UK: eSignature And Epayment News And Trends

Last Updated: 11 July 2019
Article by Margo H. K. Tank, David Whitaker, Liz Caires and Andrew G.

A fact of business today is that customers − both consumers and other businesses – and employees expect to transact digitally. To remain competitive, companies find themselves increasing their efforts to digitally transform their businesses.

Successfully implementing this transformation requires careful planning to ensure regulatory compliance, a smooth integration with existing business technology and a positive customer experience.

This is our sixth bulletin for 2019, again aiming to help companies identify important and significant news and legal developments impacting digital offerings. Each issue will feature in-depth insight on a timely and important current topic.

In this issue, we provide an analysis on California's recent law regarding chatbots. In addition, we will cover recently enacted federal and state laws, federal and state regulatory activities, fresh judicial precedent and other important news.

For related information regarding blockchain and digital assets, please see our new monthly bulletin Blockchain and Digital Assets News and Trends.

INSIGHT

Who's that bot? California requires clear disclosure starting 7/1/2019

In recent years, many stores, ecommerce platforms and service providers have begun providing messaging options that allow consumers to ask questions and interact with sellers. What consumers may not realize is that the "person" they are communicating with is not actually a flesh and blood person, but rather a software program – a bot. A new California law will require clear and conspicuous disclosures when bots are used to communicate or interact online with people in California. Find out more.

REGULATORY DEVELOPMENTS

FEDERAL

FinTech

  • FinCEN announces its Innovation Hours Program. FinCEN recently announced the FinCEN Innovation Hours Program, which will allow fintech and regtech companies and financial institutions the opportunity to present their innovative products and services to FinCEN. Companies interested in meeting with FinCEN should submit a web request

Virtual currencies & money transmission

  • FinCEN Director discusses recent CVC guidance and supervisory exams of MSBs. On June 12, 2019, the FinCEN director, Kenneth A. Blanco, spoke at the NYU Law Program on Corporate Compliance and Enforcement. As part of that talk, he discussed FinCEN's recent guidance on convertible virtual currencies (covered here) and noted that FinCEN has seen a substantial increase in virtual currency SAR filings, now receiving more than 1,500 per month. Further, Director Blanco noted that FinCEN is working closely with the IRS and has launched a series of supervisory exams of virtual currency money services businesses. These examinations have included a variety of types of virtual currency businesses, including exchangers, virtual currency trading platforms, administrators, virtual currency kiosks, crypto-precious metals dealers, and individual peer-to-peer exchangers.

STATE

  • 23 states join licensing agreement for fintechs. A diverse group of states, large and small and from coast to coast, have joined a multistate agreement to standardize the licensing process for money transmitters and other money services businesses. According to a June 24 announcement from the Conference of State Bank Supervisors, the pact would greatly streamline the MSB licensing process. Under the agreement, if one state reviews key elements of state licensing for a money transmitter – IT, cybersecurity, business plan, background check, and BSA compliance – then other participating states agree to accept the findings. The multistate compact, first announced in February 2018 with seven states participating, was intended to ease the burdensome state-by-state process for money service businesses, including fintech firms, trying to expand nationwide. CSBS said the goal is to have all states on board by next year as part of a larger effort to streamline nonbank supervision, called Vision 2020. The first phase of the pilot program combines initial licensing requirements into one process so the applicant does not need to refile for each state, with the lead state communicating its certification to the other states for approval. In the second phase, each state reviews any remaining, state-specific requirements before making a decision on a license. According to CSBS, 15 companies are in the second pilot and have received 72 licenses as of June 20.

LEGISLATIVE DEVELOPMENTS

STATE

Blockchain and electronic signatures

  • On June 7, 2019, the governor of Nevada approved a bill (SB 162)that revises its Uniform Electronic Transactions Act to address blockchain technology. Specifically, the bill does the following: (i) it states that a public blockchain is a type of electronic record for the purposes of the Uniform Electronic Transactions Act; (ii) it provides that a person who uses a public blockchain to secure information does not relinquish any right of ownership related to that information; (iii) it requires a governmental agency to accept a certified copy of a record in electronic form under certain circumstances; and (iv) it prohibits a local government from taxing or imposing restrictions upon the use of a public blockchain.

