Electronic Fund Transfer Act (“EFTA”) and Regulation E requirements for obtaining consumer authorizations for preauthorized electronic fund transfers (“EFTs”). The CFPB issued this Bulletin, in part, because it observed during its examinations that some companies are not fully complying with the EFTA and Regulation E. Principally, this Bulletin addresses two areas of concern: (i) obtaining the customer’s authorization for preauthorized EFTs over the telephone; and (ii) providing a copy of the authorization to the customer. Read more…


Legally Blind Individual Sues the NBA Over Digital Barriers on Website

On November 6, a legally blind individual filed a complaint against the NBA, alleging a violation of the Americans with Disabilities Act and seeking a permanent injunction requiring the NBA to (i) implement corporate policies that ensure website accessibility for the blind; and (ii) format its website so that it is compatible with screen reading or text-to-audio software, upon which the visually impaired rely to use the internet. Jahoda v. National Basketball Association No. 2:15-cv-01462 (W.D. Pa. Nov. 6, 2015). The complaint asserts that merely formatting the website so that it is compatible with a screen reader will not solve the larger issue: “Web-based technologies have features and content that are modified on a daily, and in some instances an hourly, basis, and a one time ‘fix’ to an inaccessible website will not cause the website to remain accessible without a corresponding change in corporate policies related to those web-based technologies.” According to the complaint, the defendant’s website denies blind individuals equal access to the site because (i) information provided by scripting language is not identified with functional text that can be read by assistive technology; and (ii) people using assistive technology do not have access to the information, field elements, and functionality required to complete and submit an electronic form.


NYDFS Reaches Fifth Agreement Regarding Symphony Chat System; Issues Regulatory Guidance

On October 13, the NYDFS announced that it reached its fifth agreement with a bank regarding record keeping requirements and other protections to ensure that the bank is responsibly using Symphony Communication Services, LLC’s chat and messaging platform (Symphony). In September, the NYDFS reached similar agreements with four banks after expressing concern that some Symphony features, most notably its promised service of “Guaranteed Data Deletion,” had the capability to hinder regulators’ and prosecutors’ investigations of misconduct at banks. Per the agreements reached with the NYDFS, the banks must (i) require Symphony to maintain copies of all communications sent through the chat and messaging platform for at least seven years; (ii) provide an independent custodian with a copy of decryption keys for encrypted messages sent through Symphony; and (iii) inform the NYDFS of the location of the decryption keys. Acting Superintendent Anthony Albanese outlined these requirements in the October 13 guidance issued to all NYDFS-regulated institutions, stressing that “any [NY]DFS-regulated institution that is considering using the Symphony platform should ensure that the entity’s anticipated use conforms to the standards included in the Agreements.”


NYDFS Reaches Agreements with Four Banks on New Symphony Chat & Messaging Platform

On September 14, the New York State Department of Financial Services (NYDFS) announced that it had reached agreements with four financial institutions on record-keeping requirements and other protections intended to help ensure the institutions’ responsible use of the new Symphony Communications LLC (Symphony) chat and messaging platform. NYDFS had recently expressed concerns that certain Symphony features, such as its promise of “Guaranteed Data Deletion,” could hinder regulatory investigations on Wall Street. Under the agreements, Symphony will retain for seven years a copy of all electronic communications sent through its platforms to or from the four banks, and the banks will store duplicate copies of the decryption keys for their messages with independent custodians.


CFPB Announces EClosing Pilot Participants

On August 21, the CFPB announced the companies that have been selected to participate in its residential mortgage eClosing pilot program. The program is intended to explore how the increased use of technology during the mortgage closing process may affect consumer understanding and engagement and save time and money for consumers, lenders, and other market participants. Specifically, the program seeks to aid the CFPB in better understanding the role that eClosings can play in addressing consumers’ “pain points” in the closing process, as identified by the CFPB in an April 2014 report. The three-month pilot program will begin later this year, and the participants include both technology vendors that provide eClosing solutions and creditors that have contracted to close loans using those solutions.


HUD Requires Electronic Retention Of Foreclosure-Related Documents

On July 23, HUD issued Mortgagee Letter 2014-16, which requires FHA mortgagees to retain electronic copies of certain foreclosure-related documents and extends the record retention period to seven years after the life of an FHA-insured mortgage. HUD advises that, in addition to any requirements for retaining hard copies or original foreclosure-related documents, loss-mitigation review documents also must be retained in electronic format. Those documents include: (i) evidence of the servicer’s foreclosure committee recommendation; (ii) the servicer’s Referral Notice to a foreclosure attorney, if applicable; and (iii) a copy of the document evidencing the first legal action necessary to initiate foreclosure and all supporting documentation, if applicable. The letter adds that mortgagees also must retain in electronic format a copy of the mortgage, the mortgage note, or the deed of trust. If a note has been lost, mortgagees must retain both an electronic and hard copy of a Lost Note Affidavit. The letter is effective for all foreclosures occurring on or after October 1, 2014.


