Banks, credit unions find common ground in electronic notary push
The movement to allow consumers to use electronic notaries is gaining momentum.
Iowa recently passed legislation that will allow notaries to sign documents electronically, and more than a dozen other states are considering similar bills this year. That should give borrowers going through the lending process more flexibility, since they won’t need to be physically present in front of a notary to sign required documents.
And it should help credit unions compete with fintechs and online lenders.
“Consumers expect that they should be able to do everything electronically,” said Benjamin Rempe, chief operating officer at LenderClose, a West Des Moines, Iowa, digital lending platform for community banks and credit unions. Physically "showing up somewhere to talk to a person is one of the last things that consumers want to do. E-notary allows credit unions to provide a seamless online mortgage process before other fintechs step in and change the game.”
Rempe, who was at the forefront of pushing for the Iowa legislation, got the idea for the bill last summer when a colleague was having trouble getting a notary to show up at a loan closing in Orange City, about 220 miles northwest of West Des Moines. They eventually got a notary there, but the process was difficult and expensive.
Several groups began meeting last year to support the legislative effort, including the Iowa Credit Union League, the Iowa Bankers Association, LenderClose, the Iowa Association of Realtors and the Iowa Association of Business and Industry, said Justin Hupfer, vice president of governmental affairs at the Iowa Credit Union League.
Iowa bankers and credit unions worked together on electronic notaries — despite their recent history of battling over the issue of taxing credit unions — because “this was a common-sense piece of legislation which was easy for everyone to get behind,” Rempe said.
The legislation will help streamline real estate transactions as more Iowa banks convert to paperless loan closings, said Bob Hartwig, legal counsel for the Iowa Bankers Association. The association assisted last fall and during the current legislative session with development of a uniform amendment to the state’s revised law for remote notary transactions.
Hartwig said the Iowa Bankers Association does not see any real downside as long as there are sufficient rules put in place in terms of information security for the transactions, and he expects that to happen. “We think banks of all sizes may benefit from this effort as we are hearing from several community bank members who are very sophisticated with paperless transactions,” he said.
The bill passed the state senate by a vote of 48-0 and the state house by 96-2. The law will take effect July 1, 2020.
Hupfer said electronic notaries will make the lending process more efficient for businesses and consumers, who will no longer need to visit a notary to get something notarized. This is especially helpful for the disabled, elderly and others who may have transportation barriers and those that live in more remote areas.
Citing the flooding that devastated parts of the Midwest recently, including Iowa, Hupfer added that having an electronic notary would have helped members who couldn’t get into a branch during the natural disaster.
“Members in rural locations may not have a branch nearby," Rempe said, "so should they have to drive three hours to their nearest branch or should they be able to conveniently sign documents electronically at home? For credit unions, it has the potential to make mortgage lending more convenient for members.”
Electronic notaries could also help credit unions capture business from online lenders such as Rocket Mortgage that offer consumers the ultimate convenience of being able to book a loan without leaving their couch, Hupfer said.
There is hope that electronic notaries will limit potential fraud as well since in-person notary fraud happens regularly, Rempe said. The Iowa bill requires the electronic notary process to be videotaped. The notary and signer can see each other over video during the entire session, said Patrick Kinsel, founder and CEO of Notarize, a company that provides online notarizations.
“This is recorded,” he added. “They also share a real-time view of the documents and any edits either is making during the session, including the application of their signature and notary's information. A log of all of these actions is stored, so the event data is recorded.”
The video is kept for 10 years, meaning there is a record for the parties to review if there is ever an issue, Hupfer said.
“With today’s [paper] notarization, there is no recorded video that can be turned to in the event of a dispute," Hupfer added.
Currently, Maine is one state that doesn’t allow for electronic notaries, but it’s something that credit unions there would welcome, said David Libby, president and CEO of Town & Country Federal Credit Union in Scarborough, Maine.
“Whether it would be a boon or not, time would tell, but it would likely make the process more convenient for members so that would certainly be worth from that perspective,” Libby said.
Rempe indicated that 15 other states have approved e-notary laws and 13 states, including California, Florida, New Jersey and New York, are considering such legislation this year. He predicts that most of these states will pass these bills and implement them over the next 12 to 24 months.
“This is a wave. This is the future,” he said.
Ken McCarthy contributed to this article.