Cross Border E-Commerce & Payments: Perspectives from the U.S. and Canada

Ellen:    Alright, everybody. So I know we're not all here but we're going to get going. My name is Ellen Berge. I'm with the law firm of Venable, based out of the Washington, D.C. office, currently in a make-shift closet in Alexandria, Virginia. We're going to go through some introductions in a second but I wanted to introduce our topic today. We're going to spend some time talking about cross border e-commerce and payments, perspectives from Canada and the United States.

Two of us are lawyers at Venable in the United States and the other half of our group is in Canada and we are constantly going back and forth, looking to each other for advice, refer our clients to one another and issues of electronic commerce, retail payments are some of the many issues that are frequently coming up and we thought this would be a great opportunity to talk a lot of our clients in both locations and sort of share what we know. Share some of the regulatory issues that are highlighting our work lives these days and hopefully it will be helpful to you all in learning about how these issues are handled in two separate but yet very closely connected jurisdictions. So with that let me see some slides. Len, why don't I start with you. You want to give a little introduction to our group and let them know who you are. 

Len:    Sure. Good afternoon, everybody, and thanks for joining. I'm Len Gordon. I lead the advertising group at Venable and I spend a fair amount of my time defending companies in the payments field, in one sector or another, in FTC, CFTB or DOJ investigations involving either conduct that the government is concerned of related to processor to merchant or, more frequently, the processor allegedly, essentially, aiding and abetting conduct of merchants that the government doesn't like. I work with Ellen all the time. 

Ellen:    Alright. Why don't we go, Jeffrey, we'll go to you. 

Jeffrey:    Sure. I'm Jeffrey Roode. I'm a partner at Gowling's Toronto office. I'm not a litigation lawyer. I'm a corporate lawyer, you'd call me, but my entire practice is devoted to payments. I used to be in-house counsel to one of Canada's biggest banks and I left there about 10 years ago and ever since then I've been in private practice doing a bunch of stuff for a whole bunch of different people in the payment space, networks, acquires, processers, service providers, issuers and that's what I do every day. Thanks. 

Ellen:    Alright. Daniel? 

Daniel:    Hey, it's Daniel Cole and I'm a partner in our advertising and marketing group. I lead our national advertising and product regulatory team here at Gowlings based in Toronto. Similar to others on the call, I focus very heavily, quite heavily, on the e-commerce space particularly as it relates to advertising marketing and are routinely helping companies, both in the US and internationally, come to Canada and operate their programs here. So, happy to be here today. 

Ellen:    Alright and just a run it out again, Ellen Berge, you've heard from me already but a lot of the work I do, it splits both the side of sort of marketing and sales directly to consumers and then payments and how marketing companies and merchants get paid for those services and how they set up their merchant processing accounts and how they make money move. So a lot of the very two sort of, sometimes separate areas, on the advertising and marketing side and then payments and financial services on the other. But certainly they connect together in the e-commerce world. We'll go through some of that. Alright.

So our first topic is really to talk about the regulators. Who we're dealing with on each side of the border. There's consumer protection regulators, financial services regulators. What kinds of policy they're shaping. How do they regulate? What are their current law enforcement priorities? Particularly as it impacts the e-commerce and payments issues that we're talking about. I can kick it off a little bit here. We have a lot of regulatory agencies at that Federal level and at the State level and they're covering issues ranging from consumer protection and privacy, data security, financial services, money laundering and anti-money laundering and terrorist financing and those types of things and then regulators that are more traditionally financial institution, financial services regulators. They all have a lot of overlapping interest and needs for us.

I do think in this space of consumer protection, e-commerce, we hear a lot from the Federal Trade Commission, the Consumer Financial Protection Bureau, the Department of Justice if issues go, sometimes they take a view of looking at things from more of a criminal violations perspective. We've also dealt with the US Postal Service and then there's a variety of States. I'm actually going to turn it over to Len, because Len actually was a former director at the Federal Trade Commission and can tell you a little bit more about how they work, because we'll talk about them so much today. 

Len:    Thanks, Ellen. So, the FTC is focused, generally when thinking about issues payment processors, is to try and disrupt the ecosystem in which they claim fraud breeds. Many of you may have heard of something called Operation Choke Point which was present during the Obama administration where pressure was put on banks and payment processors not to do business with certain disfavoured industries and Payday lending gun, some other things were the topics there. That aspect of Operation Choke Point, ostensibly, has been abandoned. We'll see what happens with the change of administration but the notion of applying pressure on a choke point to try and disrupt allegedly fraudulent behaviour is very much active at the FTC. They continued to sue payment processors. The FTC does not have jurisdiction over domestically chartered US banks but they have sued in the last 2 years several foreign banks who were involved in payment processing. The FTC is concerned that processors are opening the door to the payment system to companies that are either making unauthorized charges or selling their goods or services deceptively. The FTC will challenge that as an unfair act or practice under section 5 of the FTC Act. Frequently, conduct challenge involves either having strong open bank accounts or having other entities process payments. The FTC will challenge that under section 5 and, if telemarketing is involved, also under provision of the Telemarketing Sales Rule.

