On March 23, 2017, the European Commission (“EC”) published a Consultation Document entitled “FinTech: A More Competitive and Innovative European Financial Sector.” The Consultation Document seeks comments regarding the development and regulation of novel financial technologies, including distributed ledger technology (“DLT” or “blockchain”), cloud computing, and artificial intelligence (“AI”). The EC hopes to obtain feedback from both financial services providers and consumers that will assist it in developing an appropriate regulatory framework for FinTech. It explains, in the Consultation Document, that “appropriate policies on important issues, such as access to technology, data standardisation and security, personal data protection and data management, need to be put in place,” to account for new innovative financial technologies.
In the ongoing skirmishes between card networks and merchants in the surcharge world, the U.S. Supreme Court has just issued a significant ruling on a novel theory. Merchants in the State of New York sought to charge consumers higher fees for purchases made by credit cards. New York state law contains a prohibition on the imposition of surcharges in such instances. The law states that merchants may not “impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check or similar means.” N.Y. Gen. Bus. Law §581. The law is similar to a prohibition on surcharging credit card use that the major card networks had previously imposed on merchants, but which was challenged as a violation of the anti-trust laws and consequently, has not been in effect for some time. The merchants had argued that the law prohibits free speech by regulating how they communicate the surcharge to their customers. The merchants used the “single tag” method, in which the cash price appears on the item; consumers were advised that the surcharge amount is in addition to the amount on the price tag. The merchants are not prohibited from discounting prices for payment by cash.
The State of New York’s position was that the law regulates the actions of the merchants. The District Court found in favor of the merchant’s free speech argument, however, the Second Circuit vacated that judgment and instructed the District Court to dismiss the case. In the view of the Second Circuit the law did not violate the merchants’ right of free speech under the First Amendment. The U.S. Supreme Court determined that the law does regulate speech and remanded the case to the Second Circuit for a determination of whether the law violates the First Amendment.
The free speech concept argued in this case, that the law prohibits the merchants from communicating the surcharge to their customers, marks a novel Constitutional argument. The outcome may be the final resolution of this long running pricing battle. Other states have similar prohibitions on surcharging so the decision could reverberate outside of the Second Circuit. We will be following developments very closely.
To read the entirety of the Reed Smith client alert, visit reedsmith.com.
On Friday, in a decision certain to please the business community as well as the Chair and new majority of the Federal Communications Committee, the D.C. Circuit struck down parts of the FCC’s October 30, 2014 Order, 29 F.C.C. Rcd. 13998 (FCC 14-164), requiring that solicited faxes (those sent with consent of the recipient) must contain opt-out notices in order to avoid violating the TCPA. See Bais Yaakov of Spring Valley, et al v. FCC (No. 14-1234). In a 2-1 decision, the majority held that the FCC lacked authority under the statute to regulate solicited faxes. The D.C. Circuit thus limits liability under the TCPA to just unsolicited fax advertisements, as its plain language states.
This ruling vindicates the two Republican FCC Commissioners, now Agency Chair Ajit Pai and Commissioner Michael O’Reilly, both of whom dissented in 2014 when the Commission’s fax Order was adopted. The ruling should also moot pending lawsuits based solely on the absence of an opt-out notice in faxes sent with the recipient’s express permission or invitation.
One caution is worth noting though. The decision does not eliminate the need to honor opt-out requests, thus creating a potential issue of fact for litigants. On the one hand, this should make it much harder for plaintiffs’ attorneys to succeed at class certification because whether any particular person opted out of receiving faxes is an individualized factual issue. On the other hand, however, it becomes harder for a defendant to refute a claim that a particular plaintiff revoked his or her consent before receiving an allegedly offending fax.
Under the FCC’s 2014 Order, onerous as the requirement to include an opt-out notice in every fax was, the business community had certainty as to what was required in communicating with customers or potential customers by fax. Now, it is incumbent on businesses to review their existing procedures or implement new procedures to defend against allegations that they have ignored or mishandled attempts by consumers to withdraw consent.
It is also worth pointing out that Bais Yaakov was argued before a three judge panel consisting of D.C. Circuit Judges Brett Kavanaugh and Nina Pillard, and Senior Circuit Judge Raymond Randolph on November 8, 2016. Oral argument in the all-important TCPA case ACA International, et al. v. FCC, also before the D.C. Circuit, was argued a few weeks earlier, on October 19, 2016, before Judges Pillard, Sri Srinivasan, and Harry Edwards. Now that Bais Yaakov has been decided, one can assume that decision in ACA cannot be far behind, and with it more certainty with respect to the definition of an “automatic telephone dialing system” and — hopefully — some much needed, practical relief, such as in the case of reassigned telephone numbers.
Before one starts uncorking the champagne, however, it is worth noting that Judge Pillard, the only judge on both the panel that heard Bais Yaakov and the panel that heard ACA, was the lone dissenter in the just decided fax case. In her dissent, Judge Pillard focused on consumer harm and the need to address what she referred to as “a fusillade of annoying and unstoppable advertisements.” In her view, Congress expressly delegated authority to the FCC to implement a prohibition on unsolicited fax advertisements, and the opt-out notice requirement gave practical effect to that ban.
