The E-Sign act is a "simple law" with broad implications that companies will have to address, according to a lawyer who spoke at a conference in Washington last week.
While Congress acted wisely when it approved the law that lets online verifications substitute for paper-based signatures, it also posed a challenge to industry by refusing to name the technology or technologies that can be used to conduct the verification, said the lawyer, Margo Tank. Thus, Congress left it up to companies to sort out for themselves what a digital signature should mean, and this could result either in widespread confusion or in broad leeway for banks and other firms.
"The hard part is what the E-Sign act doesn't address," said Ms. Tank, who is principal counsel to the Electronic Financial Services Council, a trade group working to eliminate legal and regulatory barriers to the electronic delivery of financial services. She spoke at the E-Signatures 2000 conference hosted by Thomson Financial Media, the parent company of American Banker.
The Electronic Signatures in Global and National Commerce Act, which was signed by President Clinton in June and took effect Oct. 1, does not specify which technology must be used, and obliquely defines an electronic signature as an "electronic sound, symbol, or process." Companies could use an "I Agree" button, a digitized image of a written signature, a personal identification number, key cryptography, or biometrics, including a retinal scan, as an electronic signature.
The definition "couldn't be broader," said Ms. Tank, an associate in the Washington office of Goodwin, Procter & Hoar LLP.
The law's "technology neutrality" provision leaves companies with difficult decisions to make about what technology best fits the transaction, the consumer, and the level of risk and liability involved, she said.
"I think that will need to be sorted out over time," Ms. Tank said. "Companies are being bombarded by various technology vendors, and everybody's trying to decide what technology they really need."
Complicating matters is the consumer consent required for the use of electronic records. A statement from the company requesting consent must inform the consumer what technology is required to access the records, how to obtain the records in paper form, which transactions the consent applies to, and any conditions, consequences, and procedures for withdrawing consent.
But the absence of regulatory guidelines around delivery and storage of electronic records creates difficulties in determining how to move forward with E-Sign, Ms. Tank said. Some financial services companies are forging ahead, she said, while others are waiting to see if regulatory bodies such as the Federal Reserve Board or the Securities and Exchange Commission will implement guidelines that could affect how the law is used.
Further, E-Sign does not address the problematic issue of confirming that the signature was provided by the appropriate person.
Erick J. Reim, a senior research analyst with U.S. Bancorp Piper Jaffray, said "the biggest catalyst" for widespread adoption of electronic signatures is a government mandate, which he predicted would be issued in the next three years.