Those are the big things that the FTC is focused on but every case involving a merchant they look at who processes, what entities process for those merchants, and they keep track of that. If a processor continues to show up on those lists that processor is more and more likely to hear from the FTC. The FTC and State agencies also focus on issues where processors are signing up merchants and making sure that small businesses are being treated fairly. The current FTC, and I think even the future FTC, is very focused on small businesses especially given some of the disruption that small businesses have had with the pandemic. Think merchant cash advance. How companies are signed up and then the terms of either terminal leases or subscription agreements with processors is also something the FTC is interested in. With that I'll turn it over to Jeff. 

Jeffrey:    Thanks. So Canada, like the US we have, obviously, a Federal system. So we have Provinces and the Federal government and jurisdictionally the Federal government has constitutional jurisdiction over banks and banking. So a lot of FIs are Federally incorporated and they are governed by Federal legislation but then we have Provincial legislation that also covers credit cards and credit like products and things like that too and prepaid cards and things. So we have overlapping jurisdiction. There is of course no one regulator that's just concerned only with payments. There's a whole bunch of other things they're worried about.

I think the main ones for payments in Canada is FINTRAC, which is the AML regulator, but I think the one that I'll talk about the most is the Financial Consumer Agency of Canada, or the FCAC. They're a Federal regulator. So any bank that's in the payment space is regulated by them. There's also something called a code of conduct, a voluntary code of conduct that we have in Canada, and I'll explain a bit more later. The FCAC monitors that code. Right now they're going through some internal changes so they've actually just given up a bunch of new powers. Their ability to fine people has gone up from $500,000.00 to $10,000,000.00 for banks. The new power to view, what we call name and shame, they used to not traditionally name the violators of the Federal banking statutes for consumer protection, and now they do. They actually now have to. They've got some new audit rights and they've got new powers to serve direct banks to comply with them. At the Federal level we're seeing a beefing up of their power, however, I guess the other thing to keep in mind about Canada is our banking system is quite different than the US.

We have 5 banks that are probably 80 - 90%25 of the banking industry and these banks are very well run and they have huge compliance departments and lots of lawyers. So there isn't that many enforcement cases brought in Canada against the banks. There's kind of a handful every year, or even less than a handful depending on what the year is, and what you tend to see in those cases is inadvertent non-compliance by a bank with some credit card rule, a failure to disclose something. Quite often that's caused by a systems problem and the banks generally make whole. Make everyone whole. They pay all the money back, and they make it right, but they still get fined because of sort of a negligence type theory. I'm sure that's going to be continuing.

On our merchant side though, I think one of the other questions is probably better suited to answering this, but on the merchant side we have had issues with acquirers. We have generally managed to resolve them using this voluntary code, and the FCAC keeps an eye on that code too, but there's only been really one reported case of a problem on the acquiring end of that which maybe I'll talk about when we talk about cases. Anyway, that's how our system works. It's generally in the payments field. I think works pretty well.

I guess the other point about regulations that I'll make, quickly, is that the way regulation works in Canada, especially at the Federal level, is it's not what you do it's who you are. Like if you are a bank you have all these rules to comply with. If you are not a bank you don't. That's a problem because we have a lot of companies, not a lot, but we have FinTech companies and others who aren't a bank but are able to do somethings that like banking or payments and escape regulation. That's something that I'll talk about later about how that's going to be dealt with, hopefully. Daniel? 

Daniel:    So just to broaden a little bit out from the payments, pay specifically, more to what I would deal with in the e-commerce side and to give you a sense of how that might typically be regulated. Similar to what Ellen mentioned, obviously we've got the privacy and the anti-spam regimes that are heavily regulated in Canada, but just to give you a few more names, similar to the FTC we have the Competition Bureau in Canada and they administer the Competition Act.

The Competition Act does many things but primarily in this respect deals with something similar to what Len mentioned in the distinctive marketing practices space. They are very active in that space and we can talk about a number of examples and what their current focuses are in that respect. As Jeff mentioned, however, we also have consumer protection laws at the Provincial level. There's where you would deal mostly with the internet agreement that goes along with e-commerce, including things like the receipts that need to be given to consumers, the agreements themselves, cost of credit disclosure legislation. That varies by jurisdiction. There's a large degree of harmonization I think between most of the jurisdictions but the one you'll hear us flag, at least from an e-commerce perspective, is Quebec.

Quebec is very different in a number of respects. Its consumer protection laws are extremely strict and, often times if you're playing to the highest common denominator in Canada because you don't want 13 different versions of something, you're playing to the Quebec standard. There's also, of course, the French language law issues that come up with doing business in Quebec. Also, just from an e-commerce/advertising perspective that is what we're typically focused on outside of the FCAC and the FINTRAC. 

