Payment Processing & Cards

A district judge in the Southern District of Florida recently dismissed a FACTA class action on Spokeo grounds even though he had previously approved a near-$600,000 settlement in the same case.  In 2016, lead plaintiff Eric Kirchein filed suit against Pet Supermarket, Inc, contending that the retailer violated the Fair and Accurate Credit Transactions Act (“FACTA”) when it printed more than five digits of his and other consumers’ credit card numbers on sales receipts.  The parties reached a preliminary settlement agreement later that year, with Pet Supermarket agreeing to pay $580,000 to a class of almost 30,000 consumers.

The deal ran into trouble soon thereafter, as the parties had difficulty finding and locating individual class members.  Further complicating matters, the size of the class increased, as Pet Supermarket discovered the class was approximately ten percent larger than initially thought.  Plaintiffs’ counsel requested additional settlement funds to compensate for the additional class members, leading the parties to try to renegotiate the settlement.  Despite these issues, the court declined requests to vacate the settlement agreement.

Even though the parties had an agreement in principal, Pet Supermarket later challenged the court’s subject matter jurisdiction based on Spokeo grounds.  The court agreed with the retailer that Kirchein could not show he had suffered concrete harm resulting from the alleged FACTA violation.  Judge Robert N. Scola, Jr. chiefly relied on his own previous decisions in similar FACTA cases – specifically Gesten v. Burger King, which found that the plaintiff failed to allege that any disclosure of his private information actually occurred – to reach a similar conclusion regarding Kirchein’s claims.  Without any allegation that his private data had been divulged, the court found that Kirchein could not establish standing.

Though the court acknowledged that there was “substantive work that remains to be done” in the case, the absence of subject matter jurisdiction prevented further activity by the court, including a fairness hearing or issuing an order approving the proposed settlement agreement.

The case is Kirchein v. Pet Supermarket, Inc., Case No. 0:16-cv-60090.

On February 6, the Conference of State Bank Supervisors (“CSBS”) announced that seven states have entered into a compact that should streamline the process of applying for state money transmitter licenses.

Moving forward, the participating states– Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas, and Washington – will accept each other’s findings regarding certain “key elements of state licensing.”  The “key elements” include IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act.

If the compact works as planned, a company that has obtained a money transmitter license from one of the compact states will be able to obtain a license from any other compact state without the delay and expense of duplicative review and approval requirements, at least as to the “key elements” outlined above.

“This MSB licensing agreement will minimize the burden of regulatory licensing, use state resources more efficiently, and allow for broader participation by other states across the country,” said John Ryan, CSBS president and chief executive officer.

The CSBS’s announcement also noted that more states are expected to join the compact, which is only the “first step among state regulators in moving towards an integrated, 50-state system of licensing and supervision for fintechs.”

A copy of the CSBS’s announcement is available here.

On January 3, the Ninth Circuit Court of Appeals found that Section 1748.1 of the California Civil Code – which bars sellers from imposing surcharges for credit card payments, while still permitting discounts for payment by cash or other means – was an impermissible content-based restriction under the First Amendment of the United States Constitution as specifically applied to the plaintiffs.

The plaintiffs in Italian Colors Restaurant et al. v. Becerra, No. 15-15873, 2018 WL 266332 (9th Cir. Jan. 3, 2018) were five California businesses and their owners or managers that “pay thousands of dollars annually in credit card fees.” Although it is in their interest to collect cash payments to avoid credit card fees, Section 1748.1 prevented them from imposing credit card surcharges, which they contended would be more effective than discounts to encourage buyers to use cash. Despite there being no apparent measurable difference between consumers’ response to the two approaches, research indicates that surcharges may be more effective because “economic actors are more likely to change their behavior if they are presented with a potential loss than with a potential gain.”

