Potential problems of e-signature legislation

WASHINGTON - While members of Congress and the Clinton Administration have been touting the potential boon recently passed e-signature legislation will have on e-commerce, credit union groups and consumer groups say the bill leaves a lot of unanswered questions. The bill, S. 761, the Electronic Signatures in Global and National Commerce Act, does have extensive consumer protection provisions in place as far as ensuring consumers want to receive documents electronically. The bill requires that before businesses and financials begin sending electronic documents to consumers, they get consumers' consent. But beyond that, the act of sending the electronic documents is scarcely touched on in the bill. "There's nothing in the bill to guarantee that you receive something after you sign the initial consumer consent. Let's say you drop your ISP account after you've already signed something that says `Yes, I want to view things online,' " said Travis Plunkett, legislative director for the Consumer Federation of America. "There's nothing further in the bill to ensure you actually received the electronic items." But some proponents of the bill say that argument is flawed because there's nothing in place today to ensure that consumers are receiving their postal mail disclosures either. Plunkett said that analogy is offensive to consumers. "E-mail and postal mail are not equivalent. We don't have a national forwarding system for e-mail that forwards e-mails to someone for at least a year if they change e-mail accounts," said Plunkett. Plunkett said even if the consumer does get the e-mail, the bill does not require that the sender verify that the consumer opened any attachments. "If someone sends me something in the mail, I know how to open the envelope. How many times do we receive attachments via e-mail that we can't open?" The bill does mandate that financials and businesses test to see that the consumer can receive documents electronically, but the bill is not specific. For example, said Plunkett, having a consumer click an HTML link on a Web site consenting to electronic delivery does not ensure that the consumer can open an e-mail attachment. There are document retrieval systems in place (United Parcel Service has one) that confirm that the user actually opened a particular document. Plunkett said that technology should be used and the cost of implementing that technology should fall on the businesses and financials not the consumer. Plunkett said the bill also opens up fraud doors. "Our fear is that because of the way the bill is written bad actors could use the bill to defraud people. Consider the problems of someone selling things door-to-door. What if they put a laptop computer in front of the consumer and tell them to press a button to receive everything online?" He said bad actors could rig the lap top so it looks like the sale never even happened. Plunkett also felt Congress made a mistake by allowing electronic consent to be used for transactions done in the physical world. He said this could lead to consumers not getting sufficient receipts, warranties and other purchase documents. Murray Chanow, director of legislative and political affairs for NAFCU said the bill will help credit unions reduce costs over time by eliminating costly paper documents, but that the timeframe for this bill is really up to tech vendors. "A lot of high-tech groups are going to be coming out with all kinds of software to help make e-signatures a reality. The effective date of the legislation is Oct. 1, but there are so many tech issues to work out there certainly won't be an immediate impact to credit unions. It may not come for one to two years from now," said Chanow. Chanow said the bill did go far enough with its disclosure provisions. "Under the bill consumers may wind up signing and receiving more disclosures for an electronic contract, than they do for a paper one." "The bill leaves a lot of questions for the legal community as far as what is going to constitute a signature," said Roger Nettie, product development manager for CUNA Mutual Group. Nettie said a digital signature is really a misnomer in that it is going to look very different than a person's handwritten signature. "It's going to be computer code. They (credit unions) have to be sure they can trace the signatures," said Nettie. Nettie said the bill is a plus for credit unions because to truly automate lending and present it over the Web, the electronic forms need to be as legally valid as paper. "The primary issue that credit unions have to deal with is that if you want to enforce a contract ultimately you have to prove that the person you want to enforce the contract against, actually signed the contract. This bill doesn't tell us how to do that," said Pat Torkildson, assistant vice president in CUNA Mutual Group's Sales & Operations Compliance Department. CUNA Mutual Group announced an enhancement of its bond to help credit unions protect themselves from losses stemming from fraudulent use of a member's digital signature. Specifically the enhancement provides additional protection for fraudulent and unauthorized ACH debits and demand drafts; protection against losses resulting from unauthorized use of unissued debit and credit card numbers and computer-crisis management. -pgentile@cutimes.com