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.
Each issue will feature in-depth insight on a timely and important current topic.
In this issue, we provide a reminder about meeting the IRS’s requirements for using electronic signatures with 4506-T documents. In addition, this edition includes reports on other 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 monthly bulletin Blockchain and Digital Assets News and Trends.
Want to receive 4506-T documents electronically? Ensure you are addressing recent changes
Last year saw two substantive changes to the way lenders can receive signed 4506-T documents. First, under the Taxpayer First Act, Section 6103 of the Internal Revenue Code was amended to state that “[p]ersons designated by the taxpayer under this subsection to receive return information shall not use the information for any purpose other than the express purpose for which consent was granted and shall not disclose return information to any other person without the express permission of, or request by, the taxpayer.” Therefore, in a loan transaction, the borrower must now separately provide consent for the use of their tax information and for that information to be shared with third parties. Second, the IRS stated that effective July 1, 2019, it “will no longer provide transcripts requested on Form 4506, Form 4506-T and Form 4506T-EZ to third parties” and that it would revise the forms to state as such. The IRS stated that third parties can use the Income Verification Express Service (IVES) program as an alternative. Read more.
Certain Federal Home Loan Banks begin accepting eNotes as collateral: Recently, the Federal Home Loan Bank of Chicago, the Federal Home Loan Bank of Dallas, and the Federal Home Loan Bank of Des Moines announced that they would accept electronic promissory notes (eNotes) as collateral. This furthers the goal, announced earlier in 2020, that all 11 Federal Home Loan Bank allow for members to pledge eNotes as collateral. For those Federal Home Loan Banks that are currently accepting pledged eNotes as collateral, the member bank will need to comply with the respective eNotes Collateral Acceptance Requirements and Guidelines.
New York adopts law allowing tax preparers to electronically sign an e-file authorization: On August 24, 2020, the governor of New York signed S08832 which allows tax preparers to electronically sign an e-file authorization so long as it is done in accordance with any instructions prescribed by the tax commissioner. In enacting this law, New York repealed the requirement that such documents needed to wet signed by the tax preparer before being filed with New York.
Electronic signatures and general online contract formation
Court finds that electronic signature implementation constituted an unfair and deceptive act and practice: In FTC v. Elegant Solutions, Inc., 2020 WL 4390381 (C.D. Cal. July 6, 2020), the court granted the FTC’s motion for summary judgment for violations of Section 5 of the FTC Act – which prohibits unfair or deceptive acts or practices – in part because the defendant’s online application “automatically jumped from signature block to signature block instead of requiring consumers to scroll through each page, diminishing the likelihood that consumers would review Defendants’ disclosures.” Further, the defendant emailed the consumers the enrollment packet to sign only after the consumers agreed to enroll in the defendant’s program (the defendant would speak to the customer over the phone and then send the customer a pre-filled enrollment packet to electronically sign). Taken together, these actions helped establish that the defendant made material misrepresentations that were likely to mislead consumers. Therefore, the court granted the FTC’s motion for summary judgment for violations of Section 5 of the FTC Act.
Exchange of texts and emails not sufficient to satisfy Florida’s statute of frauds requirement: In Taxinet, Corp. v. Leon, 2020 WL 4501938 (S.D. Fla. May 28, 2020), the court held that an exchange of text messages and emails between the parties did not establish a joint venture agreement and thus the oral agreement is barred by the statute of frauds because it cannot be performed within one year and there is no written contract. The court noted that at best, the record showed evidence of an agreement to agree in the future. Further, while the text messages and emails contained some of the elements required to form a joint venture, they did not contain all material terms. The absence of the material term was sufficient to conclude that the text messages and emails did not constitute a writing for purposes of Florida’s statute of frauds.