The Ninth Circuit deferred to the recent Supreme Court decision in Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144 (2017), in which the Court held that New York’s surcharge ban tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer, but does regulate how sellers may communicate their prices. The Ninth Circuit reasoned that Section 1748.1 regulates commercial speech because it regulates how sellers can communicate their prices rather than how much sellers can charge. As a result, the restriction implicated the First Amendment. The Court conducted a two-prong intermediate scrutiny test, finding that: (1) the regulated speech (namely, imposing credit card surcharges) was not misleading or related to unlawful activity; and (2) the law did not further the state’s interest in protecting consumers from deceptive price increases and was not narrowly tailored to achieve the state’s interest.

For these reasons, the Court found the law violated the First Amendment only as applied to the plaintiffs, with respect to the specific pricing practice that the plaintiffs wanted to use. This ruling is the latest in a series of other appellate decisions analyzing state law surcharge bans under the First Amendment, indicating that such restrictions may continue to be challenged in court.

Earlier this month, the New York State Department of Financial Services fined The Western Union Company $60 million for allegedly violating the New York Bank Secrecy Act and anti-money laundering laws.

According to DFS, Western Union was aware of improper conduct involving its “NY-China Corridor” agents – small businesses that offered services for Western Union in Manhattan, Brooklyn, and Queens which, despite their size, had some of the largest volumes of transactions in the world, and were some of the most profitable locations for the company.  For instance, a small travel agency in Lower Manhattan which was a Western Union agent processed transactions totaling $1.14 billion from 2004 to 2011.  It is alleged that some of the money transfers from this business and other NY-China Corridor agents were actually intended to launder money and included payments that may have aided in human trafficking.

An investigation by DFS revealed that Western Union conducted compliance investigations of several agents and had evidence that indicated there appeared to be illegal and improper activities occurring at these locations.  However, when disciplinary actions against these agents were suggested, senior managers within the company allegedly intervened, going as far as to pay the owner of the Lower Manhattan location a bonus of $250,000 to renew his contract with the company, even though the agent had several compliance violations.

Maria T. Vullo, Superintendent of the DFS, said in a statement, “Western Union executives put profits ahead of the company’s responsibilities to detect and prevent money laundering and fraud by choosing to maintain relationships with, and failing to discipline, obviously suspect, but highly profitable, agents.”

As part of the consent order reached between DFS and Western Union, the company must pay the $60 million fine and must also submit to the DFS its plan to ensure that its anti-money laundering programs and anti-fraud programs are complied with in the future.

2017 was a transformative year for the consumer financial services world. As we navigate an unprecedented volume of industry regulation and forthcoming changes from the Trump Administration, Troutman Sanders is uniquely positioned to help its clients find successful resolutions and stay ahead of the compliance curve.

In this report, we share developments on consumer class actions, background screening, bankruptcy, credit reporting and consumer reporting, debt collection, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and the Telephone Consumer Protection Act (“TCPA”).

We hope you find this helpful as you navigate the evolving consumer financial services landscape.


On April 30th – May 1st, ACI will host its FinTech and Emerging Payment Systems conference at the Park Lane Hotel in New York City.

We are pleased to announce that Troutman Sanders Partner Keith Barnett will be speaking at a panel titled ” Examining the Evolving State Regulatory and Enforcement Paradigm Governing FinTech and Payments” at ACI’s Legal Regulatory and Compliance Forum on FinTech and Emerging Payment Systems conference on April 30th, 2018 at 11:15am.

FinTech and payment systems startups are burdened with a fractured and struggling regulatory system among the various states. As more and more FinTech startups and other “nonbanks” are entering into the market and aiming to provide financial services to consumers and businesses, they are faced with the reality that it can take several months and thousands of dollars in compliance fees to obtain regulatory approval to operate in just one state. Now, imagine the frustration that companies navigating our 50-state licensing regime are experiencing, as they are facing years and millions of dollars to launch a product nationwide, thus hindering their ability to get to market. During this session, a panel of state regulators will provide key insights on:

  • How states are reacting to new and emerging federal initiatives, including the OCC Fintech Charter to license FinTechs as special purpose banks
  • State-level initiatives aimed at modernizing and harmonizing financial regulation of non-banks and FinTech companies operating nationwide – The CSBS’ Vision 2020
  • State views on the Industrial Loan Charter option
  • Developments in state regulation of money transmitters, consumer lenders, bit licenses, payment processing, and beyond
  • Actions being taken to better align multi-state licensing, examination and supervision
  • Assessments and audits of state regulatory practices to better foster innovation without sacrificing safety, soundness or consumer protection

To register or obtain additional information, visit the ACI conference website.

