VOL. XV No. 4 April 3, 2017 Which Uniform Laws are Leading at the State House? SCOTUS says NY Anti-Surcharge Statute Regulates Speech Ponzi Schemes, Good Faith and Excess Deposits ULC Drafting Committees Hold Spring Meetings CSG SSL Committee Set to Consider State-Run Retirement Bills Uniform Law Commission Study Committee on Remote Notarization Holds Conference Call Working Group on State Issues Calendar of Upcoming Events Which Uniform Laws are Leading at the State House? Every year states consider uniform state law proposals that impact banking. Let s take a look at the Acts that are getting the most attention in 2017. The Revised Uniform Fiduciary Access to Digital Assets Act (Revised UFADAA) is the clear front-runner for the second year in a row. The Act, which allows fiduciaries to manage digital property but restricts access to the content of electronic communications without a user s consent, has been enacted in 4 states so far this session and is working its way through the legislative process in 18 others. The Act was completed by the Uniform Law Commission in 2015 and was enacted in 20 states last year leaving just 8 statehouses that have yet to consider this proposal. The Uniform Voidable Transactions Act Amendments is a solid second, with two enactments so far this session in Utah and Michigan, and 10 other states with bills in play (Alabama, Arkansas, Florida, Indiana, Massachusetts, New Jersey, New York, South Carolina, Vermont and Washington). The Act, formerly called the Uniform Fraudulent Transfer Act, strengthens creditor protections by providing remedies for certain transactions by a debtor that are unfair to the debtor s creditors. According to the Uniform Law Commission, these Amendments address a few narrowly-defined issues and do not represent a comprehensive revision of the Act as a whole. The Amendments were completed by the ULC in 2014 and have been adopted by 11 states so far. All but six states (Alaska, Louisiana, Maryland, New York, South Carolina and Virginia) have adopted the Uniform Voidable Transactions Act. The Uniform Unclaimed Property Act edges out the Uniform Power of Attorney Act to claim the number three spot, with one enactment this session in Delaware, and bills pending in 5 other states (Illinois, Minnesota, Nebraska, Tennessee and Utah). The Uniform Power of Attorney Act was enacted in Wyoming and is working its way through the legislatures of 3 other states (Georgia, New Hampshire and Texas) and DC (sorry guys, you re not a state). It was also introduced in Mississippi this session but failed to advance out of committee. Bankers should take a close look at both of these proposals and may want to consider pursuing amendments to ensure banks have the flexibility and clarity they need to protect their relationships with customers. For the Unclaimed Property Act, that means ensuring that an indication of interest in any one account or type of property should stay the abandonment period for all accounts or property types in the custody of the same financial organization. For the Uniform Power of Attorney Act, that may mean incorporating protections that allow a bank to refuse or delay action on a power of attorney in certain circumstances.