Pennsylvania Federal Court Holds Promissory Note Transfer Equivalent To A Mortgage Assignment And Must Be Recorded

On July 1, the U.S. District Court for the Eastern District of Pennsylvania held that in Pennsylvania the assignment or transfer of a promissory note secured by a mortgage on real estate is equivalent to a mortgage assignment and, as such, must be recorded. Montgomery County, Penn. Recorder of Deeds v. Merscorp, Inc., No. 11-6968, 2014 WL 2957494 (E.D. Pa. July 1, 2014). A Pennsylvania county recorder of deeds filed a putative class action against an electronic mortgage registry claiming the registry violated state law and unjustly enriched itself by failing to record conveyances of interests in real property. The recorder challenged the registry’s practice of serving as the mortgagee of record and as the nominee for a lender, which obviates the need to record the transfer of a note each time it is sold. The court held that although state law recognizes a clear distinction between a promissory note and a mortgage and that a promissory note generally may be transferred without recording, a promissory note still falls within the meaning of a “conveyance” under state law, and therefore must be recorded. The court further explained that notes and mortgages are legally inter-woven, and “whether effectuated via a writing or a mere ‘transfer of possession’ of a note, the result is the same by operation of law”—an interest in the property has been assigned and conveyed and therefore must be recorded. The court acknowledged evidence that the registry may have been unjustly enriched by avoiding recording fees on transfers the court now determined were required to be recorded, but declined to make that determination as a matter of law, let alone a determination as to the amount of damages. The court left those issues to be determined at trial. The decision is likely to be appealed to the Third Circuit.


Massachusetts Broadens Licensees Subject To Record Keeping Requirements, Allows For Electronic Records

This week, the Massachusetts Consumer Affairs and Business Regulation Office, Division of Banks, released final amendments to the state’s licensee record keeping rules, intended to, among other things, “modernize the regulations that address electronic records.” The final amended regulations expand the state’s licensee record keeping requirements to include any person registered as a third party loan servicer, a check seller, or a foreign transmittal agency. The final amendments require licensed debt collectors and third party loan servicers to maintain records—including “a complete customer account history for each transaction”—for at least two years, and all other licensees to maintain records for at least three years. The amended regulations allow licensees to store books, records, and accounts as electronic records provided the electronic records are accessible for immediate examination through equipment available to the Commissioner of the Division of Banks or the Commissioner’s designees, and provided the licensee indicates in NMLS how its books, records, and accounts will be stored and made accessible to the Commissioner. The amended regulations become effective June 6, 2014.


Transportation Regulator Proposes Allowing Electronic Records And Signatures

Recently, the Department of Transportation’s Federal Motor Carrier Safety Administration published a proposed rule to allow the use of electronic records and signatures to satisfy the agency’s regulatory requirements. The rule would permit the use of electronic methods to sign, certify, generate, exchange, or maintain records so long as the documents accurately reflect the information in the record and can be used for their intended purpose. The proposal seeks to implement the Government Paperwork Elimination Act (GPEA) and the Electronic Signatures in Global and National Commerce Act (E–SIGN), and would apply only to documents that the agency’s regulations obligate entities or individuals to retain—it would not apply to forms or other documents that must be submitted directly to the agency. Comments on the proposal are due by June 27, 2014.


Special Alert: CFPB Supports Mortgage eClosings and Announces Pilot Program

On April 23, in conjunction with its “Know Before You Owe” initiative, the CFPB hosted a mortgage closing process forum, which featured remarks from Richard Cordray, HUD Secretary Shaun Donovan, consumer advocates, and industry representatives, including BuckleySandler’s David Whitaker.  The Bureau published a report summarizing the results of its Request for Information about the challenges consumers face when closing on a home.  The Bureau identified several “pain points” consumers regularly experience during the closing process.  Consumers reported being frustrated by:

  • The short amount of time they have to review a large number of closing documents, even when they did not understand the terms;
  • The lack of resources capable of providing explanations about closing documents, which are often full of legalese and technical jargon; and
  • Minor errors in paperwork resulting in long delays affecting multiple parties.

The CFPB’s Know Before You Owe rule, which combines the current TILA and RESPA mortgage disclosures, seeks to address several of these concerns by requiring that the new closing disclosure be provided at least three business days prior to closing.  The new rule will be effective August 1, 2015.

At the forum, the CFPB expressed the view that more comprehensive use of electronic records and signatures in residential mortgage closings, or “eClosings”, also have the potential to significantly ameliorate these “pain points.”  To that end, the Bureau released guidelines for an upcoming eClosing pilot project to study how eClosings can benefit consumers and address some of the challenges borrowers face at closing.  Because eClosings offer both benefits and risks, the CFPB’s pilot project will evaluate whether they can increase efficiency and consumer understanding while minimize surprises and delays at the closing table.  The guidelines list the minimum functional requirements of an eClosing platform including capabilities related to data security, workflow, and electronic signature collection.  The Bureau is also interested in testing advanced functionality that will empower consumers to better understand and engage in the closing process, enable and reward early document review, and facilitate the detection and correction of errors in closing documents.  Potential pilot participants must submit proposals as a partnership between a technology vendor providing an eClosing platform and a lender that has contracted to close loans utilizing that platform.