For a 10% off speaker referral rate ($1,795), contact Nicole L. Pitti, Esq. directly and mention speaker Keith Barnett. Nicole can be reached via phone at 212.352.3220 ext 5534 or via email at

As many expected with the change of administrations, U.S. Attorney General Jeff Sessions has reversed Obama-era Department of Justice policies respecting marijuana.  The reversal came in a January 4 memorandum to all United States Attorneys within the DOJ’s 94 federal districts (the “Memorandum”).  This development is of particular concern to financial institutions and other entities that might have seen certain – especially medical-related – marijuana businesses as attractive account holders.

The DOJ’s back-and-forth ultimately traces to the overlay of federal and state law respecting the regulation of marijuana.  As stated in Gonzales v. Raich, 545 U.S. 1 (2005), Congress has broad power to regulate marijuana under the U.S. Constitution’s Commerce Clause.  As many questions linger whether, or to what extent, federal regulation of marijuana may preempt differing state approaches, decriminalization and legalization efforts are being implemented in an increasing number of states.

State-level efforts toward decriminalization and legalization have, however, left certain marijuana-related businesses in a predicament as to federal law.  As summarized in Sessions’ Memorandum, federal statutes “reflect Congress’s determination that marijuana is a dangerous drug and that marijuana activity is a serious crime.”  The Memorandum specifically cites the Controlled Substances Act, as well as “the money laundering statutes, the unlicensed money transmitter statute, and the Bank Secrecy Act.”

The Department of Justice under the Obama Administration had sought to accommodate differing state-level approaches to marijuana by shifting enforcement priorities.  Pertinent guidance provided that, under a variety of factors, otherwise-lawful operations would be unlikely targets of DOJ enforcement.  Practical uncertainties and risks remained, but Sessions’ recent reversal removes a degree of ambiguity.

Pursuant to Sessions’ Memorandum, prosecution of any marijuana-related crime is to be weighed using the same factors as any other federal prosecution, to wit: according to the “Principles of Federal Prosecution” found in the U.S. Attorneys’ Manual.  As summarized in the Memorandum, “[t]hese principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”  As characterized by the DOJ’s accompanying press release, this is “a return of trust and local control to federal prosecutors who know where and how to deploy Justice Department resources most effectively to reduce violent crime, stem the tide of the drug crisis, and dismantle criminal gangs.”

The Memorandum provides some clarity as to the enforcement of marijuana-related crimes, but questions linger.  For financial institutions, it remains important to monitor how others – such as the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN), or even the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Association, or Office of the Comptroller of Currency – may further approach the marijuana issue under the Trump administration.

On December 13, the U.S. Court of Appeals for the Eleventh Circuit affirmed the imposition of joint and several liability on a payment processor that had provided “substantial assistance” to another entity that violated a federal ban on improper telemarketing practices. The decision leaves the payment processor responsible for paying the $1.7 million judgment with its co-defendants.


In 2011 and 2012, a group of individuals known as Treasure Your Success (“TYS”) allegedly operated a fraudulent scheme under which TYS promised to reduce consumer credit card interest rates in exchange for the consumer authorizing a charge to his or her credit card. TYS, however, never had the ability to honor its promises to lower interest rates. Using this approach, TYS amassed more than $2.5 million from the victims of its scheme.

To carry out this scheme, TYS relied on Universal Processing Services of Wisconsin, LLC, a payment processing company, to charge customers’ credit cards. After receiving an internal referral, Derek DePuydt, Universal’s president, personally reviewed TYS’s merchant application and, despite several red flags indicating TYS might constitute a fraud risk, approved two accounts for TYS.

