Electronic Signatures

1
Electronic Signatures Records Under UETA
E-Sign

• Tom Levandowski
• Vice President Assistant General Counsel
• First Union Corporation

2
State Law - Uniform Electronic Transactions Act
(UETA)

• UETA, approved by the National Conference of
  Commissioners on Uniform State Laws on 7/29/99,
  sets forth requirements concerning electronic
  contracts, signatures and records.
• UETA is procedural, not substantive.
• It does not require anybody to use electronic
  transactions or to rely upon electronic records
  and signatures.
• It does not prohibit paper records and manual
  signatures.
• Basic rules of law, like the general and
  statutory law of contracts, continue to apply as
  they have always applied.
• More on UETA at the end of the presentation

3
Federal Law - The Electronic Signatures in
Global and National Commerce Act (E-Sign)

• E-Sign Effective Dates
• enacted 6/30/00
• generally effective 10/1/00 delayed until 3/1/01
  for state or federal record retention
  requirements.
• Consumer consent provisions effective for FFELP,
  Perkins and DL 6/30/01.

4
Federal Law - E-Sign

• Like UETA, E-Sign
• is procedural not substantive
• does not require consumers to use electronic
  signatures
• Lets marketplace drive development of
  standards/procedures appropriate to specific
  types of transactions.

5
Federal Law - E-Sign Act

• Many, but not all, of UETAs provisions were
  adopted directly by E-Sign or used as the basis
  of similar provisions in E-Sign.
• However, general principles in E-Sign mirror UETA

6
E-Sign General Principles

• A record or signature may not be denied legal
  effect or enforceability solely because it is in
  electronic form.
• A contract may not be denied legal effect or
  enforceability solely because an electronic
  record was used in its formation.
• Any law that requires a writing will be satisfied
  by an electronic record, and
• Any signature requirement in the law will be met
  if there is an electronic signature.

7
E-Sign General Principles

• Notwithstanding the general rule of equal
  enforcement, E-Sign does not protect the
  validity of an electronic signature or record
  unless it is in a form capable of being retained
  and accurately reproduced for later reference by
  all parties entitled to retain it.

8
E-Sign - Electronic Signatures

• General Rule A signature cant be denied legal
  affect solely because it is in electronic form.
• What is an electronic signature?
• An electronic sound, symbol or process
• Attached to or logically associated with a
  contract or other record
• Executed or adopted by a person with the intent
  to sign and be bound by the record

9
E-Sign - Electronic Signatures

• Electronic sound, symbol or process. Types of
  E-signature technologies
• Password (with SSL)
• I agree button
• Digitized image of signature (e.g. created by
  signature pad or from an original wet
  signature)
• PIN number
• Digital signature (Public Key Infrastructure -
  PKI)
• Biometrics
• Smart Card

10
E-Sign - Electronic Signatures

• Attached to or logically associated with a
  contract or other record.
• There must be a technical link between the record
  and the electronic signature applicable to that
  customer.
• E-Sign does not specify requirements for
  establishing this technical link.

11
E-Sign - Electronic Signatures

• Executed or adopted by a person with the intent
  to sign and be bound by the record
• Requires application of general contract rules to
  determine if customer, based on the
  circumstances, intended to be bound by the
  offered contract.
• Whether requisite intent exists is a question of
  State law.

12
E-Sign - Electronic Signatures

• Executed or adopted by a person with the intent
  to sign and be bound by the record (cont.)
• Cases on electronically signed p.notes?
• On-line contracting and On-line jurisdiction
  cases informative on
• Establishing intent to enter electronic
  contract (e.g. click-through or shrink-wrap
  software licenses).
• Jurisdiction Which state law applies? (e.g.
  passive vs. interactive website cases).

13
E-Sign - Electronic Signatures

• E-Sign does not
• require the use of any particular technology, or
• specify what makes an electronic signature
  enforceable.
• While E-Sign creates a level-playing field
  between e-signatures and wet signatures, it
  doesnt address how to create a valid
  e-signature.
• Questions of authority, agency, forgery, contract
  formation, etc., are determined by state law

14
E-Sign - Consumer Consent

• General Rule Any legal requirement to give
  information in writing to a consumer is satisfied
  if given in electronic form, provided 3 basic
  conditions are met
• 1. Consumer Consent - The consumer has
  affirmatively consented to the use of
  electronic communications and has not withdrawn
  such consent
• 2. Informed Consent - Prior to consent, the
  consumer is provided a clear conspicuous
  statement which
• describes the categories of records covered by
  the consent
• explains the right to have the record provided in
  writing (and how to obtain the paper copy) and

15
E-Sign - Consumer Consent

• Consumer consent conditions (cont.)
• explains the right to withdraw consent, the
  procedures for withdrawing consent, and the
  conditions that apply if consent is withdrawn
• 3. Hardware and software requirements - Prior to
  consent, the consumer is given a statement of the
  hardware and software requirements for accessing
  and retaining electronic records. The consumer
  must then give or confirm consent electronically
  in a manner that reasonably demonstrates the
  consumer can access electronic records.
• Duty to provide revised requirements also.

