Jerry Buckley and David Whitaker advocate a plan to encourage the use of electronic signatures, a plan that sticks out like a leisure suit amid the pro-regulatory policies now in fashion.
Lawyers in the Washington office of Goodwin Procter LLP, the two work for a group of large financial companies that is set to unveil voluntary, industry-authored standards next month. The goal is to fill the regulatory void that some blame for companies' failure to take advantage of a three-year-old law meant to popularize electronic signatures.
Their clients include Charles Schwab & Co., Wells Fargo & Co., General Electric's GE Mortgage Corp., Citigroup Inc., Principal Financial Group, and Intuit Inc.
Self-policing solutions are as out of style as the Internet era that spawned the so-called E-sign act, but Buckley and Whitaker said private-sector standards still represent the best approach to emerging technologies. "The great thing about nonprescriptive, nonmandatory guide-lines and procedures like this is that it avoids the law of unintended consequences," Whitaker said in an interview in Goodwin Procter's offices. "No. 1, nobody has to use it, and No. 2, over time, as we see that some things work and some things don't, we can adapt quickly."
They were quick to note that they are briefing banking regulators on the standards, and said they hope examiners will embrace them.
The explanations for the unfulfilled promise of electronic signatures track the story of the economy over the past few years. Then- President Clinton signed the Electronic Signatures in Global and National Commerce Act in the summer of 2000, and it took effect Oct. 1 of that year. Together with the model Uniform Electronic Transaction Act that has been adopted in 42 states and the District of Columbia, the E-sign act was intended to drive the growth of online mortgages, insurance policies, and other products. It was also supposed to replace piles of paperwork such as that generated by the Truth-in-Lending Act and other mandatory consumer disclosures with cheaper electronic versions. Its timing proved poor.
Though e-commerce swooned, many companies still wanted to take advantage of electronic signatures. Lacking clear rules, however, these companies lacked confidence that their system designs would satisfy the act's sometimes vague provisions. The E- sign requirements include authentication of the unseen parties of a transaction, consent by customers to do business electronically, and "clear and conspicuous" disclosures to consumers.
One difficulty is passing the act's "meaningful demonstration" test. A financial services provider has to verify at the outset that the customer/member can receive mandatory information for example, that he or she has the software needed to read PDF or Word documents before they are sent, say, a monthly statement in those formats. The Act was unclear on how to comply, and lawmakers' statements were contradictory.
The draft proposal is divided into five topics: authentication, consent, disclosures, signatures, and record retention.
Buckley and Whitaker said they are ready for consumer groups to challenge the standards. But they argue that "Spers" will ultimately go a long way to removing the barriers that have prevented digital signatures from becoming a reality.
"We perceive a gathering momentum in the use of electronic records and contracting processes," Buckley said.