The FTC Complaint and First District Court Decision

In October 2012, the FTC filed a complaint in the U.S. District Court for the Middle District of Florida, naming members of the TYS scheme as defendants and alleging violations of the Federal Trade Commission Act (“FTCA”), 15 U.S.C. § 41 et seq., the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6101 et seq., and the Telemarketing Sales Rule (“TSR”), 16 C.F.R. § 310.1 et seq. The FTC later added other defendants, including Universal and DePuydt, and brought an additional count that alleged Universal and DePuydt provided substantial assistance to TYS and “knew, or consciously avoided knowing,” that TYS was violating the TSR.

After various settlements, only Universal and two other defendants remained. The FTC moved for summary judgment against the three defendants. The district court granted the motion and found Universal substantially assisted TYS in perpetrating the scheme by establishing the merchant accounts and knew, or consciously avoided knowing, about TYS’s fraud. The court ordered disgorgement in the amount of $1,734,972 and held that the three defendants were jointly and severally liable for the entire amount of restitution.

First Appeal and District Court Clarification

Universal appealed, and the Eleventh Circuit directed the district court to further explain why it subjected Universal to joint and several liability. In a new opinion, the district court reasoned that although Universal did not participate in the scheme, the language of the TSR, in conjunction with how such situations are treated in tort and securities law, allowed for joint and several liability where an entity provides substantial assistance to another that it knows, or consciously avoids knowing, is violating the TSR.

The Second Appeal and Affirmation of District Court’s Decision on Joint and Several Liability

The decision was appealed again and the Eleventh Circuit affirmed. In so doing, the Eleventh Circuit first rejected Universal’s claim that joint and several liability cannot exist absent a common enterprise, explaining no authority supported that conclusion.

Next, the court looked to the history behind the TSR’s adoption and noted that the FTC expressly relied on tort and securities concepts when it formulated the rule. Specifically, the FTC invoked § 876(b) of the Restatement (Second) of Torts, which contemplates imposing liability on a person who gives substantial assistance to another person whose conduct breaches a duty, resulting in harm to a third party, where the offeror of the assistance knows the other party’s conduct is a breach. According to the court, § 876(b) shares three elements with the TSR—a primary violation, substantial assistance and knowledge. As a result, the court found borrowing from tort law appropriate. The court also found noteworthy that the Second Restatement expressly allows for imposing joint and several liability on an aider-abettor.

The Eleventh Circuit additionally focused on the FTC’s reference to securities law in its explanation of the final TSR. Securities law also provides for joint and several liability in the same situation as tort law, but it expands the requisite mental culpability from “knowing” to reckless. Recklessness, the court believed, even more closely tracked the “consciously avoid[ing] knowing” language adopted by the FTC in the TSR.

Finally, the court rejected Universal’s various arguments that the unjust gains could be fairly apportioned between the three remaining defendants, which Universal argued precluded joint and several liability. The court’s decision left Universal (with its potentially deeper pockets) on the hook for the $1.7 million judgment.

The case is Federal Trade Commission v. WV Universal Management, LLC, et al., No. 16-17727 (11th Cir. Dec. 13, 2017), and the opinion can be located here.

Troutman Sanders will monitor whether other federal courts follow the Eleventh Circuit and adopt this expansion of liability. Updates will be provided as they become available.

On December 12, a federal judge dismissed a challenge to the Office of the Comptroller of the Currency’s proposal to issue special purpose national bank charters to financial technology firms, finding that the plaintiff – the New York State Department of Financial Services – lacks standing and that the claims asserted are not ripe because the OCC’s proposal is not yet final.

The OCC’s proposal emerged from an initiative to promote innovation in the financial services industry. In August 2015, the OCC announced its intent to develop a “framework to evaluate new and innovative financial products and services.”[1] According to the OCC, that effort was necessary because of the perception, shared by many fintech firms, that it is “too difficult to get new ideas through the regulatory approval process.”[2]

In September 2016, the OCC announced that, as part of its innovation initiative, it was “considering how best to implement a regulatory framework that is receptive to responsible innovation, such as advances in financial technology,” and “whether a special purpose charter could be an appropriate entity for the delivery of banking services in new ways.”[3] And in December 2016, the OCC requested public comments on “whether it would be appropriate for the OCC to consider granting a special purpose national bank charter to a fintech company.”[4]

The OCC’s announcement and request for public comment kicked off a vigorous debate. State regulators, including the New York State Department of Financial Services, submitted comments to the OCC opposing its proposal. But many fintech firms welcomed the proposal and submitted comments to the OCC supporting it.