Ellen:    That's really interesting. It's actually, I do see a lot of differences. First on the financial services side. We do have a lot of bank regulations, of course, but those more so get played out through non-bank companies by contract. In payments, especially with credit card payments, VISA, MasterCard, the card brands rule the day with their operating rules. They're not an enforcer like the government but it's a lot of, more of set-ups, what you're allowed to do under the card networks and card systems. You do have to worry about some of the bank regulatory issues coming into play, but it sounds to me like it's a little bit more private here, in terms of setting up agreements and systems and relationships, more contractual I suppose. We do have a lot of government scrutiny whenever things are not set up right and it lets the fraud into the industry. We do see that. So, let's keep going.

The one thing I wanted to get to next was just how our regulators may work together. I do know that at, least on the consumer protection side, years ago, maybe this is just one that I remember well, but whenever I started practicing a lot more with payments and there was still a lot of advertising and marketing, there is a case that Federal Trade Commission brought against the Canadian merchant. It was an individual named Jesse Willms who ran a series of businesses who got in trouble for signing up people for subscription programs, or taking a credit card for a product, and not being clear that whenever you provided this credit card the companies were enrolling you in these other services and they were going to hit your card month after month and not tell you that they were doing that.

Of course, that's a big issue here that we deal with in the United States now, subscription billing which we can talk about later. But the FTC investigated for a while and then announced cooperation with the Canadian Competition Bureau and then, I think, finalized things to a certain extent back in 2011. Then very soon thereafter we saw a press release come out from the Competition Bureau in Canada saying, "Hey, we're now looking at Jesse Willms. We sent him a request for information about his sales records." So they're only one plate off of the other and I'm sure that they cooperated together on this matter and, of course, the FTC has memorandums of cooperation with many countries, especially Canada, but I guess I'm saying this just to say that there is jurisdictional reach.

We always tell our Canadian clients that if you're selling to people in the United States the Federal Trade Commission, or whoever, maybe is going to look at you if they think that you're doing something not the way that you should be and just because you're in Canada or outside of the United States, it doesn't protect you. I'm just wondering what you all see. If there's sort of any reverse of that in Canada. Maybe, Daniel, this is more of a question to you since you deal more with consumer protection side. 

Daniel:    Certainly. Happy to give my two cents and then obviously welcome any other comments but I think a really good example of that, aside from the Jesse example you mentioned with the Competition Bureau, on the consumer protection side is Quebec. I think there is a thought that, "Hey, if I'm not in Canada but I'm pushing my goods or selling my goods in the Province of Quebec, do I need to comply with the more strict consumer protection laws, with the French language laws?" and I think the answer is, certainly our advice is, yes, to the extent that you are doing business in Quebec, you should be complying with those rules.

There are, of course, some technical argument if you're not typically focused on Quebec, everything Quebec, you've geo-blocked it or you've made it clear your offer is not applicable there, and you otherwise don't have a physical presence in Quebec then there may be an argument that even though you're coming to Canada the Quebec regulators might not look at you in that sense, because you've taken steps to actively pull yourself out of that particular jurisdiction. I definitely see that whether there's a direct cooperation, or whether the Competition Bureau all of sudden copycats what the FTC is doing from a regulatory perspective with an international advertiser, you do see this type of stuff all the time. 

Ellen:    Alright. Jeff. 

Jeffrey:    The only thing I would say, just on the payment side is, if you are in a different country, the US, anywhere else, the Provincial laws will catch you for sure. The Federal laws won't though because of what I just said. They apply to Canadian Federally regulated financial institutions. Which sounds a bit weird but it kind of still works because, and it goes back to something you said, Ellen, but VISA and MasterCard are very important in Canada too and their rules require everybody participating in their systems have some sort of relationship with a financial institution. Which tends to mean, and almost all of them are Federal, so that tends to mean that most of the significant players in the business either are an FI themselves or have a partnership with an FI. That FI will push down the Federal laws to them to make sure that they actually comply. But because of that I don't suspect the FCAC is doing a lot of cross border stuff because it's sort of catching the people it needs to catch through the domestic Canadian laws. So I think that's what I'd say.

I guess the only other point too, Ellen, part of your question was about is there a self-regulation and that's where I was just going to say, in Canada we have this code of conduct which, I wouldn't call it self-regulation, and it was certainly developed in consultation with the Federal Government but it's sort of a quasi law. It's part of the VISA and MasterCard regulations but what it's done is sort of keep the peace, more or less, between merchants and issuers in terms of interchange and acquiring business practices and things like that. It's been pretty successful at that.  We also had VISA and MasterCard do some voluntary interchange reductions, undertakings to reduce interchange. So we've had those two pieces in our system for a few years which I think have also helped keep the industry, I guess I would call it quasi self-regulation because they were mandated by the government but they're not law. 

Len:    I'm sorry. I got kicked off for a minute there. I'm not sure if you throw it to me. 

Ellen:    We thought we might have lost you, Len, but any sort of experiences you want to share on reaching across the border on enforcement issues or other things. 