16
E-Sign - Consumer Consent

• Consumer consent conditions (cont.)
• If these requirements are met, an electronic
  record (e.g. e-mail or web-posting) can be
  substituted for a consumer notice required to be
  in writing.
• What kinds of written consumer notices can be
  provided electronically?
• Truth-in-Lending disclosures
• ECOA disclosures/notices
• FFELP due diligence notices and other documents
  that FFELP requires to be provided in writing to
  borrowers.

17
E-Sign - Consumer Consent

• Consumer consent conditions (cont.)
• Gray-area The consumer consent provisions
  arguably apply only to electronic delivery of
  certain consumer notices (i.e., those required by
  law to be in writing) and not to the formation of
  consumer contracts using electronic signatures.
• However, DOE has interpreted provisions of 101(c)
  as applying to electronically signed FFELP
  promissory notes.
• Are the consumer consent provisions applicable to
  electronic signatures of private loan pnotes?
  Even if not applicable, signature process must
  address similar consumer consent issues (e.g.
  affirmative action by consumer that reasonably
  shows assent to pnote terms conditions).

18
E-Sign - General Preemption Rules

• E-Sign Act gives states limited authority to
  modify, limit or supersede the E-Sign Acts
  basic provisions governing the use of electronic
  records and signatures, but only with respect to
  a states own laws.
• E-Sign will always govern federal writing and
  signature requirements, but states may establish
  their own writing and signature requirements for
  state law purposes that modify, limit or
  supersede the E-Sign Act.
• FFELP Pnotes E-Sign plus state contract law
• Private Loan Pnotes E-Sign and/or State UETA
  (or acceptable state variation), plus state
  contract law.

19
E-Sign - General Preemption Rules

• E-Sign preempts inconsistent state laws
  restricting or regulating electronic signatures
  and records (e.g. state digital signature
  statutes, UT, MN, WA).
• However, state law will continue to apply as
  follows
• A states UETA will apply - - instead of E-Sign -
  - if the state adopted UETA as is (clean
  UETA).
• State alternatives to UETA will apply if they (1)
  contain procedures or requirements for using
  electronic signatures that are consistent with
  E-Sign, and (2) are technology-neutral (dont
  require or give preferred status to specific
  technology).

20
E-Sign - General Preemption Rules

• If a states laws meet either of the above two
  criteria, the preemption provisions of the E-Sign
  Act may be modified, limited or superseded.
• Superseding state laws may include laws adopted
  either before or after the enactment of the
  E-Sign Act
• But, superseding state laws (other than a clean
  UETA) adopted after June 30, 2000, must make
  specific reference to the E-Sign Act.

21
E-Sign - Preemption in UETA States

• As of 7/24/01, 38 States have adopted UETA in
  some form, 5 states had amended their new UETA
  laws, and UETA was pending in at least two other
  states (e.g. WI)
• 12 states have adopted UETA in clean or nearly
  clean form (Arkansas, Idaho, Kentucky,
  Minnesota, Mississippi, Montana, New Mexico,
  Oklahoma, Rhode Island, South Dakota, Tennessee,
  and Wyoming).

22
E-Sign - Preemption in UETA States

• 26 states have enacted non-uniform versions of
  UETA.
• Some non-uniform provisions are technical or
  minor
• Some non-uniform provisions are substantive and
  and include additional consumer protections that
  could affect a transaction (e.g., Arizona,
  California, Maryland, Ohio and Pennsylvania)

23
E-Sign - Preemption in UETA States

• Effect of non-uniform enactment of UETA
• Inconsistent non-uniform provisions of a State's
  UETA enactment are ineffective, but the balance
  of the enactment survives.
• Variation 1 - If non-uniform under 102(a)(1),
  cant strike offending provision(s) if acceptable
  under 102(a)(2).
• Variation 2 - Non-uniform provisions do not
  survive, whether or not they would be acceptable
  under (a)(2).

24
E-Sign - Preemption in UETA States

• Effect of non-uniform enactment of UETA (cont.)
• If the State statute has any non-uniform
  provision, the entire enactment is ineffective
  and federal law governs.
• Variation 1 - If non-uniform under 102(a)(1),
  cant strike law if entire law acceptable under
  (a)(2).
• Variation 2 - If non-uniform under 102(a)(1),
  the entire law does not survive, whether or not
  it would be acceptable under (a)(2).

25
E-Sign - Preemption in Non-UETA States

• Some states have adopted non-uniform statutes
  dealing with electronic signatures and records
  (that are not technology-neutral or that give
  enhanced legal effect to certain kinds of
  electronic signatures)
• E.g., Alaska, Georgia, Illinois, Missouri,
  Oregon, South Carolina, Washington, Wisconsin
• Although not settled by judicial action,
  widely-believed that these statutes are totally
  preempted by E-Sign. They do not survive
  102(a)(2) analysis.

