Today, Jenner & Block announced the formation of a FinTech industry group, expanding the firm’s strong reputation in advising clients on complex financial services and consumer-related matters.  Leveraging our industry knowledge and significant capabilities, the FinTech industry group will work strategically with businesses to address and stay ahead of new developments as financial technology and the regulatory landscape continue to evolve.  Anchored by a team of experienced former government officials, including a former senior counsel at the Consumer Financial Protection Bureau, prosecutors and in-house counsel, the team focuses on advising FinTech companies and businesses that rely on financial technology to navigate challenges in this increasingly complex area of commerce.  The group assists clients in a variety of legal areas including compliance and controls, data security, trade secrets and intellectual property protection, insurance coverage, dispute and controversy resolution, government and internal investigations and corporate and transactional matters.

To learn more, please click here.

In an article for Lending Times, Jenner & Block Partner Kali Bracey and Associate Marguerite L. Moeller discuss potential legal risks that may arise as a result of companies using big data to make credit extension decisions.  The article explains that despite the growing trend of using artificial intelligence and machine learning to make unbiased credit determinations and model credit risk, big data can in fact lead to inadvertent disparate impact on protected classes.  Lenders must ensure that they abide by the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) to avoid discriminatory impact in terms of race, gender or other protected classes in lending decisions.  The FHA prohibits discrimination in securing financing for housing, while the ECOA prohibits discrimination for credit transactions.  They must also comply with the Fair Credit Reporting Act (FCRA), which requires lenders to disclose to consumers if they deny credit based on a consumer report and to disclose to consumers if they charge more for credit based on a consumer report.  The authors recommend that companies incorporate federal fair lending and credit laws into their algorithmic models.  While it is unclear how the current administration will address these issues, federal regulators are paying attention to the emerging field of big-data-based lending.  Furthermore, private plaintiffs and state attorneys general may still take action in the form of seeking punitive damages and equitable and declaratory relief or enforcing state statutes that protect fair lending.

To read the full article, please click here.

On March 23, 2018, the Second Circuit affirmed the dismissal of a putative class action alleging that Abbot Laboratories mislabeled its Similac baby formula as organic, ruling that the plaintiffs’ claims were preempted by the federal Organic Foods Production Act (OFPA).

The plaintiffs in Marentette v. Abbot Labs. Inc. alleged that Abbott violated New York and California consumer protection statutes and common law by labeling as “organic” Similac formula that contained ingredients that are prohibited in organic foods under the OFPA.  Because the organic label on the formula was approved under the National Organic Program (NOP) that was established to implement the OFPA, however, the Second Circuit held that the plaintiffs’ claims effectively challenged the OFPA certification process, and were therefore preempted.

The Court’s conclusion rested primarily on the comprehensive nature of the NOP, which was enacted “to establish national standards governing the marketing of . . . organically produced products.”  The NOP requires a producer seeking organic certification to disclose all of the practices and procedures it will use in connection with the product, including every substance used during production, following which a certifying agent conducts an on-site inspection.  Only after the certifying agent confirms that production of the product complies with OFPA is a producer permitted to label it as organic.  The statutory scheme also confers enforcement power on the USDA and its agents, which the Court deemed further evidence that Congress did not intend individual consumers to challenge certification decisions.

Plaintiffs made several arguments against preemption, including that their state-law claims sought to vindicate – not undermine – the OFPA’s requirement that organic-labeled products be produced in accordance with the statute.  But the Second Circuit found that this argument “rests on a false premise – that [plaintiffs’] claim that Abbott’s products violate federal law is distinct from a claim that Abbott falsely or wrongfully obtained its organic certification.”  The Court saw “no such distinction,” explaining that plaintiffs’ “position necessarily undermines Congress’ purpose in enacting the OFPA, because it demands adjudication of a product’s organic status separate and apart from the scheme Congress laid out in the law.”  In other words, plaintiffs’ attempt to challenge the organic status of a product that was “lawfully certified under the OFPA,” “strikes at the very heart of the OFPA certification process.”

Although the Second Circuit’s decision affords a level of protection to companies selling products certified as organic, the Court left open the possibility that a plaintiff could challenge an “organic” product as improperly labeled because, for example, the producer “deceived the certifying agent as to the actual ingredients” contained in the product.  Given the Marentette plaintiffs’ claim during oral argument “that they ha[ve] evidence that Abbott used ingredients in its organic-labeled infant formula that it did not disclose to the certifying agent,” the Second Circuit’s opinion may not be the final chapter of this story.

In an article published by Law360, Jenner & Block Partner Jan A. Larson and Associate Catherine L. Doyle examine the potential impact of court action on ransomware coverage.  The authors explore the pending district court action of Moses Afonso Ryan Ltd. v. Sentinel Insurance Company Ltd.  They explain that the case wrestles with the classification of, and coverage for, business interruption and lost income suffered by a law firm in the wake of a ransomware attack.  “The case offers a preview into whether courts will construe broad, general business insurance provisions to protect insureds against significant lost-business income caused by ransomware attacks, or whether insurers will enjoy wide latitude to hide behind more stringent limitations of liability found in narrower provisions related to data and software damage,” they observe.

To read the full article, please click here.