Honorable mention goes to the Revised Law on Notarial Acts which was promulgated in 2010 and includes updates to notary responsibilities, electronic recording, interstate recognition, and remedies. This Act is awaiting the Governor s signature in Idaho and is under consideration in six other states (Colorado, Georgia, Kentucky, Minnesota, New Jersey and Washington). Supreme Court says NY Anti-Surcharge Statute Regulates Speech The U.S. Supreme Court handed merchants a partial victory this week in their quest to charge higher prices to consumers who pay with credit cards. The Second Circuit case, Expressions Hair Design v. Schneiderman, turned on whether a New York law prohibiting merchants from charging credit card users more than the sticker price regulates commercial conduct or speech. The Supreme Court reasoned that because the law regulates the communication of prices rather than the setting of prices themselves, it regulates speech. The Court remanded the case to the Second Circuit for reconsideration of whether the statute is a valid commercial speech regulation, or runs afoul of First Amendment protections. The concept of preventing merchants from applying a surcharge for accepting credit cards began in federal law, with Congress adding the prohibition to the Truth in Lending Act in 1976. After the federal provision expired, ten states (including New York, California, Florida and Texas) enacted their own prohibitions on surcharging. The laws do not prohibit offering two separate prices based on a consumer s method of payment, but require the difference to be applied as a cash discount rather than a credit card surcharge. Research shows that consumers are significantly more likely to avoid using credit cards if they perceive the difference in price as a fee they are choosing to assume, instead of as a discount they are choosing to forego. Merchants argue that because the statutes prohibit surcharges, but not discounts for cash, they are only regulating how prices are communicated to consumers, and are therefore a regulation of commercial speech in violation of the First Amendment. The state Attorney Generals, however, defend the statutes as a necessary consumer protection that prevents merchants from engaging in specific predatory behavior, such as gouging and other price-hiking practices, at the point of sale. The Second and Fifth Circuits have upheld the anti-surcharge statutes, concluding that they regulate conduct, while the Eleventh Circuit reached the opposite conclusion, finding that Florida s statute violated First Amendment free speech protections. The Supreme Court did not reach the question of whether the NY statute was an unconstitutional restriction of speech, finding only that it is not unconstitutionally vague, and leaving the Second Circuit to take a fresh look at the law under First Amendment scrutiny. Ponzi Schemes, Good Faith and Excess Deposits The United States Court of Appeals for the Sixth Circuit was recently called on to answer the question of whether a bank is liable to a trustee in a bankruptcy proceeding for excess deposits. The situation in Meoli v. Huntington Nat l Bank, (Nos. 15-2308/2362) arose after two companies that were operating a Ponzi scheme went bankrupt. A computer services company ( borrower ), which had taken out a $16 million loan and maintained a deposit account of approximately $48 million with the bank, was working with an affiliated shell company to fraudulently borrow funds from equipment financing companies. The shell company would use fabricated invoices showing purchases of computer equipment to secure loans, and would then transfer those funds to the borrower s deposit account at the bank. When the shell company filed for bankruptcy, the trustee sued the bank under a fraudulent transfer theory to recover direct and indirect loan repayments made by the shell company on the borrower s loan, as well as transfers made to the borrower s deposit account. The bankruptcy court held that the bank was a transferee of the excess funds because the bank was able to use the funds while they were in the
borrower s deposit account. The Sixth Circuit reversed, explaining that a bank can only be a transferee when they gain dominion and control over deposits. Until that time, the account holder s right to withdraw the deposits keeps the bank from gaining dominion and control and that changes only when the customer grants the bank access to the funds to pay other obligations. ULC Drafting Committees Hold Spring Meetings In March, the Uniform Law Commission drafting committees to Revise UCC Articles 1,3, and 9 and to create an Electronic Registry for Residential Mortgage Notes held meetings in Washington, DC and Bethesda, MD respectively. It was the first in-person meeting for the Electronic Registry group, which is charged with drafting legislation to establish a state-level electronic registry for residential mortgage notes in the event that efforts to establish a registry at the national level are unsuccessful. The committee began its meeting by hearing from the Chair of the UCC Drafting Committee, the CEO of MERSCORP Registries, and counsel from the Federal Reserve Bank of New York who has been drafting the National Mortgage Note Repository Act. The committee spent some time discussing the general need for, and purposes of, and electronic residential mortgage note registry before addressing some of the technological and legal challenges involved in establishing a secure, multi-state registry system. Ultimately, the Electronic Registry drafting committee decided not to begin drafting at this time, choosing instead to allow the Federal Reserve Bank of New York s national registry project