Len:    The FTC talks to the Competition Bureau a lot especially on telemarketing issues. That's one of the areas where they coordinate quite a bit. In 2006, Congress amended the FTC statute to the Safe Web Act which made clear that the FTC has jurisdiction over foreign conduct, conduct outside of the United States, because it's reasonably foreseeable injury in the United States. So if you're an internet merchant or a telemarketer, in Canada selling into the United States, the FTC has jurisdiction. Similarly if material conduct is occurring in the United States, but perhaps targeting Canadian consumers, the FTC would have jurisdiction there. Because of jurisdictional hooks the FTC coordinates frequently with the Competition Bureau. They sometimes bring joint cases but frequently these use each others investigative resources and they refer cases to each other if they find somebody who's in Canada, the Competition Bureau finds somebody in the United States, there's a lot of referrals that go back and forth. Operating cross border doesn't really protect you. 

Ellen:    I would just say to those listening is you do want to consult with counsel in the right jurisdiction. We frequently get questions from our clients in the United States saying, "Hey, we're running  a promotion or we're doing something but we're also doing it in Canada so can you help us there?" and we can't. We don't know Canadian law and the same in the opposite direction. So you really do want to get the people who are in the jurisdiction where you are actually selling, marketing because they're going to understand better. As you can already see it's really different. Regulatory frameworks, I think there's different tolerances, different levels of regulation and the things covered that might not be true and just having that judgment to what's acceptable and what's not in the jurisdiction where you are is of great importance. Alright. I will say this, another quick note on self-regulation. It sounds much more formalized, I guess, from, Jeffrey, what you were talking about, in a certain way. With government participation in it.

Len, I'm struggling to think of what we have here. We do have some self-regulation for advertising reviews and things like that. We've got a branch under the Council of Better Business Bureau, it's called the National Advertising Division and it's a pretty well oiled machine when competitors want to challenge each other's advertising. We've got trade associations that are frequently publishing best practices and guidelines. For example, the Electronic Transactions Association here, based in Washington. I'm sure they've got members in Canada too that offer payment services. But they've got guidelines that are very good but not sort of self-enforcing yet. So, maybe there's room to grow there. I don't know if anyone has any other comments on self-regulation here but there's differences. 

Len:    Self-regulation in the payment space I think is a bit more challenging just because of the complexity of the transactions and the differentiation among transactions. The BBBs ad review program works well because you're talking about facial advertising and it's pretty easy. There's a system for challenging by competitors and that's really how it works. So far we haven't been able to figure out a way to come up with an industry system that works, either certification or something else, on the self-regulatory front. The closest we probably have are the VISA and MasterCard rules but that's not really self-regulation. Those are actually contracts that you agree to follow and the government at times are bringing cases will point to departures from the VISA or MasterCard rules as evidence of alleged wrongdoing. That can be a pretty contentious issue. 

Ellen:    Alright. Why don't we keep moving through then. We did promise to talk about interesting cases that we've noted over the last year. There's a lot and it's hard to know where to go on this one because we could talk about so many. But, Len, I might ask you just to talk about the Revenue Wire case for a bit because it was a case brought by the Federal Trade Commission against a Canadian company, so it will introduce you to a little bit of how that worked and also explain some of the conduct, that issue which relates back to Len's opening remarks about the interest in payment processing. 

Len:    Sure. The Revenue Wire case is sort of a paradigm of the way the FTC frequently attacks cases against payment processors. First the FTC sued a company called Inbound Call Experts which was a telemarketing operation in Florida that offered people who had bought tech software, anti-viral software, the opportunity to purchase additional services. Those services were sold over the telephone and there were allegations there that the company misrepresented what was wrong with people's computers and used certain Microsoft tools in a deceptive way. That case, the FTC went in and froze ICEs assets. The case litigated for a little while until the company settled. 2 plus years later the FTC starts investigating Revenue Wire for it's involvement with ICE and with other companies that operated a similar business model.

The FTC alleged that Revenue Wire was really the ringleader of what was going. That Revenue Wire put together the software company that made the initial sale to consumers and then made sure that lead got to ICE or other telemarketers who then tried to upsell the consumer. When the consumer would upsell that consumer the transaction would actually be processed by Revenue Wire through its merchant account and the allegation was that was done to try and shroud, somewhat, who was behind it but Revenue Wire was big enough that they could help these guys hide. The telemarketing entities might have had a harder time getting merchant accounts on their own.

That's a recurring thing you see in the FTC cases against payment processors. Merchants are trying to use any means necessary to get as many merchant accounts, and as much volume in capacity as they can, and that may involve having friends and family open up merchant accounts in their name or routing transactions through others. The Merchants will argue that this is legitimate conduct because it's just like going to as many banks as possible to get a loan. The FTC will argue you're trying to evade protections that the payment system has put in place to keep bad merchants out, including using other people to get merchant accounts, where you're on the black list or the match list. In the Revenue Wire case all the transactions that the telemarketers were processed through the Revenue Wire account, so the FTC challenged as credit card factoring. They were running someone else's accounts through their account and there's a specific provision in the Telemarketing Sales Rule that says when you do that in a telemarketing sale that's illegal.

