U.S. Agencies Say E-Signature Law Is Doing the Job

The U.S. Federal Trade Commission (FTC) and the Department of Commerce released a report Wednesday recommending that Congress take no action to amend the digital signature law, also known as the Electronic Signature in Global & National Commerce Act (ESIGN), which was signed by President Bill Clinton a year ago.

"It is reasonable to conclude that, thus far, the benefits of the consumer consent provision of ESIGN outweigh the burdens of its implementation on electronic commerce, and that the provision appears to be working satisfactorily at this stage of the Act's implementation," the agencies' report said.

However, the report also noted that not enough time has passed for consumers and businesses to experience the effects of the law or to determine if the implementation of ESIGN has led to an increase in online consumer deception and fraud.

In addition, the agencies said that more time is needed to conduct a complete quantitative analysis of the digital signature law.

Minimal Impact

ESIGN was enacted to facilitate the use of electronic records and signatures in Internet commerce by ensuring the validity and legal effect of contracts entered into electronically.

The report identified a potential "burden" on commerce caused by ESIGN's reasonable demonstration requirement, which states that consumer information that must legally be in writing -- such as product recalls or terms of credit -- cannot be sent to consumers electronically unless each consumer consents to receive the information electronically.

"Consumer consent provisions only apply to laws that require written notices be sent to consumers, so generally it does not apply to the electronic contract of the sale of goods," John Morgan, an attorney specializing in e-commerce for the Seattle, Washington firm of Perkins Coie LLP, told the E-Commerce Times.

"For most e-tailers, this is not going to have an impact," Morgan said.

Writing on Wall

Morgan also said that more heavily regulated industries, such as online brokerages or banks that must satisfy the written notification requirements of truth-in-lending laws, might have more to do in order to comply with the reasonable demonstration requirement than typical e-tailers have to do.

"Given that the FTC mandate is to protect against unfair trade practices, it's not surprising they'd find provisions protective of consumers to be beneficial," Morgan said. "Lacking some pretty concrete statistics or evidence that commerce is harmed or excessively burdened, [the agencies] would be unlikely to suggest a lessening of the rules."

Five Easy Pieces?

Under ESIGN, businesses and individuals can legally sign everything from contracts to mortgages over their computers and the Internet, potentially reducing hassles and allowing e-commerce firms to offer expanded convenience to customers. However, the law has proven difficult for e-tailers to implement on a regular basis.

First, the seller or provider of service must inform customers that digital signatures are accepted and convince them to use the technology.

Then, the company has to ensure that the customer has the appropriate software to even use a digital signature. Next, if the customer so demands, the company has to supply a hard copy anyway.

The company also has to specify whether the customer's digital signature is for one sale or a series of sales. If it is for one sale, the company has to send the customer verification that the digital signature is only being used once.