Weekly RoundUp
January 13, 2021

SBA and Treasury Department Issue New Guidance on PPP

In this Weekly Roundup Issue. The Office of the Comptroller of the Currency (OCC) issued guidance on its authority to charter limited purpose trust companies, raising the possibility that a limited purpose national bank could be organized to perform trust company functions and other permissible functions such as lending and payments; federal banking regulators finalized a rule increasing regulatory capital requirements for investments in covered debt instruments; the U.S. Small Business Administration (SBA), in consultation with the Treasury Department, issued new guidance regarding the Paycheck Protection Program (PPP) in connection with the program’s reopening on January 11; and a recent decision by the Massachusetts Supreme Judicial Court emphasized the importance of reasonable notice and assent in terms of service. These and other developments are discussed in more detail below.

We also invite you to visit Goodwin’s Coronavirus Knowledge Center, which is updated regularly, to learn how cross-industry teams at Goodwin are helping clients to fully understand and assess the ramifications of COVID-19, navigate the potential effects of the outbreak on their businesses and evaluate whether and how to safely reopen.

The Roundup will be on hiatus next week in recognition of Martin Luther King Jr. Day and will resume publication on January 27, 2021.

Regulatory Developments

OCC Issues Guidance on Authority to Charter Limited Purpose Trust Companies

On January 11, the OCC issued an interpretive letter in which it took the position that Section 27(a) of the National Bank Act permits the OCC to charter a national bank that limits its operations to those of a trust company and activities related thereto. According to the interpretive letter, activities of a trust company include activities permissible for a state trust bank or trust company under state law in the state where the national bank is located, such as acting as a custodian, even if those state authorized activities are not necessarily considered fiduciary in nature under federal law. The letter goes on to explain that a national trust bank may be permitted to engage in any and all activities permitted under state law for a state trust company and may also engage in activities beyond those authorized under state law for a state trust company provided such activities are permitted for a national bank under other provisions of the National Bank Act, raising the possibility that a limited purpose national bank could potentially be organized to perform trust company functions and other permissible functions such as lending and payments

Federal Banking Agencies Finalize Capital Rule for Covered Debt Instruments

On January 6, the OCC, Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation issued a final rule intended to reduce systemic risks and interconnectedness within the financial system by increasing the capital requirements for an advanced approaches banking organization that invests in a covered debt instrument, thereby reducing incentives for an advanced approaches banking organization to invest in such instruments. The rule requires an advanced approaches banking organization to treat an investment in a covered debt instrument as an investment in a tier 2 capital instrument for purposes of applying the corresponding deduction approach in the agencies’ capital rules. “Covered debt instruments” generally include unsecured debt instruments issued by foreign or U.S. global systemically important banking organizations (GSIBs) for the purposes of meeting minimum total loss absorbing capacity requirements and long-term debt requirements (as applicable), and the rule also generally applies to investments in unsecured debt instruments issued by GSIBs that are pari passu or subordinated to such instruments. The rule becomes effective on April 1, 2021.

SBA and Treasury Announce PPP Re-Opening, Issue New Guidance

On January 8, the SBA, in consultation with the Treasury Department, announced that the PPP would re-open during the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, only community financial institutions will initially be able to make First Draw PPP Loans on Monday, January 11 and Second Draw PPP Loans on Wednesday, January 13.  The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining changes to enhance the PPP’s effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act (Economic Aid Act). This new guidance includes:

Effective Date for Amended MD&A and Other Financial Disclosure Rules

On January 11, the amendments to the financial disclosure requirements for Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A, Regulation S-K Item 303), Supplemental Financial Information (Item 302) and Selected Financial Data (Item 301) that were recently adopted by the U.S. Securities and Exchange Commission (SEC) were published in the Federal Register. The effective date of the amendments will therefore be Wednesday, February 10. The amendments were summarized in an earlier Goodwin client alert that includes a link to a copy of Items 301-303 that has been redlined to show the text of the amended rules. Read this client alert for more information about the compliance date and voluntary early compliance in regard to the amendments.

Deadline Approaching for Reporting 2020 ISO Exercises and ESPP Transfers

To satisfy the information return and statement requirements for corporations with employees (including former employees) exercising incentive stock options (ISOs) and transferring shares of stock that were purchases under an employee stock purchase plan (ESPP), companies will need to complete and file Form 3921 with respect to ISO exercises and Form 3922 with respect to ESPP transfers, as applicable. Read the client alert to obtain the forms and instructions.