Electronic Recording

  • On June 10, 2019, the governor of Texas signed S.B. 2128 into law, which amends the Property Code to require a county clerk to record a paper or a tangible copy of an electronic record that is otherwise eligible under state law to be recorded in the real property records if the copy contains an image of an electronic signature or signatures that are acknowledged, sworn to with a jurat, or proved according to law, and the copy has been declared by a notary public or other officer authorized to take an acknowledgment or proof to be a true and correct copy of the electronic record. The new law authorizes a notary public or other such officer to declare that a copy of an electronic record is a true and correct copy of that record by executing and attaching an official seal to a tangible paper declaration under penalty of perjury and affixing or attaching the declaration to the printed paper or tangible copy. The new law requires the form of declaration to be substantially in the form prescribed by the bill and establishes that a document that is a copy of an electronic record and that is printed and appropriately declared satisfies any requirement of law that prescribes certain conditions for recording. Further, the new law amends the Local Government Code to require the entry in the index to real property records maintained by a county clerk for a paper document that is a printed and certified paper or tangible copy of an electronic record to contain the names of the grantors and grantees.

Remote online notarization

  • Nebraska: LB186 was enacted on May 30, 2019, to become effective on January 1, 2020. Nebraska is the 22nd state to enact RON. Nebraska excludes from its RON statute the execution of wills, codicils, testamentary trusts and documents under the UCC except those under Articles 2 and 2A.
  • Florida: HB409, reported in our prior edition of this newsletter, was signed by the governor on June 7, 2019, to be effective January 1, 2020. The bill enables RON as well as remote online electronic wills, witnessing signatures, trusts, healthcare directives, waiver of spousal rights and certain powers of attorney directives, subject to specific procedures and requirements.
  • With the addition of Nebraska and Florida, a total of 22 states have enacted RON legislation as of the date of this publication. Those states are: Arizona, Florida, Idaho, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia and Washington.

Artificial Intelligence

  • Alabama creates Artificial Intelligence Commission. The commission will review and advise the governor and legislature on all aspects of the growth of artificial intelligence and associated technology in the state and the use of artificial intelligence in governance, health care, education, environment, transportation, and industries of the future such as autonomous cars, industrial robots, algorithms for disease diagnosis, manufacturing, and other rapid technological innovations and their effect on society. The commission will also consider whether the legislature should establish a permanent commission on artificial intelligence. No later than May 1, 2020, the commission will submit to the governor and legislature a report on its findings and recommendations for administrative or policy action relating to artificial intelligence.

FinTech

  • Nevada adopts regulatory sandbox. On June 13, 2019, the governor of Nevada approved a bill ( SB 161) that requires the director of the Department of Business and Industry to establish and administer the Regulatory Experimentation Program for Product Innovation (i.e., a regulatory sandbox). The sandbox provides for a temporary exemption from certain statutory and regulatory requirements related to financial products and services for a participant under certain circumstances.

CASE LAW

FEDERAL

TCPA

  • Supreme Court remands case whose main issue was whether federal district courts needed to defer to FCC interpretations of the TCPA: In PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., the Supreme Court was presented with the question of whether the Administrative Orders Review Act (Hobbs Act), which grants federal courts of appeals the exclusive authority to review certain final FCC orders, required the district court in this case to accept the FCC's legal interpretation of the TCPA. The Supreme Court vacated the Fourth Circuit’s decision and remanded it to the resolve two preliminary questions: (1) is the relevant FCC Order the equivalent of a "legislative rule" issued by an agency pursuant to statutory authority such that it has the force and effect of law, and (2) did the plaintiff have "prior" and "adequate" opportunity to seek judicial review of the FCC's Order?