26
E-Sign - Gray-Area Preemption Issues

• E-Sign does not address all items addressed by
  UETA (UETA is more comprehensive than E-Sign).
• Unique clean UETA provisions probably not
  preempted by E-Sign
• Sending Receiving Electronic Records UETA
  establishes when and where electronic delivery
  occurs -- i.e., when and where an electronic
  record capable of retention by the recipient is
  legally sent and received. Whether an electronic
  record has been sent or received is tied to the
  information processing systems used by the
  parties and, unless otherwise agreed, is sent or
  received from the parties' principal place of
  business or residence.

27
E-Sign - Gray-Area Preemption Issues

• Attribution E-Sign contains no provisions
  dealing with the attribution of electronic
  records or signatures. UETA states that an
  electronic record or signature is to be
  attributed to a person if it is an act of that
  person.
• A customers name on an electronic record wont
  bind the customer unless the name was placed on
  the record by the customer, ratified by the
  customer, or inserted by someone acting on the
  customers authority.
• That act may be shown by any relevant evidence,
  including by showing that certain technology or a
  password was used, which helps to establish who
  attached the signature.

28
E-Sign - Gray-Area Preemption Issues

• (Attribution cont.)
• A persons actions include actions taken by
  human agents of the person, as well as actions
  taken by an electronic agent, i.e., the tool, of
  the person.
• UETA also clarifies that the effect of a record
  or signature on the person to whom it is
  attributed is to be determined from the context
  and surrounding circumstances at the time of the
  creation, execution or adoption of the record.

29
E-Sign - Gray-Area Preemption Issues

• Mistake or Error UETA provides some rules on
  errors and changes occurring when electronic
  records are exchanged between parties.
• It favors the party who conforms to the security
  procedure used in the specific transaction
  against the party who does not, in the event
  there is a dispute over the content of the
  message.
• It contains provisions covering the impact of
  mistakes made by an individual while dealing with
  an electronic agent
• It specifies that the law of mistake applies to
  errors or changes occurring in contexts other
  than transmissions of electronic records.

30
E-Sign - Gray-Area Preemption Issues

• Admissibility E-Sign doesnt address
  admissibility of electronic records in
  litigation. UETA states that evidence of a
  record or signature may not be excluded in a
  proceeding solely because it is in electronic
  form. Doesnt relive parties from establishing
  necessary foundation for the admission of the an
  electronic record.

31
E-Sign - Gray-Area Preemption Issues

• Consumer Protection Laws. E-Sign specifically
  provides that it does not preempt
• state law requirements regarding the proximity of
  consumer protection notices to the customers
  signature
• state laws regulating the timing or content of
  required consumer disclosures
• However, E-Signs impact on any other
  requirements of consumer protection laws, such as
  formatting or conspicuousness, is difficult to
  determine.

32
E-Sign - Gray-Area Preemption Issues

• Consumer Protection Laws (cont.)
• State formatting or conspicuousness rules,
  particularly to the extent difficult to implement
  in an electronic environment, may be inconsistent
  with E-Sign.
• UETA, on the other hand, specifies that such
  State law requirements must be satisfied before
  an electronic record may be used.
• Which governs? E-Sign or UETA?

33
E-Sign - Gray-Area Preemption Issues

• Record-keeping.
• E-Sign requires that the record remain accessible
  to all persons who are entitled to access by
  statute, regulation, or rule of law for the time
  specified in such a rule.
• UETA merely requires accessibility for later
  reference.
• Which Governs, E-Sign or UETA?
• E.g. If under E-Sign the information is
  accessible to some, but not all, persons entitled
  to access, does that affect the validity or
  enforceability of the electronic record? A
  printed copy of an electronic record provided to
  one party may be accessed and reviewed later, but
  not necessarily by all of the parties who might
  have a right to access it.

34
E-Sign - Gray-Area Preemption Issues

• Gray-Area preemption issues would only seem to
  affect Private Student Loans, not FFELP Loans
  (i.e. per FFELP federal writing and signature
  requirements).
• What about multi-state Private Student Loan
  transactions involving clean and non-clean
  UETA states? Would E-Sign operate to impose
  E-Sign or clean UETA on those transactions?
• Preemptive scope of E-Sign will probably be
  resolved in the courts.

35
E-Sign - Preemption

• Even though E-Sign grants an exemption from
  federal preemption, the net effect is to create
  some level of national uniformity.

36
Electronic Signatures - Practice Basics

• Although not addressed by E-Sign, all types of
  electronic signatures should provide certain
  safeguards, as appropriate for the document being
  signed, in order to withstand legal challenge.
• Electronic signatures, regardless of technology,
  should assure
• Data Integrity - How do you know that the
  borrower has signed the document you provided?
• Attribution - How do you know that the borrower,
  as opposed to a 3rd party, actually signed the
  document?
• Non-repudiation - How do you refute a borrowers
  claim that he/she didnt sign the document?
• Reliability - How do you and the borrower prove
  that neither has altered the document after
  execution?