In any event, it shouldn’t be long now until we see how Judge Pillard and the rest of the D.C. Circuit’s ACA panel weighs in on this ever-evolving area of the law.
On March 28, 2017, the U.S. Securities Exchange Commission (“SEC”) issued a second denial of a bitcoin exchange-traded fund (“ETF”), following its rejection of the Winklevoss Bitcoin Trust earlier this month (Reed Smith commentary is available here). SolidX Bitcoin Trust would hold bitcoin as its primary asset, together with smaller amounts of cash. Theft of bitcoins would be protected against through insurance coverage.
On March 10, 2017, the U.S. Securities Exchange Commission (“SEC“) issued an order disapproving BATS BZX Exchange’s proposal to list and trade shares of the Winklevoss Bitcoin Trust. The proposal, if granted, would have established a bitcoin exchange-traded fund (“ETF“) that market participants could invest in through the BATS BZX Exchange platform.
Read our full report at our sister site, the Financial Regulatory Report.
The SEC order is available here.
Lender license requirements recently included in the New York governor’s proposed 2017-2018 budget would expand the jurisdiction of the New York State Department of Financial Services (NYDFS) to cover many financial technology (FinTech) credit-lending companies that are currently exempt from license requirements. The proposed budget would prohibit businesses that are not registered as licensed lenders from making personal loans with a principal of $25,000 or less, and commercial loans of $50,000 or less, regardless of interest rate. Current New York state banking law only requires a license if the charged interest rate is above 16 percent. The budget would additionally apply the licensing requirement not only to any company that solicits and “makes, purchases or acquires” loans for New York residents, but also to any that “arranges or facilitates” the origination of such loans.
Read our full report on our sister site, the Financial Regulatory Report.
On February 7, 2017, the European Securities and Markets Authority (“ESMA”) released a Report on Distributed Ledger Technology (“DLT”) (also known as “blockchain” technology) Applied to Securities Markets (the “Report”) that considers DLT’s effect on securities markets and fit to existing regulatory infrastructure. The Report ultimately concludes that while many of the laws and regulations currently in place can be applied to DLT, “international regulatory engagement and cooperation are paramount . . . to ensure both that the DLT does not create unintended risks and that its benefits are not hindered by undue obstacles.” Additionally, in an appendix to the Report, ESMA summarizes the comments of market participants to its June 2016 Discussion Paper. Last month, the U.S. Financial Industry Regulatory Authority (“FINRA”) similarly acknowledged the need for international coordination in its own Report on DLT (see Reed Smith’s summary here).
To read a complete analysis of the report, please visit our sister site, the Financial Regulatory Report.
The Financial Industry Regulatory Authority (“FINRA”) published a report on January 18, 2017, regarding Distributed Ledger Technology (“DLT”) (also known as blockchain technology) that provides an overview of different DLT use cases and related regulatory considerations for market participants (the “Report”). The Report provides valuable guidance to both the financial services industry and the broader technology sector as U.S. lawmakers and regulators begin to focus their attention on the development of these swiftly evolving technologies. FINRA requests public comment on its conclusions, highlighted in this article, by March 31, 2017.
To read a complete analysis of this report, please visit our sister site, the Financial Regulatory Report.
On November 30, 2016, the Illinois Department of Financial and Professional Regulation (IDFPR) issued a proposed “Digital Currency Regulatory Guidance” (the Guidance) regarding the application of the Illinois Transmitters of Money Act (TOMA) to various digital currency activities. The Guidance applies only to “decentralized digital currencies,” which are not issued by a particular person or entity, do not have a central administrator, and do not have a central repository. Therefore, the Guidance would apply to activities involving Bitcoin and most other cryptocurrencies. The IDFPR is accepting comments on the Guidance until January 18, 2017. To read more, click here.
On Friday December 2nd, the Officer of the Comptroller of the Currency (OCC) announced that it would consider granting financial technology (fintech) firms special purpose national bank charters. The OCC’s proposal constitutes a major development for fintech companies and the financial services industry more generally. This move builds on recent actions taken by the OCC in an attempt to promote financial innovation, including releasing a white paper regarding responsible innovation in the financial industry in March, and announcing the creation of an Office of Innovation in October.
Under the OCC’s proposed framework, fintech companies may apply for a special purpose national bank charter—the same type of charter that the OCC has granted primarily to trust banks and credit card banks. In a release summarizing the proposal, the OCC claims that the proposed system will improve safety and soundness of fintech institutions, promote consistency in the application of laws and regulations, ensure fair treatment of customers, and strengthen the federal banking system. Comptroller of the Currency Thomas J. Curry also explained that the banking system will be healthier if fintech companies “enter the system through a clearly marked front gate, rather than through some back door.”