So the company ultimately paid 6 plus million dollars. It had to agree not to, in the future, engage in credit card factoring and it had to agree to fairly rigorous ongoing screening and monitoring for merchants that it would take on. Especially merchants involved in telemarketing or anything the FTC might describe as high risk, including very low charge back thresholds, if those are tripped require fairly prompt action on the part of the processor to either determine, in writing, signed by somebody that there's no problem there, or terminating the merchant.

Those kind of very low thresholds with very aggressive requirements to act if the thresholds are met are something you see in lots of FTC orders. It makes it quite challenging for a processor to continue to operate in any kind of high risk space, whether that's negative option, nutraceuticals, anything where people after they've purchased it may decide that they don't want something and initiate a charge back. Ellen, anything to add on that one? 

Ellen:    No. I think that's a good summary. The other case I think, Len, that's worth mentioning is the FTC case of ... First Data. This brings to life sort of the multiple layers of the payment system. You've got banks at the top dealing with the card networks, like VISA, MasterCard and American Express but then they're contractually working with payment processors, who are then working with sales agents, who then may be working with other sales agents and then ultimately you get to a merchant, and sometimes the merchant is signing up with some sales agent that is a sub-contractor of another sales agent who's a sub-contractor, ultimately of the processor. It gets complicated in following those transactions and who's responsible for the merchant can get complicated.

Going back to that theory of making sure that processors are protecting the payment industry, and for the bank regulators, making sure the banks are protecting the payment industry from fraud. Who's really responsible for that? So First Data is obviously one of the largest, I should say now FIS, excuse me. I always get the f's confused. But it created a big splash because it was a big target for the FCC. It was a $40,000,000.00 financial penalty on top of injunctive relief that requires First Data to really monitor, within narrow channels, but monitor these sales relationships and who is responsible for these merchants, what they're doing, monitoring and underwriting and those types of things. So it sends a really big message to the payment industry about really cleaning up sort of some of the monitoring and underwriting functions that occur. 

Len:    One of the recurring concerns that the FTC has expressed with the ISOs model, or the sub-ISOs model, is that everyone relies on somebody else to really underwrite and screen and that everyone thinks it's somebody else's job and because of that nobody does it. I think there's suspicions at the FTC, at least for some people, that the entire model is set up to avoid responsibility. That's not the case.

The model is set up because if you're going to be trying to recruit small merchants it's really hard for somebody in an multi-national corporation in a big headquarters to reach out and have the kind of relationships you need with smaller merchants to get that business. But, the processor, everybody in the chain is really sort of responsible for everybody else. If you're going to be using ISOs or sub-ISOs it's really important that there's quality control, ongoing monitoring, because just the way a merchant's responsible for the affiliate marketer it uses to try and sell product, the processor and also even the bank, and OCC actions can be responsible for the things that the processor, the ISO or the sub-ISOs, are doing or not doing in screening and monitoring clients. 

Ellen:    Jeffrey, I know you mentioned earlier an interesting case on the inquiring side. I think that was your mention.

Jeffrey:    As I think is common knowledge we have a lot less litigation in Canada then we do in the US, but we have had a few interesting ones in payments, including sort of two that one is still ongoing. One was last year but they both harken back to bigger cases a few years before that. One of the cases is Bernstein versus Peoples Trust Company which is a class action in Ontario, decided last year. Basically, Peoples Trust, and this goes back to the constitutional stuff I was talking about at the beginning, so People Trust is a Federally regulated financial institution in Vancouver. It is the issuer of prepaid cards across Canada.

Of course there's all kinds of program managers and things like that. But a class action was brought against them because they had failed to comply with Provincial laws about prepaid cards and their position had been, "We don't need to because we're a Federally regulated financial institution." This goes back to a case called ... that went to the Supreme Court of Canada in 2014. It was decided by the Supreme Court of Canada in 2014. Which basically said, to the surprise of Federally regulated financial institutions, "No. You actually have to comply with the Provincial Consumer Protection laws, also." Because that had just not been going on. The banks had generally taken the position that the Federal government had occupied the whole field with their regulations. They didn't need to worry about Provincial ones and the Supreme Court said, "You do need to worry about them except when they're in direct conflict with one another." So because of that I think that's caused a rip. That case was years ago and I think all the banks are used to it and everyone is aware of it.

But we're still seeing, as recently as last year, there was a case decided where somebody had not done that. Although that was in the past. I think they've figured it out now. The other thing is that some of the Province's, and Ontario being one of them, have changed their prepaid card regulations to make it clear that they don't apply to Federally regulated financial institutions, which makes life easier, but not all the Provinces have done that. So I think that's been a big shift in the last, whatever that is, 6 or 7 years in terms of Federal FIs having to worry about both Provincial and Federal regulation. 

