A movie mogul reportedly once said, “An oral contract isn’t worth the paper it’s printed on,” but is an online banking contract, signed electronically, any more solid under the new Electronic Signatures in Global and National Commerce Act than the sand in the silicon chip it’s written on?

The new law has a simple goal. In plain English, it does not matter how you make a contract. A written agreement, a clicked acceptance, and an exchange of e-mails are equally valid.

Yet as financial services companies race to exploit the new rules with cost and timesaving innovations, consider the risks from a common sense standpoint alone. No paper record exists. You may not even know your customer — or whether the name you were given is correct.

And will financial companies realize the promised savings on their investment in technology to support e-signatures? Will people who do not make deposits at ATMs suddenly stop filling out account-opening forms and mailing them in because of digital contracts?

Businesses must also calculate whether the new law’s burdens justify the headache. After all, how expensive is the paper follow-up to a fax signature?

Regional and national institutions will not even see an end to differences by state in electronic contracting law. Though many states have adopted the Uniform Electronic Transactions Act, most have amended it so much that it has become anything but uniform.

As a result, forms and procedures had to be customized, state by state, eating up any cost savings. Yet the e-signature law does not override this problem with a single national rule. Instead, it requires a confusing analysis of which state rules still apply.

Anyone relying on electronic contracts, therefore, must keep one file drawer firmly planted in the paper world. Any promised savings must outweigh the legal fees required to understand and use e-contracts.

Worse, neither the federal nor state laws erase the biggest risk of e-signatures: How do you know who pushed the button to accept?

A perfect record that “someone” agreed to a contract does not prove who that “someone” was. A victim of digital fraud, for example, can’t easily show a forged signature.

Though several companies now offer “digital certificate” software that could avert this risk by verifying the identity of the electronic signer, will all parties to a complex deal have compatible software? Will the cost of digital certificates for each party — particularly in consumer transactions — just encourage a return to paper forms and thwart any cost savings?

Digital certificates might also lead to more sophisticated fraud. The certificates may be harder to counterfeit, but businesses and consumers must understand the importance of keeping them truly confidential. What crime could be more perfect than theft using someone’s unique electronic identifier?

The new law tried to make electronic contracting available to everyone, but in trying simultaneously to help businesses and protect consumers, our lawmakers may have “fixed” the problem with a law that is simply too complex for practical use.

Until the financial services industry adopts standardized, off-the-shelf contracting software, do not mothball paper forms with your carbons and manual typewriter.


Mr. Jaskiewicz is a lawyer in the business services group of the Philadelphia law firm Spector Gadon & Rosen

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