The CFPB was joined at the forum by representatives by the VA, FHA, FHFA, USDA, Ginnie Mae, Freddie Mac and Fannie Mae, all of whom voiced support for expanding the use of electronic records and signatures in mortgage closings.  All of the agencies and GSEs expressed their willingness to collaborate with industry and the CFPB on the eClosing pilot project.

An audio and video recording of the forum will be available at consumerfinance.gov shortly.

For more information on the pilot program and eClosings, call Margo Tank at 202-349-8050, or David Whitaker at 202-349-8059. For more information about the TILA-RESPA integrated disclosures rule, please see BuckleySandler’s Special Alert.


South Dakota Adopts Uniform Real Property Electronic Reporting Act

On March 31, South Dakota enacted SB 68, becoming the 30th jurisdiction to adopt the Uniform Real Property Electronic Recording Act (URPERA) with the enactment. URPERA, promulgated by the Uniform Law Commission in 2004, gives county clerks and recorders the legal authority to prepare for electronic recording of real property instruments. Among other things, SB 68 (i) establishes that, for any law requiring that a document be an original as a condition for recording, an electronic document satisfying certain specific conditions will qualify; (ii) establishes an electronic recording commission to adopt uniform standards to implement procedures for recording electronic documents with the register of deeds; and (iii) requires the register of deeds to comply with standards set by the commission, including accepting electronic documents for recording. The law takes effect July 1, 2014.


Russia Joins International Convention On Electronic Communications In International Contracts

On January 17, the Russian Federation became the fourth party to the United Nations Convention on the Use of Electronic Communications in International Contracts, joining The Dominican Republic, Honduras, and Singapore. The Convention will take effect for Russia on August 1, 2014. It is intended to enhance legal certainty and commercial predictability where electronic communications are used in relation to international contracts, including by addressing, among other things, (i) the determination of a party’s location in an electronic environment; (ii) the time and place of dispatch and receipt of electronic communications; and (iii) the use of automated message systems for contract formation. The Convention builds on the fundamental legal principles and provisions contained in the UNCITRAL Model Law on Electronic Commerce by providing criteria for establishing functional equivalence between electronic communications and paper documents, as well as between electronic authentication methods and hand-written signatures. Fifteen other states have signed the Convention but have not yet ratified it.


Oregon Updates Notary Regulations, Allows Electronic Notarization, Journals

On October 1, the Oregon Secretary of State published a final rule to implement numerous changes to the state’s notaries public regulations, including providing for electronic notarizations and electronic journals. The Secretary also released a summary of the changes. Notaries may notarize documents electronically after informing the Secretary of State of the format the notary will use by submitting notice via email, using the Electronic Notarization Notice form, along with an example of an electronic notarization. Any change to the way a notary conducts electronic notarizations—e.g. new vendor, new technology, changed appearance—requires a notary to provide notice of the change to the Secretary of State. A notary also may document an electronic notarization in either a paper or electronic journal, or both. The new rules took effect on September 1, 2013.


Federal District Court Holds Work-Issued Computer Not A “Facility” Under Stored Communications Act

On September 18, the U.S. District Court for the Western District of Washington held that an employee’s computer, issued by the employer, is not a “facility” subject to protections of the Stored Communications Act. Roadlink Workforce Solutions, L.L.C. v. Malpass, No. 13-5459, 2013 WL 5274812 (W.D. Wash. Sept. 18, 2013). In this case, an employer sued a former employee for allegedly copying and then deleting certain information from an employer-issued computer before leaving to work for a competitor. The employer claimed a private right of action under the Stored Communications Act based on its allegation that the former employee intentionally exceeded his authorization to access a “facility through which an electronic communication service” it provided, and obtained and altered an electronic communication while it was in electronic storage. The court held that the employer-issued computer was not a facility through which an electronic communication service is provided, citing to previous decisions holding that including personal computing devices within the definition of “facility” would render other parts of the SCA illogical. The court reasoned that the plaintiff’s definition of facility would mean that any web site accessed on the computer would be a “user” of the communication service provided by the computer, and exempt from the SCA because of the exception for communications “of or intended for” that website. The court also held that the employer failed to demonstrate that the files accessed were in electronic storage because emails that have been opened but not deleted to not fit the SCA’s definition of “storage.” The court dismissed the employer’s SCA claim and a claim under the Computer Fraud and Abuse Act, but retained jurisdiction over certain state claims.


North Dakota Amends UCC to Require Electronic Recording

On April 30, North Dakota enacted HB 1136, which compels the Secretary of State to provide an electronic means for filing any record required to be filed under the state Uniform Commercial Code. The bill also, among other things, directs the Secretary to establish an electronic system and requires electronic filing to obtain or amend certain liens, including repairman’s liens and other non-mortgage liens. The changes become effective August 1, 2015. If the Secretary makes a report to the legislative management and to the information technology committee certifying that the electronic filing system is ready for implementation, these changes will become effective ninety days following the completion of the certificate requirement.