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New Federal E-Sign Law Allows You to Make Your Mark in Cyberspace

New Federal E-Sign Law Allows You to Make Your Mark in Cyberspace

On June 30, 2000, President Clinton signed into law the Electronic Signatures in Global and National Commerce Act (“E-Sign”). The new law contains provisions regarding the use of electronic signatures that take effect on October 1, 2000 and provisions regarding electronic recordkeeping that take effect on March 1, 2001. The E-Sign Act provides that a signature, contract or other record will not be denied legal effect, validity or enforceability solely because it is in electronic form or because an electronic signature or electronic record was used in its formation. Thus, subject to certain exceptions, “electronic signatures” will be as valid as paper and ink signatures and electronic records will be as valid as paper records. However, their use will remain voluntary.

The use of electronic signatures is expected to make it much easier for businesses and consumers to transact business over the internet and to benefit from the efficiencies resulting from advances in technology. Although it has been possible for people to do many things such as apply for loans and open brokerage accounts online, the final agreements still had to be on paper and signed in ink. That need for a paper document and a manual signature made the process slower and less efficient than it would be if everything could be done electronically. Although more than 40 states had adopted laws that validated the use of electronic signatures, those laws were not uniform. The uniformity provided by the E-Sign Act will accelerate the use of electronic signatures and electronic records.

The E-Sign Act is technology neutral because it does not specify exactly what an “electronic signature” will be. Instead, the free market will ultimately determine the types of electronic signatures that will be used. The Act defines an “electronic signature” as an “electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record.” Depending upon the agreement of the parties, an electronic signature could simply be a typed name on an email, a password or a digitized image of a signature. Or it could use something much more sophisticated with higher security such as “smart cards” and personal identification numbers, biometric identification such as thumbprint scans or iris scans or “digital certificates” that use public key cryptography to authenticate the signature and maintain integrity of the document. The type of “electronic signature” that is used in a particular situation will be dependent upon the importance of the message that is sent and the technologies that are adopted by the parties.

In addition to providing for electronic signatures, the E-Sign Act authorizes the increased usage of records that are in electronic rather than paper form. The Act says that if a statute, regulation or other rule of law requires that a contract or other record be retained, that requirement is satisfied by retaining an electronic record of the information that: (a) accurately reflects the information set forth in the contract or other record and (b) remains accessible to all persons who are entitled to access it in a form that is capable of being accurately reproduced for later reference, whether by transmission, printing or otherwise.

The E-Sign Act does not require a person to agree to use or accept electronic signatures or electronic records. Just as it is possible for someone to refuse to decide to use credit cards, they can refuse to “opt in” to using electronic signatures and electronic records.

In addition, because of fears that unscrupulous persons would mislead consumers into consenting to the use of electronic records and then harm them by sending them important notices via email that they might not be able to access, the E-Sign law includes specific procedures for obtaining that consent from consumers. If another law or regulation requires that information be made available to a consumer in writing, that information will still need to be provided in paper form unless the consumer provides a “meaningful consent” to having that information provided with the use of an electronic record. To make the consent “meaningful” the consumer must affirmatively consent after being provided with a clear and conspicuous statement that informs the consumer of the right to have the record provided on paper. The notice must also advise the consumer of his or her right to withdraw that consent, including any consequences or fees that would result from withdrawing that consent. The notice must also inform the consumer whether the consent applies only to the particular transaction or to identified categories of records and the notice must describe the procedures the consumer must use to withdraw the consent. Prior to giving that consent, the consumer must receive a statement of the hardware and software requirements that will be needed to access and retain the electronic records. The consumer must then provide the consent electronically in a manner that reasonably demonstrates that the consumer will be able to access the electronic information that is being consented to. The importance of that provision was discussed in the Senate where it was mentioned that one of the drafts of the Act was circulated via email to members of the Congressional Staff and, even though they may be more technologically advanced than the average consumer, many of them were unable to download that document from their email and needed to have paper copies hand delivered to them. The Act also protects consumers who consent to the use of electronic records from being forced to continually upgrade their hardware or software. If, after a consumer consents to the use of electronic records, there is a change in the hardware or software requirements that creates a material risk that the consumer will not be able to continue to access or retain those records, then the provider of the electronic record will need to advise the consumer of those changed requirements and obtain a new consent.

The E-Sign Act recognizes that there are some types of documents that will still need to be done with paper and ink (at least for now). It provides that it will not apply to the: (1) the creation and execution of wills, codicils or testamentary trusts; (2) adoption, divorce or other matters of family law; (3) contracts or other records governed by the Uniform Commercial Code (other than Sections 1-107 and 1-206 and Articles 2 and 2a); (4) court orders or notices or official court documents (including briefs, pleadings and other writings) required to be executed in connection with court proceedings; (5) any notice of cancellation or termination of utility services; (6) any notice of default, acceleration, repossession, foreclosure or eviction with respect to an individual’s primary residence; (7) the cancellation or termination of health insurance benefits or life insurance benefits; (8) recall of a product or material failure of a product that risks endangering health or safety; or (9) any document required to accompany any transportation or handling of hazardous materials, pesticides or other toxic or dangerous materials. The Secretary of Commerce was instructed to review the operation of those exceptions over a three year period to determine whether those exceptions continue to be necessary and to submit a report to Congress within three years on the results of that evaluation. In addition, if a federal regulatory agency, with respect to matter within its jurisdiction, determines that one or more of those exceptions are no longer necessary for the protection of consumers and that eliminating those exceptions will not increase the material risk of harm to consumers, that agency may override those exceptions.

The E-Sign Law and the uniformity it brings will certainly cause the use of electronic signatures and electronic records to increase over the next few years as some of the legal concerns and technical issues are worked out. It will be very interesting to see the ultimate effect of this change as our world becomes increasingly less analog and more digital. If you have any questions about the E-Sign Law, please contact us. You can reach us by telephone or email or, if you still prefer, write us at Berry Moorman, P.C., 535 Triswold, Suite 1900, Detroit, Michigan 48226-3679