New Jersey Issues Rule Proposal on Uniform Fiduciary standard

Yesterday the New Jersey Bureau of Securities (“NJBOS”) issued its Rule Proposal titled “Fiduciary Duty of Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives”.  Below is a link to the Press Release, which in turn includes a link to the Rule Proposal itself.  The Rule Proposal would amend existing section N.J.A.C. 13:47A-6.3 and then add new section N.J.A.C. 13:47A-6.4.

https://www.njconsumeraffairs.gov/News/Pages/04152019.aspx

We have reviewed the Rule Proposal and identify the below highlights.  The public comment period on the Rule Proposal ends June 14, 2019.  The Rule would take effect 90 days after a Notice of Adoption is published.  Let us know if we can be of any help, even if it is just to talk through the new proposed requirements.

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Appellate Division Rejects MacPherson Mortgage Acceleration Argument in Case of First Impression

In a case of appellate first impression in New York, the Appellate Division, Second Department held that a mortgage is accelerated upon a lender’s election to do so, notwithstanding an optional reinstatement clause in a mortgage.  In the Dieudonne matter,[1] the Second Department rejected the “MacPherson Argument,” first pronounced by the Supreme Court, Suffolk County[2] and affirmed the dismissal of the lender’s foreclosure complaint as time-barred. The MacPherson Argument reasons that a mortgage with an optional reinstatement clause is not accelerated until judgment enters, as the borrower has an continuous right to reinstate until that point.

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New Jersey Bureau of Securities (“NJBOS”) holds second public hearing on its Pre-Proposal for a Rule implementing a uniform fiduciary standard

As noted in our prior update, we continue to cover the NJBOS’ rulemaking activity relating to a uniform fiduciary standard applicable to all investment professionals.  On Monday, November 19, 2018 we attended the second public hearing held by the NJBOS.  There were approximately 40 attendees at the second hearing, with 16 speakers, representing diverse interests, putting formal comments on the record (there were seven speakers at the first hearing).

Three takeaways from the second hearing: Continue Reading

Today the New Jersey Bureau of Securities (“NJBOS”) began public hearings on its Pre-Proposal for a Rule implementing a Uniform Fiduciary Standard for Investment Professionals

This morning we attended the first public hearing held by the NJBOS concerning its pre-proposal to adopt a rule implementing a uniform fiduciary standard for investment professionals, including broker-dealers and investment advisers.  The hearing was administered by New Jersey officials, including Christopher Gerold, Chief of the NJBOS.  There were approximately 40 attendees from diverse backgrounds – investment firms, industry groups, in-house and outside counsel, and consultants.  Here are three takeaways from the hearing:

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New Jersey Bureau of Securities provides formal Notice of Pre-Proposal regarding Fiduciary Standard

Today the New Jersey Bureau of Securities began rulemaking on a proposed uniform fiduciary standard for investment professionals.  Attached below is the Bureau’s Notice of Pre-Proposal.  Comments on the Pre-Proposal are due to the Bureau by December 14, 2018, and the Bureau will hold two (2) informal conferences (on November 2 and November 19, 2018) in order to take testimony, gather facts, and provide for the opportunity of public comment.  Reed Smith will continue to monitor this process and intends on attending the public conferences.  We are available to assist clients through this process.

Read our blog post on the initial announcement here.

New Jersey Bureau of Securities notice

No Uniform Fiduciary Standard – Not so fast says New Jersey

Earlier this week, New Jersey Governor Phil Murphy announced that the New Jersey Bureau of Securities would start rulemaking to “impose a fiduciary duty on all New Jersey investment professionals, requiring them to place their clients’ interests above their own when recommending investments.”  The rule is aimed at reconciling the different standards of care that apply to investment professionals, such as broker-dealers and investment advisers.   Addressing the need for this rule, Bureau Chief Christopher Gerold added, “The roles, duties and obligations of investment advisers and broker-dealers are confusing to investors under current federal regulations.”  New Jersey Attorney General Gurbir S. Grewel also confirmed his office’s support for the action stating “With the Trump Administration gutting those [investor and consumer] protections left and right, it falls to states like New Jersey to fill the void”.

A formal Notice of Pre-Proposal to solicit public comment will be issued by the Bureau.

Reed Smith will monitor this rulemaking, which addresses an important issue for our broker-dealer and investment adviser clients, especially given judicial action striking down the Department of Labor’s Fiduciary Rule in March 2018, as well as the proposal in April 2018 of Regulation Best Interest by the Securities and Exchange Commission.  We are available to assist our clients in addressing the New Jersey rulemaking process including submission of responses to the proposed rule.

A link to the State’s Press Release from earlier this week is below.

https://www.nj.gov/governor/news/news/562018/approved/20180917c.shtml

Client Alert – TCPA compliance and litigation impacted by ACA

On Friday, March 16, 2018, the United States Court of Appeals for the District of Columbia issued its long-awaited ruling in ACA International et al. v. FCC (see attached). The petition before the court challenged aspects of the Telephone Consumer Protection Act (TCPA) Omnibus Declaratory Ruling and Order issued by the Federal Communications Commission (FCC) in July of 2015.

Please read the full client alert at reedsmith.com.

Debt Collector Not Liable Under the TCPA for Post-Revocation Calls Made On Behalf of a Different Creditor

In an important decision for the collection industry, the court in Michel v. Credit Protection Ass’n L.P., No. 14-cv-8452, 2017 WL 3620809 (N.D. Ill. Aug. 23, 2017), refused to find a debt collection company liable under the TCPA for cell phone calls made on behalf of one creditor (ComEd) when the plaintiff’s oral revocation of consent related to a different creditor (Comcast).  The Michel court reasoned that obtaining consent under the TCPA is creditor-specific and so revocation should be creditor-specific as well.