The other case that's important is called Watson versus Bank of America which is a British Columbia class action which has been settled by certain, it's been going on for years, but it's been settled by certain participants and others I think are still have not settled. But basically the case is a class action alleging that VISA and MasterCard, and the participating banks, were in some sort of price fixing conspiracy and that caused interchange and other fees paid by merchants to be higher than they should be. Part of the reason it is alleged is that because of things like the no surcharging rule and the honourable cards rules and things like that. I know you've had a case in the US years ago that alleged similar kind of stuff.

The prior case to that was the Commissioner of Competition also brought the same kind of case against VISA and MasterCard in 2013 and lost. The Competition Tribunal said "No." and it was weird because they brought it under something called the Price Maintenance Rules which maybe weren't the greatest way to characterize the case. But the Competition Bureau lost the case and so the private litigants brought basically the same case under slightly different rules and have succeeded, at least in part, because VISA and MasterCard anyway, have actually settled and they've agreed to pay, I can't remember, 19 million in damages, something like that. But they've also agreed to end the no surcharging rules in Canada. So that will happen. I'm not involved in this case so I'm not sure when exactly that's going to happen but I know they haven't changed the rules yet and I think it's because pieces of the case are still outstanding.

But eventually we're going to see surcharging allowed in Canada, which I think you've got the same thing in US because of also private litigations, so those are, I think, the two big trends, two biggest cases, two are recent but they harken back to kind of older cases. 

Ellen:    We are just before, Daniel, turn to you I just want to comment on surcharging. We are seeing sort of a less enforceability of whatever's left of surcharge laws here. We've had some State laws that prohibited surcharging in the sense of charging more for a credit card transaction then you would a cash transaction as a means to recoup your expensive payment processing fees that merchants have to pay and that's something that we still get a lot of question about it. But we have very few States left that have a surcharge law that is still, technically I guess you could try to enforce it, but I think if any case comes up in any of these remaining States, there might be 10, I might have that number wrong, I think there's a potential challenge waiting there to hold it unenforceable just like it's gone the way of the others.

So, that's an important issue to a lot of our merchants because payment processing gets very expensive and this is more of a VISA/MasterCard rule, but if you're going to surcharge you're supposed to give notice that your surcharging to people, and there is very few places I think should do this, but putting a sign on the door saying that if you pay with a credit card you're going to pay 3%25 more or something like that. It's not that frequent but actually we talk about it more than it seems like it should be talked about but it's important. 

Jeffrey:    Yeah. The settlement agreements do reveal that there will be rules like that when surcharging is allowed and there's also some formulas, there will be caps on when you can charge and a whole bunch of things, but I think you might have in the US too. What merchants choose to do, and I think it's going to be fairly complicated actually, to comply. So we'll see whether it sort of takes off or not. 

Ellen:    Yeah. We'll watch that too. Alright. Daniel, any interesting cases? 

Daniel:    No, I mean yes, but just to broaden it out a little bit again more from the e-commerce side, appreciating I don't focus on the payment side too often in my practice. But I do just want to highlight a couple of the enforcement priorities, particularly for the Bureau. Certainly in recent years they seem, and this would relate to the e-commerce merchant side, as savings claims or any representation around savings is a high priority target area for them. There've been several multi-million dollar fines issued against companies for failure to properly comply with the savings pool. In other words, not establishing the proper ordinary selling price and claiming a savings which turns out to be false and misleading. Including against one e-commerce retailer who had attempted to establish the property ordinary selling price in relation to their marketplace but that wasn't proper and didn't work properly so the savings claims themselves turned out to be false and misleading or where held to be false and misleading. So that's a pretty high priority area for the Bureau.

The other case I'll mention and it's winding its way through the Quebec courts right now is a case involving Leon's and it's the buy now, play later type mechanism. If you're a merchant that offers financing in Quebec, and/or those types of programs in Quebec, it has been significantly hindered. It's almost now impossible to do that and so if you have questions or need more detail on that, if you're doing that in Quebec, by all means please reach out. We can help you on that. 

Ellen:    Okay. Our next topic was litigation trends which we started to get into a little bit. Here, just to distinguish for a minute, at least here on the US side, we talked a lot about Federal Trade Commission, other law enforcement type of activity, certainly we want to talk about but we've got a very litigious sort of society. We've got a lot of class action trolling in certain areas. I feel like our two biggest areas right now, relating to e-commerce, would be subscription marketing. I mentioned this earlier but the buy something and pay $19.99 a month for forever until you cancel whatever it may be, whether it's content or a product. We've got a lot of, also a complex structure, we've got Federal rules that govern us here, depending on how your selling it.

