By: Michael W. Ross

In the first half of 2019, the “crypto-winter” that had set in during 2018 appeared to see signs of a thaw, albeit with new regulatory developments and controversy continuing to characterize the space.  On the regulatory front, the Securities and Exchange Commission (SEC) issued more detailed guidelines for companies seeking to sell digital tokens.  The 13-page “Framework for ‘Investment Contract’ Analysis of Digital Assets” provides a detailed analysis of the factors relevant to the Howey test that the SEC uses to determine the existence of a security (and all that designation entails).  At the same time, the SEC issued a no-action letter for a company that had represented it would not be using its tokens to fund the development of the token network, and that the tokens would be immediately usable—underscoring two key factors of the SEC’s assessment.  In another development, the Financial Action Task Force (FATF)—a global inter-governmental organization focused on fighting money-laundering—issued new guidelines on cryptocurrency companies operating in its 37 member countries, including requirements about collecting user information.  FINRA has also decided to continue a reporting initiative it announced last year.

On the news-making front, much industry attention was paid to the SEC’s suit against a Canadian messaging company called Kik Interactive, alleging that Kik propped up its failing business by pivoting to an unregistered token offering through which it raised $100 million.  Some have viewed the case as one to watch to see whether courts will view digital tokens the same way as the SEC has.  More recently, focus on developments at the SEC have been overtaken by news of Facebook’s anticipated Libra token.  Built on a permissioned blockchain network overseen by a litany of household names, and backed by a basket of traditional assets, the Libra token met early news of its potential to change the game for cryptocurrency.  More recent weeks have seen a flurry of commentary by regulators and legislators focused on the need to analyze the token under existing financial services laws, as well as concerns about money-laundering, consumer protection and privacy.  For those interested in the space, it will be worth monitoring further developments as they unfold.

By: Jeffrey A. Atteberry

In June, Facebook publicly launched an initiative to develop a cryptocurrency called Libra in partnership with 27 other technology and finance companies including Visa, PayPal and Uber.  According to Facebook, consumers will be able to buy Libra anonymously and then use the currency to buy things online, send money to people, or cash out at physical exchange points such as grocery stores.  The blockchain technology behind Libra is meant to be open-source and not controlled exclusively by Facebook, but by an association of its founding companies, each of which has already invested at least $10 million into the venture. 

Facebook’s announcement triggered a rapid response from federal legislators, and on July 15 the House Financial Services Committee introduced draft legislation aimed at preventing large tech companies from creating digital currencies such as Libra.  Entitled “Keep Big Tech Out of Finance Act,” the draft legislation would apply only to tech companies with over $25 billion in annual global revenue that primarily operate online marketplaces or social platforms.  Such companies would be prohibited from using blockchain or distributed ledger technology to create or operate “a digital asset that is intended to be widely used as a medium of exchange, unit of account, store of value, or any other similar function.”  The draft legislation would further prohibit such tech companies from being or affiliating with “a financial institution.” 

The draft legislation is just the latest indication that federal legislators and regulators are increasingly focused on the growing linkages between technology, particularly in the form of social media and online marketplaces, and more traditional consumer finance industries.

Jenner & Block has recently launched The Consumer Finance Observer or CFO, a newsletter providing analysis of key consumer finance issues and updates on important developments to watch.  In this issue, consumer finance lawyers David Bitkower, Kali Bracey, Jeremy M. Creelan, Joseph L. Noga, Michael W. Ross and Damon Y. Smith and Associate William S.C. Goldstein discuss how enforcement authorities are zeroing in on alternative data; the NY District Court’s block of a fintech charter; the CFPB’s proposed debt collection rules; the Saga of Madden v. Midland Funding; news from the CFPB’s UDAAP Symposium; updates on cryptocurrency; the FDIC’s consumer compliance supervisory highlights; and Texas’s enactment of new consumer finance laws. 

To read the full newsletter, click here.

By: Gabriel K. Gillett

In recent years, the Supreme Court has issued many decisions about arbitration, including the enforceability of arbitration agreements and employment agreements that bar classwide arbitration.  Last week, the Eighth Circuit issued a decision in a case involving those issues, holding that an employment agreement’s arbitration clause mandating individual arbitration was unenforceable.  Shockley v. PrimeLending, -- F.3d. --, 2019 WL 3070502 (8th Cir. 2019).  The arbitration clause provided that the employee and the company agree to “resolve the covered dispute exclusively through final and binding arbitration,” that both parties waive “the right to initiate a class, collective, representative or private attorney general action,” and that “[a]ll Covered Disputes will be settled by binding arbitration, on an individual basis.”  The court did not find that belt-and-suspenders language defective in any way.  Rather, the court reasoned that a valid agreement to arbitrate had not been formed because the employer had provided the employee with a link to the agreement, but there was no evidence the employee had clicked the link or otherwise assented to the agreement. 

The Eighth Circuit’s decision does not provide gloss on the Supreme Court’s arbitration jurisprudence—it does not even cite many of the Court’s recent cases.  The Eighth Circuit’s decision also does not discuss a novel legal theory or break new ground in the arbitration space.  Nor does it address one of the many open and often litigated issues related to arbitration.  Still, the holding is notable because it serves as an important reminder: even the best, clearest language in an arbitration clause (or any contract for that matter) is enforceable only if the parties actually agreed to it.  See, e.g., Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407, 1415 (2019) (“‘[T]he first principle that underscores all of our arbitration decisions’ is that ‘[a]rbitration is strictly a matter of consent.’” (citations omitted)).

By: Kelly Hagedorn and Oliver J. Thomson

The UK Information Commissioner’s Office (ICO) on 8 July 2019 issued a notice of its intention to fine British Airways £183.39 million for infringements of the General Data Protection Regulation (GDPR).  Such a fine, if levied, would represent around 1.5% of British Airways’ worldwide turnover for 2017, and would be approximately 367 times larger than the next largest fine that the ICO has imposed.

Background

The proposed fine relates to a data breach notified to the ICO by British Airways in September 2018.  In late August and early September 2018, British Airways customers attempting to use the British Airways website or app were redirected to a fraudulent website, which then gathered the customers’ personal data.  This personal data gathered included payment card information, booking details, and name and address information.  The breach affected around 500,000 British Airways customers.