Exchange of emails sufficient to satisfy the Texas signed writing requirement for settlement agreements: In Gray v. Racetrac Petroleum, Inc., 2020 WL 4747499 (N.D. Tex. Aug. 14, 2020), the court held that emails exchanged between the parties satisfied Texas Rule of Civil Procedure 11, which requires that “no agreement between attorneys or parties touching any suit pending will be enforced unless it be in writing, signed and filed with the papers as part of the record, or unless it be made in open court and entered of record.” First, the emails contained all the terms necessary for a settlement agreement, including the total amount and how the check were to be distributed. These exchanges satisfied the writing requirement. Further, counsel for both parties routinely affixed their names to their emails, which constituted an electronic signature under the Texas Uniform Electronic Transactions Act. Therefore, the court held that the emails satisfied the Rule 11 requirements.
Courts uphold arbitration agreement:
- In Juric v. Dick’s Sporting Goods, Inc., 2020 WL 4450328 (W.D. Pa. Aug. 3, 2020), the court upheld the arbitration agreement entered into by plaintiffs. The plaintiffs made numerous arguments regarding why they should not be bound by the arbitration agreement, and the court rejected each one. First, some plaintiffs alleged that they did not receive a copy of the arbitration agreement. The court stated that there is no case law that an arbitration agreement is only valid when the signatory is provided a copy. Here, the defendant’s system, however, allowed plaintiffs to print a copy for their own records. Further, the defendant’s system showed that all plaintiffs received the arbitration agreement during the online onboarding process. Next, the court denied the plaintiffs’ argument that the arbitration agreement was not valid because the defendant did not sign. The court did so because neither the agreement itself nor the Federal Arbitration Act require parties to sign as a condition precedent to being bound. The court also denied the plaintiffs’ challenge based on the allegation that they did not recall acknowledging the arbitration agreement. The court held that people are presumed to have knowledge of the contracts that they signed.
- In Saddler v. Carvana, LLC, 2020 WL 4596923 (E.D. Mo. Aug. 11, 2020), the court upheld an electronically signed arbitration agreement. The defendant produced a signed arbitration agreement along with an audit log. The plaintiff admitted in his original petition that he executed the arbitration agreement but later claimed that he did not electronically sign it – rather, he maintained that all paperwork was presented to him on paper for execution – implying that the electronic signature was not genuine.The defendant produced an audit trail of the defendant’s electronic signing session for all the documentation associated with the transaction, and stated, in an affidavit, that all of its transactions are conducted using electronic documentation. The court concluded that the plaintiff’s position was not credible in light of his earlier statements and the defendant’s evidence of electronic execution, and thus found that the plaintiff executed a valid arbitration agreement.
- In Born v. Progrexion Teleservices, Inc., 2020 WL 4674236 (D. Utah, Aug. 11, 2020), the court held that even though the plaintiffs did not electronically sign the arbitration agreement, neither Oklahoma law nor the Federal Arbitration Act require a signature. Instead, they require that the arbitration agreement be contained in a “record” or “written,” respectively. The defendant provided unrebutted evidence that plaintiffs reviewed the arbitration agreement and that under Oklahoma law, the parties agreed to the arbitration agreement when they accepted the consideration offered – employment with the defendant.
Court denies motion to dismiss ADA website accessibility claims: In Alcazar v. Bubba Shrimp Co. Restaurants, Inc., 2020 WL 4601364 (N.D. Cal. Aug. 11, 2020), the defendant filed a motion to dismiss for lack of subject matter jurisdiction because it argued that the website accessibility barriers identified in the complaint had been fully remedied. The court denied this motion because both parties submitted competing evidence over whether the defendant’s website violated the WCAG 2.1 standards. The court noted, however, that whether the defendant’s “website violates WCAG 2.1 standards is informative to, but not dispositive of, whether it violates the ADA.” The court stated that these issues are better addressed on summary judgment or at trial.