In regard to ISO exercises and ESPP share transfers that occurred in 2020, Copy A of the respective form must be filed with the IRS no later than March 1, 2021, if filing on paper, or March 31, 2021, if filing electronically. A 30-day extension of the Copy A deadline may be requested and obtained by filing a Form 8809 with the IRS before the original filing deadline. An extension request on Form 8809 may be filed electronically. Copy B of the respective form must be furnished to the applicable employee or former employee by February 1, 2021.

Litigation and Enforcement

Massachusetts Supreme Judicial Court Emphasizes the Importance of Reasonable Notice and Assent in Terms of Service

On January 4, the Massachusetts Supreme Judicial Court released a slip opinion in Kauders v. Uber Technologies, Inc., a case that involves a blind person’s discrimination claims against Uber, holding that, under Massachusetts law, the arbitration provision in Uber’s terms and conditions was unenforceable against the plaintiffs who signed up for Uber’s services. According to the court, the terms and conditions did not constitute a contract between Uber and the plaintiffs because the two-prong test analyzing internet contract formation—whether there is a reasonable notice of terms and a reasonable manifestation of assent to those terms—was not met in this case.

Before using Uber’s services, the plaintiff used the Uber mobile app to create an account. In the last step of the registration process where payment information is required, Uber informed the user at the bottom of the page that, by creating an account, the user agreed to the terms and conditions and the privacy policy, and provided a hyperlink to these documents. However, following such a process, the user was not required to take any affirmative action to indicate his or her consent and may complete the registration process without reviewing the terms once the payment information was entered.

In the court’s view, Uber’s interface design and inconspicuous display of such important contract terms obscured both reasonable notice and assent. Creating a Uber account was not a transaction that users would reasonably expect to involve a significant contractual relationship, and the interface did not require the users to scroll to review anything. Absent “an action comparable to the solemnity of physically signing a written contract,” the court was concerned that “such users may not be aware of the implications of their actions where agreement to terms is not expressly required.” The court also drew contrast to the regularly enforced “clipwrap” agreements and Uber’s registration interface for drivers, in which Uber clearly required drivers to review and agree to the terms and conditions by clicking a hyperlink. In June 2018, the United States Court of Appeals for the First Circuit reached a similar conclusion that the plaintiffs in that case were not reasonably notified of the terms and conditions and did not provide their unambiguous consent (Cullinane v. Uber Technologies, Inc., 893 F.3d 53, 62 (1st Cir. 2018)).

Supreme Court Debates Grammar, Syntax In Case That Will Define the Limits of TCPA Litigation

On December 8, the U.S. Supreme Court held an oral argument in the case of Facebook, Inc. v. Duguid, No. 19-511, concerning the circuit split over what type of equipment qualifies as an “automatic telephone dialing system” (ATDS) within the statutory definition of that term set forth in Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, et seq. In a development that could lift Facebook’s chances of prevailing, the Government joined the Company in asking the Court to follow the statutory definition, which some Circuit Courts (D.C., Third, Seventh and Eleventh) follow, and hold that use of a random or sequential number generator is necessary for equipment to qualify as an ATDS. However the Court decides the issue, the forthcoming ruling is likely to have significant impact on TCPA litigation across the country. Read the LenderLaw Watch blog for details of the oral argument presented.

CFPB Announces $2.175 Million Settlement with Company Offering Installment Loans

On December 30, the Consumer Financial Protection Bureau (CFPB) announced that it had entered into a consent order with a lender that provided installment loans to consumers affiliated with the military over the lender’s alleged violations of the Military Lending Act, Electronic Fund Transfer Act and Consumer Financial Protection Act of 2010. Read the Consumer Finance Enforcement Watch blog to learn more about the consent order.

FTC Reaches $1.5 Million Settlement with Payment Processor Over Fraud Allegations

On December 10, the Federal Trade Commission announced that it reached a settlement with a payment processor and its former CEO for alleged violations of the Federal Trade Commission Act. The complaint alleges that the payment processor illegally processed more than $93 million in consumer credit card charges related to fraudulent schemes. Read the Consumer Finance Enforcement Watch blog to learn more about the complaint and proposed stipulated order.

This week’s Roundup contributors: Alex Callen, Sammy Tang, Kelsey Pelagalli and Jackie Odum.