Then, in response to signals that the OCC was moving forward with its proposal, the New York State Department of Financial Services filed a lawsuit challenging the OCC’s authority to do so.

The Department alleged that the OCC’s proposal exceeds its statutory authority and violates the Tenth Amendment of the U.S. Constitution. Those causes of action were grounded in perceived harms. Specifically, the Department alleged that the OCC’s proposal would be “destructive” and would cause “concrete harm to New York’s financial market stability and consumer protection controls.”[5]

Without addressing the merits of those allegations, however, U.S. District Court Judge Naomi Reice Buchwald found that the Department lacks standing and that its claims are not ripe because, according to the Court, the OCC “has not reached a final ‘Fintech Charter Decision.’”[6]

According to Judge Buchwald, the Department’s “alleged injuries will only become sufficiently imminent to confer standing once the OCC makes a final determination that it will issue [special purpose national bank] charters to fintech companies.”[7]

Because Judge Buchwald dismissed the Department’s complaint without prejudice, we expect the Department to promptly refile its complaint if the OCC finalizes its proposal to issue national bank charters to fintech firms.


[1] See Remarks of Thomas J. Curry, Comptroller of the Currency, Before the Federal Home Loan Bank of Chicago. August 7, 2015 ( (hereinafter, “Remarks”).

[2] Id.

[3] See Proposed Rulemaking, Receiverships for Uninsured National Banks, 81 Fed. Reg. 62,835 (Sept. 13, 2016).

[4] Office of the Comptroller of the Currency, “Exploring Special Purpose National Bank Charters for Fintech Companies,” December 2016 (

[5] Complaint, Vullo v. Office of the Comptroller of the Currency, No. 1:17-cv-03574 (S.D.N.Y. filed May 12, 2017), ECF No. 1.

[6] Order, Vullo v. Office of the Comptroller of the Currency, No. 1:17-cv-03574 (S.D.N.Y. entered Dec. 12, 2017), ECF No. 30.

[7] Id.

On December 8, the United States Supreme Court agreed to decide whether the tolling rule adopted in American Pipe & Construction Co. v. Utah i.e., that the filing of a class action tolls the limitations period for a purported class member’s individual claims – permits a previously absent class member to bring a subsequent and otherwise untimely class action.

The federal appellate courts have split on that question.  The First, Second, Third, Fifth, Eighth, and Eleventh circuits have held that American Pipe tolling only permits subsequent individual actions.  However, the Sixth, Seventh, and Ninth circuits have held that American Pipe tolling also permits subsequent class actions.

In the case before the Supreme Court, China Agritech Inc. v. Resh, shareholders of China Agritech filed a putative class action alleging that the company committed securities fraud.  China Agritech moved to dismiss, arguing that the putative class action was filed after the applicable two-year limitations period had lapsed and was thus untimely.  In response, the plaintiffs argued that, under American Pipe, the action was timely because the limitations period was tolled during the pendency of two earlier-filed but defective class actions against the same defendants based on the same underlying events.

The district court granted China Agritech’s motion to dismiss, finding that the putative class action was untimely, but the Ninth Circuit reversed the district court’s decision.

The Ninth Circuit noted that the American Pipe tolling rule was adopted to “promote economy in litigation” and that, absent tolling, “[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable.”  Relying in large part on that rationale, the Ninth Circuit then held that “once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied,” and that, at that point, members of the putative class are entitled to bring individual suits “either separately or jointly.”

In urging the Court to grant certiorari, China Agritech argued that the Ninth Circuit’s decision would lead to forum shopping.  The U.S. Chamber of Commerce agreed, arguing that the Ninth Circuit’s decision “erroneously extends a judicially created tolling doctrine to effectively eliminate Congressionally mandated statutes of limitations.”

The Court is expected to issue a decision in the case before the end of its term in June 2018.