Money transmission and virtual currency
Washington, DC court holds bitcoin is money: On July 24, the US District Court of the District of Columbia issued a memorandum opinion in the case of US v. Larry Dean Harmon, Criminal Action No. 19-395 (BAH), denying Harmon’s motion to dismiss by finding that bitcoin constitutes “money” for purposes of the DC Money Transmitters Act (MTA) and that Harmon operated an unlicensed “money transmitting business” under federal law. Harmon was charged with three counts related to his operation of Helix, an underground “tumbler” for bitcoin, enabling customers, for a fee, to send bitcoins to recipients in a manner which concealed the source or owner of the bitcoin. The court noted that the MTA failed to define the term “money” so the court adopted the term’s ordinary meaning as “a medium of exchange, method of payment, or store of value.”
Electronic signatures and general online contract formation
Court upholds arbitration agreement: In Fries Restaurant Management, LLC v. Silva, 2020 WL 4381994 (Tex. Ct. App. July 30, 2020), the court reversed a lower court and remanded the case back for an entry compelling arbitration because the court concluded that only reasonable conclusion existed – the defendant completed the online application and consented to the arbitration agreement with her digital signature. The court reached this conclusion because the defendant provided “step-by-step screenshots” of the defendant’s online application as it would appear to the defendant during the application process. The application also included personal details from the defendant, such as the defendant’s social security number. Further, the plaintiff produced a version of the arbitration agreement electronically signed by the defendant, and the only way it could have been signed would have been for the defendant to complete the online process using unique login information.
Court upholds denial of arbitration because defendant could not sufficiently authenticate plaintiff’s electronic signature: In Duncan v. Titlemax of Missouri, Inc., 2020 WL 4941692 (Mo. Ct. App. Aug. 25, 2020), the court upheld a lower court’s dismissal of a motion to compel arbitration because the court found that the lower court’s decision was supported by substantial evidence. The plaintiff’s grandson obtained a consumer loan from the defendant and used as collateral for the loan the title to a car owned by the plaintiff and the plaintiff’s grandson. The plaintiff’s grandson defaulted on the loan and the defendant repossessed the car. The defendant produced an electronically signed arbitration agreement with the name Jim Duncan (the defendant’s name is Glenn Duncan). The defendant further produced an affidavit stating that a person accompanied the plaintiff’s grandson to the store and electronically signed the co-owner’s consent, and that as part of that signature process, a defendant employee verified the signer’s identity. The plaintiff denied ever signing any document and the plaintiff’s grandson provided an affidavit stating that he went to the defendant’s store to obtain a loan, that his grandfather was not with him, and that the manager gave him the loan and said the grandfather would need to come in and sign documents as well. The grandson further stated that no one else with his grandfather’s identification accompanied him. Concluding that the grandson’s affidavit provided substantial evidence that the plaintiff was not present in the defendant’s store, the court therefore affirmed the motion denying arbitration.
RECENT AND UPCOMING EVENTS
Learn about upcoming events in the ESRA Digital 2020 Education Series, including webinars on mortgage eclosings, remote online notarization, and digital transformation in automotive selling and lending.
Margo Tank spoke at the ALTA Boot Camp on Wednesday, August 19, 2020 regarding standards and practices required for both title insurance and lending on digital transactions.
Margo Tank and Liz Caires took part in a Mortage Bankers Association webinar, “Remote Online Notarization State-of-Play,” on June 2, 2020.
The MBA Compliance Essentials Remote Online Notarization State Surveys, developed by DLA Piper, provides a comprehensive look at RON requirements in each state that has enacted RON legislation. These fully editable surveys are organized by category of requirements, including registration, technology, seal and signature, certificates of RON acts, journal, authentication, session, recording, and additional requirements. Companies can purchase the full package which includes surveys for all states that have enacted RON legislation along with a matrix summarizing state requirements, or companies can purchase information about individual states as needed. Read more.
For more information
In case you missed it
The materials from our CLE Privacy Symposium held in partnership with the Electronic Signature & Records Association are available online. Access them here.
Read the latest issue of our bulletin Bank Regulatory News and Trends.
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