So we've got things, Federal rules govern if you're selling subscription over the phone versus online or on a mobile app. Plenty of State laws. California, to date, has been probably the most important law. Sort of the defacto standard of compliance and lots of activity there, but we now have a new law that will become effective in New York, I think in February, but maybe fortunately or unfortunately, the New York law from what I can tell mirrors very closely the California law. So people who have been complying with California law as a standard hopefully will be set in New York. But we see a lot of big litigation in this area. Big class action litigation. We're constantly dealing with threats. I actually got a letter the other day. It was addressed to a Canadian company alleging violations of California's automatic renewal law. So I think there the plaintiff's firm is probably seeing a full bite because it might be a while until they could get sort of serviced on, across the border, or certainly if they want to pursue something in court, with COVID it might take a while.

But just to say that these issues seem to go cross border too. I know that I have seen telemarketing class action law suits filed against Canadian companies as well. So these are big high dollar things. The sum of the class action settlements we've seen on the subscription side, recently, have reached $20,000,000.00, $50,000,000.00. There's one for $5,000,000.00 that I'm looking at here. Really important if you're in subscription sales, the subscription programs that were usually a two part review, it's making sure that the disclosures and everything is consistent with prevailing legal standards and requirement and guidelines but then also making sure that your payment processing that follows that, and you have your accounts set up, and making sure that your processor knows that you're selling subscription sales is the second part of that. Litigation trends there on subscriptions.

The other one I would mention would be like text messaging. It's a little bit related because there's often text messages sent to get somebody to visit a website to buy, probably on a subscription basis whatever it is that they're selling, but because our Federal law here governing text messaging, the Telephone Consumer Protection Act, allows for a private right of action. We see a lot of class action activity there with, again, very high dollar settlements. Tens of millions of dollars for sending text messages. Len, anything to add? 

Len:    Yeah. There are some lawsuits filed early this year, I think, that challenged unauthorized billing by companies in a subscription space but the targets of the law suit weren't just the merchants. It was their back end CRM software providers and the argument was that this software essentially allowed, facilitated these companies to make these unauthorized charges. It helped them facilitate multiple merchant accounts that led them to hide themselves and evade card brand scrutiny. I don't think it would take much to change those allegations to fit either ISOs or payment processors. I think it's a matter of time before some folks in the plaintiff's bar try and sue payment processors for the same kind of aiding and abetting deceptive marketing or unauthorized billing that you see the FCC do. I think they understand that there'll be fights facing, most likely a well funded opponent, that's not and it can't really cave on something like that. Most of the companies in the plaintiff's bar are looking for quick settlements. But I think you're going to find somebody who's well funded, on the plaintiff's side, who is going to try and bring that case because if they can ring that bell once it could have dramatic effect across the industry. 

Ellen:    Alright. Jeffrey? 

Jeffrey:    Yeah, in Canada, at least in the payment space I haven't seen anything really changing. Class actions are much newer to Canada than the US. I don't know how long they've been around. 15, 20 years or something like that. But the class action bar is now very good and they're good at spotting mistakes made by the banks or whoever is involved in the payment space. So they're not going to go away but I also haven't really seen an uptick. I would say about 7 or 8 years ago there was a real explosion of class actions in Quebec and they were all consumer based and they're still going on.

Quebec, as Daniel mentioned, has slightly different rules about a lot of stuff and I think at one time, and it may be still true, Quebec was easier to get your class action certified and we saw a lot of them in banking, credit card, stuff like that. I think it's slowed down a bit but I think it's mainly just because a lot of the low hanging fruit was already picked. I think if you're in this space, the payment space, you always have to be careful. Your card holder agreements have to be perfect. Your disclosures have to be perfect. People are watching and they will bring the class actions in Canada. 

Daniel:    I just echo, particularly the comment about Quebec and the ease of certification, and technically it's on some type of technical violation of the Consumer Protection law that I see be the focus of these types of things. Yeah, agreed, that it's worth the triple check to make sure that you have complied with all of those laws, for sure. 

Ellen:    Alright. We're going to move on to our last topic because we're coming close to the hour but looking ahead, on the horizon, we obviously have had a big election. So we are gearing up for an administrative change. A lot of our regulatory agencies and I think that changes at the regulatory agencies, in my view, probably have more impact on our customers, especially in this space of e-commerce and payments than anything else. It's things that we'll be watching. Let me start with Len. Maybe you can talk about what we might expect to see at the Federal Trade Commission helping shift, how long it could take. We have 5 full Commissioners now but I don't know if that will hold up for long. 

Len:    Right. So, I think there's going to be some fairly drastic changes at the FTC and that's for two different reasons. One, the Supreme Court early next year will hear an argument on whether the FTC can continue to obtain dollar settlements in most of its cases or can simply get orders that require you to sin no more and do certain things. If that case goes away, the defendants in that case, it could really shake up the way the FTC does things. They will undoubtedly try and get that fixed on the hill but who knows how quickly that will happen. So, that could cause a lot of reorienting of priorities. The other thing that will change, we're going to have a new Chairman, exactly when that happens, don't know.

