There are two recent federal laws that have garnered some attention but require strict adherence from self-storage operators to avoid the penalties and liabilities that might arise if the businesses do not meet the requirements of each law.
The first is the Corporate Transparency Act. This law was passed by Congress to address the dangers of illegal money laundering and terrorist financing in United States businesses. Under the new law there is now a “beneficial ownership” reporting requirement for most small businesses in the United States. Whereas previously the Corporation and Limited Liability Company corporate filings did not specifically require the disclosure of all owners of the registered business, this new law will require that all such owners be disclosed.
These ownership reports must be filed with the Financial Crimes Enforcement Network (FinCEN), which is a bureau within the United States Department of Treasury. The general deadline for this filing requirement for most businesses is January 1, 2025. The law does have some exemptions, mostly for heavily regulated businesses or large publicly traded entities that have their own reporting requirements.
Under the law, once this information is reported to FinCEN, the Department of Treasury will have the right to supply that information to law enforcement and other government agencies. That information will be used in turn to control and regulate the risk of money laundering and other illegal activities. The information requested will include the owner’s name, date of birth, address, and proof of identification. Only owners who control 25 percent or more of the equity interests of the company are subject to this reporting requirement.
The penalties for non-compliance are steep: fines of $500 per day, up to $10,000 per violation. The law even includes possible jail time (up to two years) for those individuals found to have intentionally failed to comply with the law.
The second is the new Click to Cancel Rule issued by the Federal Trade Commission (FTC). Although focused essentially on consumer’s rights to cancel subscriptions, the rule potentially has implications outside of its intended mandate. Essentially, it applies to all “negative option” programs however they are offered. A “negative option” is a term used for a commercial transaction where the monthly contract will continue indefinitely unless the customer takes an affirmative action to cancel the contract. In light of significant backlash concerning the difficulty of canceling many online subscriptions, the FTC, after significant testimony and commentary, issued this Rule which should make it easier to “click to cancel”.
Specifically, the rule requires businesses to offer a “simple mechanism” to cancel the negative option features of its program and therefore allow its customers a way to immediately halt or stop any monthly charges from accruing. The FTC rule also requires sellers to provide clear information to their customers about the recurring terms of their monthly services before charging them and to obtain their customer’s “informed consent” as to the “negative option” features before they are charged for the services.
The FTC rule comes after the Consumer Financial Protection Bureau raised concerns that “negative option” marketing might constitute a type of deceptive or unfair trade practice.
Although the FTC’s rules are subject to court scrutiny, violations of the rule, which takes effect 180 days after publication in the Federal Register, will expose businesses to civil penalties and entitle customers claiming injuries to recover financial remedies. There is no doubt that this rule could impact self-storage operators, including those who offer auto-renewing options that apply to rent, insurance, or even security features. Even though the rule was created to focus on consumers facing monthly renewable subscriptions, to the extent an argument could be made that certain products or services in self-storage contracts could be classified similarly, operators will need to address how these contracts are written and the ease with which their customers may cancel their use through a “simple mechanism” as offered by the operator.
More Self-Storage Legal Issues
We Are Proudly Sponsored By:
About Us
Scott Zucker is a partner in the law firm of Weissmann Zucker Euster + Katz P.C. in Atlanta, GA. Scott specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. For more visit www.wzlegal.com.
If you are a self storage operator and member of the national SSA or an affiliated state SSA, you are eligible to join the Self Storage Legal Network, receiving a one-year subscription for unlimited questions on legal information relating to the industry. www.selfstoragelaw.com.
This newsletter is for the purpose of providing general legal insight into the self-storage industry. It should not be substituted for the legal advice of your own attorney.
MSM, PO Box 608, Wittmann, AZ 85361-9997, (800) 352-4636