Online contract formation

  • Ninth Circuit upheld an arbitration agreement despite the several steps and fair amount of web-browsing intuition required to locate the additional terms: In in re Holl, No. 18-70568, 2019 WL 2293441 (9th Cir. May 30, 2019), the Ninth Circuit upheld an arbitration agreement that it stated "tests the outer limits of what constitutes a 'reasonably conspicuous' provision as part of the terms of usage so prevalent in the adhesion contracts of modern internet commerce." The court found that Mr. Holl affirmatively assented to the company's service terms, and by doing so, he agreed to the incorporated terms and conditions of service, which included the arbitration clause at issue. The court found that the incorporation of the terms and conditions of service into the service terms was valid because the incorporation was "clear and unequivocal," the reference was called to the attention of the other party, and the terms were easily available to the other party. Here, the three-page-long service terms stated in the section titled "Governing Terms" that by consenting to these terms, "[y]ou expressly acknowledge having reviewed, understood, and agreed to the [terms and conditions of service]. . . and accept their application." As to the availability of the incorporated terms, the court found that despite the "several steps and a fair amount of web-browsing intuition" required to access them, the terms and conditions of service were accessible by users at all relevant times.
  • Court finds arbitration agreement valid when employee fails to opt-out as instructed by the email announcement: In Prizler v. Charter Communs., LLC, 2019 WL 2269974 (S.D. Ca. May 27, 2019), the defendant sent its dispute resolution program implementing the defendant's arbitration agreement to all employees' email accounts, including the plaintiff's. The email announcement stated that unless employees opted out within 30 days of receiving the message, they would be enrolled. The email also provided guidance on where to find opt-out instructions, and the instruction directed employees to an opt-out webpage if their choice was to opt out. The court held that the plaintiff received the email under the mailbox rule. It further held that the plaintiff "impliedly consented to the Arbitration Agreement as he failed to take the steps to opt out despite Charter providing the instructions on how to do so in an accessible place." The court also found the Arbitration Agreement was not procedurally unconscionable because "Prizler had the opportunity to opt out."
  • Court holds that CEO’s electronically-signed email constitutes an official writing for contract purposes: In Wechem, Inc. v. Evans, No. 18-CA-743, 2019 WL 2295755 (La. Ct. App. 5 Cir., May 30, 2019), the court upheld the non-competition and non-solicitation provisions of a contract. The defendant argued that the plaintiff modified his compensation scheme such that it rendered the non-competition provisions unenforceable. The court held that the change to the compensation scheme was not unilateral and instead the final terms were reduced to a "writing," specifically an email transmitted by the plaintiff’s CEO, in his official capacity, which bore the CEO’s electronic signature. This satisfied the "written notice" and signature requirement within the defendant’s 2007 employment contract, which included requirements necessary to change his compensation scheme. Further, the court noted that in oral testimony, the defendant referred to the email message as a "writing."
  • Court denies plaintiffs' motion to dismiss arbitration agreement dispersed via electronic copy: In Duran v. Conn Appliances, Inc., 2019 WL 2336873 (W.D. Tex. May 31, 2019), the US District Court for the Western District of Texas applied Texas contract law to affirm the validity of a 2012 arbitration agreement and a 2018 updated arbitration agreement between the defendant and its former employees, who were alleging that the agreement was not valid as the employees were not provided with and did not agree to the 2012 and/or the 2018 version of the agreement. The defendant provided evidence that the employees received an electronic copy of the 2012 and/or 2018 agreement during a company online training module. The training module required employees to log in using their employee IDs and passwords, and to certify that they had received, read and accepted the terms of the arbitration agreement at the end of the training. The employees' decision to continue employment following the notice of the changes to their employment contract in the 2018 agreement further represented a legally-binding agreement to the terms of the contract, thus making the arbitration agreement valid and enforceable.
  • Text messages not sufficient to satisfy statute of frauds because no electronic signature was present: In Tayyib Bosque, Corp. v. Emily Realty, LLC, 2019 WL 2502492 (S.D.N.Y. June 17, 2019), the court held that a series of text messages between the plaintiff and defendant failed to satisfy New Jersey's statute of frauds because the plaintiff could not prove that the defendant signed the text messages. As a business broker, the plaintiff needed to satisfy New Jersey's statute of frauds regarding the commission agreement. Even though the plaintiff and defendant exchanged a series of text messages, the court concluded that merely stating that an "electronic signature" includes an "electronic process" without specifying any particular text message that the defendant signed failed to establish that crucial element under the statute of frauds; thus the parties did not have a valid commission contract.
  • Court reverses lower court in finding that plaintiff validly signed electronic agreement: In Employee Resource Group, LLC v. Collins, the court reversed the lower court's decision that denied the defendant's motion to enforce arbitration because the court held that the agreement unequivocally contained the plaintiff's electronic signature that complied with Kentucky's Uniform Electronic Transactions Act. The lower court held that the signatures were "prestamped" and thus they did not constitute electronic signatures. This court stated that the unrefuted record showed that the digital signature could only have appeared on the document after the plaintiff entered her password that she created and that was accessed via a portal whose link was emailed to her. The plaintiff testified that she would not have shared the password with anyone else. Therefore, the court concluded that the plaintiff signed the arbitration agreement and reversed the lower court and remanded for an order referring the matter to arbitration.
  • Court finds that parties agreed to conduct transaction electronically even without express agreement to do so: In VT Holdings LLC v. My Investing Place LLC, 440 P.3d 767 (Utah App. 2019), the plaintiff sought to appeal the validity of a reconveyance that it signed, notarized and faxed–but never delivered physically to–the defendant, who recorded the faxed document. The plaintiff argued that a faxed document is not a "written document" under the relevant recording statute, adding that the parties never agreed to conduct business electronically. The court affirmed the trial court's finding that a faxed agreement constitutes an electronic record under Utah's UETA. The court then examined the conduct of the two parties, and affirmed that although the parties never expressly agreed to conduct business electronically, because the plaintiff’s majority owner had corresponded with the defendant via email in addition to faxing the notarized reconveyance to the defendant without conditioning its validity on receipt of original, there was enough to infer that the parties agreed to conduct business electronically.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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