The FTC is made up of 5 Commissioners. No more than 3 can be from one political party. So currently you've got 3 Republicans and 2 Democrats. There's been a lot of bickering back and forth between the Democrats and the Republicans and that's been led on the Democratic side by Commissioner Chopra, who's very aggressive, has very outside the box thinking. He has an agenda. He wants to really reorder the way the FTC does things. He wants the FTC to use the power Congress gave it to deal with debit card routing and the fees for that. So that would be a priority that could really affect the payment processing industry. He wants the FTC To be going after bigger players and not do so much sort of whack-a-mole type cases.

Again, that could impact the payment processing industry. It will be easier to get him confirmed, or Rebecca Slaughter, because the other Democratic Commissioner is Chairman because they've already been confirmed by the Senate. So they could become acting Chairman on January 21st if President-elect Biden chooses to do that. I suspect he might. The FCCs been very aggressive on the consumer protection side under the Trump administration. It hasn't really acted like a Republican Commission but I think it's going to get much more aggressive. I think there's going to be some sort of new tools, or new approaches to things, and most definitely it will affect the payment processing industry. 

Ellen:    Okay. How about Jeffrey or Daniel, anything to add?

Jeffrey:    Yeah, something big is in the works. It's not directly related to litigation although it may ultimately result in it. If you recall at the beginning I said there's a whole bunch of people that are not regulated at all because they're not FIs. There is work underfoot to change that and there's been a discussion paper and the Bank of Canada is involved in this. So they're going to start regulating payment service providers which would be anyone that provides an account for payments, who initiate payments, who authorize or transmits payments, messages, who holds funds, or clears and settles in a payment system. So this is in the works. I'm not sure if we're going to see the legislation in 2021 but I'm pretty sure we will see it because it makes sense.

So that's going to change a lot things because a lot of people who are currently not regulated at all will be regulated and I think part of the idea is also that the playing field would be leveled so that the banks and other FIs who currently, anyway, the playing field will be more even in the sense that people that do things that are kind of like a bank will at least now be subject to some sort of regulation. So that's something vague but it's still in the works. 

Ellen:    Okay. 

Daniel:    The only think I would add is just in the COVID era obviously we are all doing more of our transacting via e-commerce and I suspect that you're going to see more pressure on these regulators to keep an eye on deceptive marketing practices. I think it's easy to take advantage of folks in this space, especially those that might be more vulnerable, they're not used to transacting in that manner. I think there'll be heightened scrutiny around e-commerce in general from ... 

Ellen:    Alright. A quick follow up question for Jeff on the new legislation that he just talked about and whether he thinks the cost of that could actually put some newly covered businesses out of business.

Jeffrey:    That's interesting, yeah. I think like in the US payments, especially in the processing side, is very fragmented. We have a lot of little tiny people who are sub-contractors and ISOs and stuff who don't pay the slightest attention to compliance with anything and now they'll have to do it and I think that could be an issue actually. 

Ellen:    Yeah. I think we see that all the time actually. Even in payments we're seeing some very creative payment models here in the US that are not quiet one thing or another and models, and I'm mostly talking about credit card processing models, models are largely driven by what VISA and MasterCard allow you to do so you can be marketplace, you can be a payment facilitator, you can be a processor or an ISO or sales, but we're seeing things. Companies come in that want to provide a payment service but they're not ready to take on certain obligations that they would have to take if they were falling into one of these more legitimate buckets, like an underwriting responsibility or an ongoing monitoring responsibility. So they look for a different model, perhaps, to allow them to provide this service but do it with less oversight. So we're definitely trying to reconcile that and I got my pen out there too. 

Okay. We are at time. There were a few questions along the way and I'm wondering if we could follow up. Let me just pick one real quick in the 2 minutes. This is a question for Daniel that somebody has asked about. How active is the OQLF?

Daniel:    The language police. 

Ellen:    I don't know what that is but French language laws in Quebec e-commerce space. 

Daniel:    Yeah. It's a great question and I'm taking a look at it on screen here. Yeah, just for everybody, the OQLF, basically known as the language police in Quebec in charge of enforcing if you're doing business in the Province of Quebec, you're doing that business in the French language. It's largely complaints driven and so the extent there are complaints and to the extent you're not doing some of the other things that I had mentioned earlier, in other words trying to make it clear that you're not targeting Quebec. That you are geo-blocking or making it clear that your offers are not applicable in the Province of Quebec. I think you would, or certainly could, see them come after. I'd check and I'd welcome whoever sent the question to follow up with me onside. Happy to kind of get a little bit more detail from our folks in Quebec, on the ground, as to how active they are in this particular space. But we can certainly get you more information if you'd like. 

Ellen:    Alright. We're coming in on the hour. I feel like we've barely scratched the surface on so many things and so especially those of you in the audience if there's a certain theme or issue here that you thought was interesting that maybe you'd like us to explore in more in depth, again, we covered a lot of ground and there was a lot of diverse ground, we'd be happy to do that. I think these are helpful conversations to have. I found it very helpful to hear sort of compare and contrast things on the other side of the border, at least for me. Just want to thank you all for attending and we look forward to doing this again some time and thank you to all the panelists.