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CFPB Issues Final Rule Banning Class Action Waivers In Financial Services Contracts

The Consumer Financial Protection Bureau (CFPB) finally moved forward today to ban class action waivers in mandatory arbitration clauses found in certain consumer financial services contracts.

In October 2015, the CFPB published its multiyear study on arbitration provisions in consumer financial contracts and an outline of the proposal under consideration. It then convened a Small Business Review Panel to gather feedback. The Bureau also sought comments from stakeholders — the public, consumer groups, and industry —before moving forward with rulemaking. In May 2016, the Bureau issued its proposed rule. The public responded with more than 110,000 comments during the comment period that followed. 

The CFPB’s new rule ensures consumers’ right to participate in class action lawsuits. It applies to consumer financial products and services, including those entities that lend money, store money, and move or exchange money. Specifically, it covers extensions of consumer credit; automobile leases; debt management and settlement services;  providing credit information directly to consumers; providing accounts under the Truth in Savings Act and Electronic Fund Transfer Act; transmitting and exchanging funds; certain payment processing services; check cashing services; and related debt collection activities. Congress already prohibits arbitration agreements in residential mortgages.

Individual arbitration clauses are still permitted. But if a company includes an arbitration clause in a new contract, specific contractual language must be used.  

The CFPB also attempts to make the individual arbitration process “more transparent by requiring companies to submit to the CFPB certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration.” It will collect information regarding a company’s non-payment of arbitration fees and failure to follow arbitration fairness standards. As explained in the Bureau’s press release, “[g]athering these materials will enable the CFPB to better understand and monitor arbitration, including whether the process itself is fair. The materials must be submitted with appropriate redactions of personal information. The Bureau intends to publish these redacted materials on its website beginning in July 2019.”

The rule becomes effective 60-days after publication in the Federal Register and applies to contracts entered into more than 180-days thereafter. Several obstacles could delay, or even prevent, it from going into effect, however. The rule could be repealed under the Congressional Review Act. Affected parties could sue to overturn the rule on grounds that it is an abuse of discretion or beyond the authority given to the CFPB by the Dodd-Frank Act. Or, it could be delayed by a new Director of the Bureau (Director Cordray’s term ends in July 2018).  

Reed Smith’s financial services attorneys have for many years helped to draft arbitration clauses for consumer contracts, and enforced such provisions through motions to compel arbitration. We have closely followed the Dodd-Frank rules, including this final rule. Should the final rule remain in place, we can advise you on how current arbitration clause language will need to change, how to preserve rights under present contracts, and, as always, how to protect your rights in court.

Stay tuned for updates as we continue to unpack the 775-page rule.

 

Businesses Receive Relief in TCPA Revocation Claims

In a watershed ruling for businesses facing the recent onslaught of Telephone Consumer Protection Act (TCPA) claims, the Second Circuit Court of Appeals held that consumers cannot revoke their consent to receive automated or prerecorded cell phone calls if they previously consented to receive those calls as part of a binding contract. See Reyes v. Lincoln Automotive Fin. Servs., No. 16-2104-cv, slip op. (2d Cir. June 22, 2017).

In Reyes, the plaintiff entered into a binding auto lease agreement, which contained a provision stating that he expressly consented to be contacted using “prerecorded or artificial voice messages, text messages, emails and/or automatic telephone dialing systems” at the cell phone number he had provided on his application.  When the plaintiff defaulted on his car lease and he started receiving collection calls on his cell phone, he allegedly mailed a letter revoking his consent to receive further calls, but they continued.

The New York federal district court granted summary judgment to the defendant in part on the basis that “the TCPA does not permit a party to a legally binding contract to unilaterally revoke bargained-for consent to be contacted by telephone.” On appeal, the Second Circuit affirmed the district court’s decision, holding that “the TCPA does not permit a party who agrees to be contacted as part of a bargained-for exchange to unilaterally revoke that consent, and we decline to read such a provision into the act.”

In reaching this ruling, the Second Circuit reasoned that the “text of the TCPA evidences no intent to deviate from common law rules in defining ‘consent.’” The court distinguished between (i) “gratuitous actions” under the tort law, such as voluntarily providing one’s cell phone number on a loan application without exchanging any consideration, versus (ii) providing consent “as an express provision of a contract to lease an automobile.”  In the former case, where the consent was purely voluntary, revocation is allowed at any time.  But in the latter case, where consent is provided as a term of a binding agreement, that consent “become[s] irrevocable” because “one party may not alter a bilateral contract by revoking a term without the consent of the counterparty.”  Given Congress’ silence about revocation in the TCPA, the Second Circuit was not willing to conclude that “Congress intended to alter the common law of contracts.”  The Second Circuit further rejected the plaintiff’s argument that any ambiguities should be construed in the consumers’ favor because the statute contained no ambiguity on the revocation point.

Take-away:  Businesses face thousands of TCPA lawsuits each year based on alleged revocations of prior express consent.  This Second Circuit decision creates a powerful defense to these claims as long as the defendant can show that the plaintiff’s prior express consent to receive automated or prerecorded calls was given as part of a binding contractual agreement.  If so, the plaintiff cannot unilaterally revoke that consent as a matter of law.  While this decision only is binding in the Second Circuit, it can and should be used by defendants as persuasive precedent across the entire country.

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