Why Should Fed Use E-Sign to Replace Disclosure Laws?
Ireland, Oliver, American Banker
In the spring of 2000 banks focused on the need for legal certainty for Internet transactions. The result was the enactment of the Electronic Signatures in Global National Commerce Act on June 30.
E-Sign was intended to provide legal certainty for Internet transactions. It states that electronic signatures, contracts, and records shall not be denied legal effect solely because they are in electronic form, but it limits the use of electronic records to satisfy regulations that require written consumer notification.
As every retail banker knows, the industry's legal landscape is littered with requirements for written disclosures and other information. If these requirements could not be fulfilled electronically, Internet retail banking would be severely limited. However, there was concern electronic disclosures would not be as effective as paper disclosures for consumer protection.
The result was a careful compromise. The "consent provision" directs a bank that wants to send a written disclosure electronically to obtain the consumer's consent. Before obtaining this consent, the bank must provide a "clear and conspicuous statement" about the use of electronic disclosures.
The consumer must also consent in a manner that "reasonably demonstrates" that he/she can electronically access the information.
E-Sign also authorizes federal agencies responsible for rulemaking under other statutes to interpret this provision as it applies to their statutes. Because of concern that the provision could be viewed as a minimum, rather than a maximum, requirement for electronic disclosures, E-Sign prohibits any agency interpreting the provision from adding to its requirements. The agency also must find that:
There is a substantial justification for the rule.
The electronics requirements will be substantially equivalent to paper requirements.
The electronics requirements will not impose unreasonable costs, and
The rule does not favor specific technologies.
The banks will question the Federal Reserve Board's requirements for sending "alert" notices to consumers who receive disclosures at the banks' Web pages and for the redelivery of certain electronic communications. However, the banks will applaud the board's conclusion that it would be inappropriate to apply the consent provision to certain application, solicitation, and advertising disclosures.
Consumer advocates may take a different view of these issues. What may be overlooked in the debate, however, is the board's approach to E-Sign and the implications of that approach.
The board used E-Sign as a benchmark -- it stated that electronic disclosures could be used "in accordance" with the law -- but it appears to have adopted these rules under the statutes that mandate the disclosures, rather than under E-Sign.
Nevertheless, in several of its regulations, the board interpreted E-Sign to exclude certain application, solicitation, and advertising disclosures from the consent provision, because they do not relate to the transaction. …