to run its course. The following weekend, the UCC Drafting Committee met in Washington, DC to continue deliberations on their draft revisions to Articles 1, 3, and 9 in order to provide the necessary state law to support an electronic registry for residential mortgage notes. The UCC Committee is working closely with the Federal Reserve Bank of New York to ensure that the state law revisions will be compatible and comprehensive when taken hand-in-hand with the National Mortgage Repository Act. The NY Fed issued the most recent draft of their proposal in January, and the committee spent a significant amount of time reviewing that draft and considering related comments. The NY Fed plans to revise their January draft based on comments received through April 1, and will then begin the process of socializing the draft with the Federal Reserve Board of Governors and developing a plan for presentation to Congress. That process is expected to take some time, and the UCC drafting committee does not anticipate finalizing proposed changes to the UCC until the federal registry is enacted. CSG SSL Committee Set to Consider State-Run Retirement Bills The Council of State Governments (CSG) Shared State Legislation (SSL) Committee has released their docket of legislation to be considered at the CSG spring meeting in Lexington, KY on April 20-23. The SSL Committee s criteria for including legislation in its publications includes whether the bill addresses a current state issue of national or regional significance, whether the bill provides a benefit to bill drafters, and whether the bill provides a clear, innovative and practical structure and approach to solving an issue. Finally, all bills must have become law in at least one state. Among the legislation to be considered at the upcoming session are two bills creating state-run retirement programs for private-sector workers the Illinois Secure Choice Savings Program (SB 2758), and the Oregon Retirement Savings Board (HB 2960), both enacted in 2015. Those bills attempt to address the retirement savings gap by creating a mandatory state-sponsored payroll deduction retirement savings plan for all private sector employees who are not currently offered a retirement savings vehicle through their employer. State bankers associations, along with a wide variety of business groups, opposed both
pieces of legislation as costly to implement and overly burdensome on small businesses. Questions also remain regarding applicability of the Employee Retirement Income Security Act (ERISA) to statesponsored plans, with the House of Representatives passing legislation to block the Department of Labor rulemaking that would have provided the plans with a safe harbor from ERISA compliance. Without the safe harbor, states could face increased costs and liability that may threaten the viability of the programs. To date, neither program is operational. At the meeting, the Committee will vote to include the legislation in its semi-annual publication, exclude it, defer consideration, or publish as a note for the information of legislators. A full list of the legislation to be considered by the SSL Committee in Lexington can be found here. Uniform Law Commission Study Committee on Remote Notarization Holds Conference Call The Uniform Law Commission s study committee on remote notarization held a conference call to discuss the need for and feasibility of amending the Revised Uniform Law on Notarial Acts. The legislation seeks to authorize the performance of notarial acts within the United States using audio, video, or other technologies otherwise known as remote notary. The committee is co-chaired by Patricia Fry and Ray Pepe. The committee discussed the high number of states that have introduced electronic and remote notary legislation this session and noted that the introductions have not been uniform in their approach. The committee also reviewed the efforts of other national organizations that have been studying this issue, including the resources compiled by the National Association of Secretaries of State (NASS) and the model law proposals from the National Notary Association and the American Land Title Association (ALTA). Committee members stressed the importance of developing acceptable standards, or at least guidelines, for remote notary technology and questioned whether the ULC was the proper body to set those standards. It was noted that NASS adopted standards for electronic notarizations, but did not develop them. The committee also discussed the appropriate scope that should be given to remote notarizations performed in any given state, and whether some nexus to the state performing the notarization should be required. Given the rapid introduction of remote notary legislation, concerns were raised that the standard two-year ULC drafting process may not be timely enough to head off disparate state practices. ABA Working Group on State Issues The ABA Working Group on State Issues (WGSI) hosts weekly conference calls on Fridays, at 11 AM Eastern. The call-in number is 1-800-579-2540; the ID code is WGSI. The ABA Office of General Counsel offers these free calls to all ABA members who are active in state legislation and to personnel from state bankers associations to discuss current state banking legislation. If you have any questions on any topics or issues you wish to have discussed on the call, please contact Andy Guggenheim at 202-663-5507 or Sabrina Bergen at 202-663-5030.
Calendar of Upcoming Events Council of State Governments (CSG) Spring Meeting April 20-23 -- Lexington, KY NCSL Spring Executive Committee Meeting April 21-22 -- Santa Fe, NM Uniform Law Commission Annual Meeting July 14 20 -- San Diego, CA