By Emily A. Bruemmer and Jennifer J. Yun

Nearly two years ago, on May 24, 2016, the European Union (EU) adopted a new law—the General Data Protection Regulation (GDPR or Regulation)—to replace the Data Protection Directive, which has governed data protection in the EU since 1995. While the GDPR resembles the Data Protection Directive, it has some important differences. These include new rights for data subjects, such as the right to data portability and the right to erasure (“right to be forgotten”) in certain circumstances; new data breach notification requirements, including a requirement to notify the relevant Data Protection Authority within 72 hours of discovery of the breach (unless exceptions apply); and much stricter penalties and fines for non-compliance.

The Clock is Ticking

EU Data Protection Authorities can begin enforcing the GDPR against companies beginning on May 25, 2018, with no further action required by the EU Member States to bring the GDPR into effect. For companies that have operations in the European Union or that offer goods and services to (or monitor) EU residents, the time to get into compliance with the GDPR is running short…

To read the full Jenner & Block client alert on this subject, please click here.

By Olivia Hoffman and Katie Rosoff

The Supreme Court first approved the use of mandatory arbitration provisions in employment contracts in 1991 in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31 (1991), which held that a securities broker could be compelled to arbitrate a federal age discrimination claim against his employer under the Federal Arbitration Act (“FAA”).  In the years since, arbitration agreements have proliferated in employment and consumer contracts, and legal challenges to the validity of these agreements have been largely unsuccessful.  While the general policy in favor of arbitration remains strong, it comes into potential conflict with the National Labor Relations Act (“NLRA”) in the case of Epic Systems Corp. v. Lewis, which the Supreme Court will decide this term.

The case presents the question of whether mandatory individual (i.e., non-class) arbitration agreements in employment contracts violate the NLRA, which protects the right of workers to bargain collectively.  Three circuit courts have weighed in, with the Seventh and Ninth Circuits holding in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2015) and Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016), respectively, that a ban on litigating or arbitrating on a class basis violates the NLRA’s collective bargaining guarantee, and the Fifth Circuit coming to the opposite conclusion in Murphy Oil USA, Inc.  v. NLRB, 808 F.3d 1013 (5th Cir. 2015).  Each of these cases arose when employees filed class action lawsuits against their employers based on labor law violations and the employers moved to compel arbitration.

This past October, the Supreme Court heard a 1-hour argument in Epic Systems, which consolidates these three cases.  On one side are the employers and the current Administration (although the United States originally filed a brief siding with the National Labor Relations Board (“NLRB”), it switched sides when the Trump Administration took office).  They argue for a narrow interpretation of the NLRA’s collective action right and emphasize that the scenario presented falls squarely within the bounds of the FAA.  Jenner & Block also filed an amicus brief on behalf of The Retail Litigation Center in support of the employers and the current Administration, arguing that even setting aside the FAA, the NLRB’s position that individual arbitration agreements with employees constitute unfair labor practices reflects an impermissible interpretation of the NLRA.  On the other side, the employees and the NLRB emphasize the importance of the NLRA and the requirement that there be some forum available to act collectively.

Were the Court to side with the Seventh and Ninth Circuits and rule that mandatory individual arbitration agreements violate the NLRA, this would mark a departure from the arbitration-centric position the Court has embraced in such cases as AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), where the Court ruled that a California rule barring class action waivers conflicted with the FAA, and American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), where the Court held that class action waivers are enforceable even where the cost of individually arbitrating a claim exceeds the potential recovery.

Past rulings on the subject of arbitration have generally been split down familiar lines, with the Court’s liberal bloc ruling for narrow readings of the FAA in favor of consumers and employees, and the more conservative contingent upholding private contracts as written.  However, there remains a possibility that the novelty of squaring the FAA with another federal statute will produce an unexpected outcome.

In an article published in FinTech Weekly, Jenner & Block Partners Gayle E. Littleton, David Bitkower and Justin C. Steffen discuss the recent rise of virtual currencies and warn individuals and companies that, although the growth of cryptocurrencies can give the appearance of a Wild West for the digital age, those active in the area should pay close attention to the technologies and the enforcement risks involved.  The authors note that regulators’ interest has intensified.  A number of US Government agencies, including the Securities and Exchange Commission, Commodity Futures Trading Commission and Internal Revenue Service, have issued guidance on the application of laws and regulations to virtual currencies, and numerous agencies have taken enforcement actions to protect consumers.  In the article, the authors outline some simple, straightforward practices that business can adopt in order to stay on the right side of regulators.

To read the full article, please click here.

By Alexander M. Smith

Last October, the Consumer Financial Protection Bureau issued a final rule requiring payday lenders, automotive title lenders, deposit advance lenders, and similar short-term loan issuers to determine up front whether borrowers would have the ability to repay certain short-term, small dollar loans without borrowing again.  (The CFPB press release summarizing this rule is available here.)  On January 16, however, the CFPB announced that it would initiate additional rulemaking so that it could “reconsider” this rule.   Although the CFPB’s announcement did not repeal the rule, Law360 notes that many observers believe that the protections in the CFPB’s final rule will be “rolled back or eliminated altogether” and that other federal regulators, such as the Comptroller of the Currency, are considering amending their rules to expand the availability of similar small-dollar loans.   We will continue to monitor and report on the fate of the CFPB’s payday lending rule.