The group responsible for the laws governing checks and other paper- based commerce is accelerating efforts to create a similar body of law for electronic commerce.
The National Conference of Commissioners on Uniform State Laws is pushing to complete its draft of the new statute, the Uniform Electronic Transaction Act, or UETA, in time to gain state ratifications as early as 2000.
Supporters hope that a unified approach to laws and liabilities, an analog to the existing Uniform Commercial Code, will encourage growth of electronic payments and other on-line commercial options.
"The UETA has the potential to be one of the most significant statutes to facilitate electronic commerce in this country," said David Whitaker, vice president and corporate attorney of Star Banc Corp., Cincinnati.
The code would clarify existing laws amid the rapid pace of technological innovation. Electronic payment data and digital signatures would get equal footing with their paper-based counterparts in a court of law.
Mr. Whitaker, who serves as an observer of the UETA's drafting committee, said the state legislatures that would consider the proposal after its anticipated completion next year are likely to approach it with some urgency, given the popularity of the Internet.
As with the Uniform Commercial Code, a statute adopted by all or almost all states would stave off the confusion of potentially conflicting court decisions.
"This would be a significant step forward," Mr. Whitaker said. "In the long run it is good for competition and good for consumers who would have access to a much wider market for services and goods."
Star Banc is just one participating observer of the UETA effort. Several industries have addressed the conference's drafting committee, particularly software vendors and representatives of the legal profession.
Banks are participating individually and through such trade groups as the American Bankers Association, the Bankers Roundtable and its Banking Industry Technology Secretariat, and the Electronic Check Clearing House Organization.
The last, known as Eccho, is a Dallas-based group that sets rules for electronic presentments of checks. Eccho ramped up its participation in UETA when its officials noted that the draft statute did not refer to digital images of checks.
Eccho officials asked Robert Ballen, a partner in the Washington law firm Schwartz & Ballen, for an opinion on whether a check image would be acceptable in a court of law.
Mr. Ballen, who has been following the UETA deliberations for several banking clients, said the UETA could help clarify the uncertainty.
Eccho is also working with the Financial Services Technology Consortium on a check truncation pilot, which would rely on electronics to reduce check collection costs for banks.
One obstacle to the truncation, or nonreturn, of checks to their writers, is that various state laws guarantee the right to receive canceled checks.
Mr. Ballen said a legal clarification could make consumers more comfortable with check truncation programs, thus leading to more commitments by banks.
"Banks are holding back on their investments in this technology because of the uncertainty of market acceptance," he said. "It constantly comes up as a problem."
"The problem we have now is that there isn't anything definitive that recognizes the image as a legal document," said Phyllis Meyerson, senior principal of Eccho. "We know from the banking industry that they want the image to be at least as good as the check."
Eccho said it plans to formally request that the UETA drafting committee address the check imaging issue.
Michael Pasiecki, senior vice president of Chase Manhattan Corp. and chairman of Eccho, said the statute could help promote development of a national marketplace for financial services, because banks would not have to support multiple products and services tailored to specific states.
"Consistency for our customers is important," he said. "Our financial products and services for customers are across state lines and across regions."
Eccho's voicing of its concerns indicates that other parties may have to be informed about UETA and brought into the discussion, said Thomas J. Greco, associate general counsel of the American Bankers Association.
He said that the level of awareness has been low since the project began in 1996, but that it has been growing steadily as the financial services industry learns more of it.
"The banking industry is interested in moving into check truncation (but) worried about the check image for proof of payment," Mr. Greco said.
"It behooves everybody to pay attention to what is going on right now," he added. "There is a chance that a very powerful constituency can come around and say, 'We were not a part of this process. We need these issues addressed.'"
Information is posted on the American Bar Association's Web site, www.abanet.org/nccusl/home.html.
The UETA would not become a new article of the Uniform Commercial Code. The National Conference of Commissioners on Uniform State Laws is designing the statute to be consistent with UCC approaches but to stand on its own.
The drafting process, administered jointly with the American Law Institute, is by design deliberate-it can take six years or longer-to assure sufficient debate on the many weighty details that can arise.
Work on the UETA is halfway complete, said Star Banc's Mr. Whitaker, which reflects a need for speed in view of Internet growth.
"A good number of states have expressed an urgent desire to see this issue addressed," Mr. Whitaker said. "There are thousands of statutes that demand something in writing."
In the rulemaking process, a proposed statute goes through a series of drafts that are meticulously reviewed by the state-appointed commissioners and by the American Law Institute.
The UETA draft recently underwent its first public reading, which is designed to solicit public comments.
Any statements of concern, such as Eccho's forthcoming letter regarding check images, would be considered by the commissioners and incorporated into a second reading, which is scheduled for next summer.
Thereafter, the conference commissioners would vote on whether or not to adopt the uniform document and send it to the state legislatures.
The statute would, for instance, validate electronic contracts or loan documents in the absence of a paper-based original. It would also codify the use of digital certificates, which are electronic equivalents of driver's licenses or passports.
The UETA could obviate the need for a uniform, overriding federal statute on digital certificates, which some promoters of the authentication technology have called for.
Also in the realm of personal identification, the new law would also accommodate biometric techniques such as retinal scans or fingerprints.
The statute "tries to be technology- and industry-neutral," Mr. Whitaker said. "The rule is being crafted to allow (the market) to find alternative answers based on the circumstances."
A major question facing the drafting committee is whether to include rules for electronically generated negotiable instruments such as checks.
"In an electronic environment, is there an equivalent of the certainty that comes with the combination of endorsement and possession in the paper world?" Mr. Whitaker asked. "Is it proper to consider it in the UETA, or should it be considered in a separate statute? That's a big issue right now."
Also yet to be resolved is how to address consumer protection rules. Many consumer protection laws require disclosures in writing. The drafting committee is debating whether such statutes should be exempted, leaving current disclosure practices unaffected.
Mr. Whitaker said the consumer protection issue may be so big as to require its own legal framework for electronic commerce.
"It is a very significant policy decision that has to be made," he added. The drafting committee "has been seeking input from consumer advocates and from industry sources trying to arrive at the right answer."