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ELECTRONIC SIGNATURES: A Review of the Exceptions to the Electronic Signatures in Global and National Commerce Act

June 30, 2003

Executive Summary

The United States has rapidly become a society where access to information plays a dominant role in the economic and social progress of daily life. Along with the telephone, the computer and the Internet are the primary tools used to communicate in a fast-paced and quickly changing society. Americans use the Internet for numerous reasons, including to complete business transactions, conduct research, collect health, life and automobile insurance information, and to receive interest rate information and quotes for home mortgages. This report, Electronic Signatures: A Review of the Exceptions to the Electronic Signatures in Global and National Commerce Act, contains a detailed review of the nine exceptions to the Electronic Signatures in Global and National Commerce Act (ESIGN or Act), an examination of how the exceptions are handled in electronic commercial and personal transactions, and recommendations regarding whether each exception should remain in the Act for the protection of consumers. The ESIGN Act facilitates the use of electronic records and signatures in interstate and foreign commerce and grants legal validity and enforceability to electronic signatures, contracts, and records. This general rule of validity does not apply, however, to the nine exceptions provided at section 103 of the Act.(1)

The information and data gathered regarding the ESIGN exceptions demonstrate that some industry and consumer interactions using computers and the Internet have become quite routine since the passage of ESIGN. In these areas, procedures designed to protect consumers also have developed in accordance with ESIGN's consumer protection provisions. With regard to areas involving highly personal matters, however, protective mechanisms have not evolved rapidly. As a result, consumers have less confidence in computer technology and continue to rely on written documentation of business and financial transactions. In summary, this evaluation reveals the following:

  • Federal and state courts, the insurance and health industries, and the commercial and financial services industries have made significant advancements in developing optional electronic filing and information systems and the respective consumer groups have adapted to electronic filing and purchasing systems.

  • Governmental agencies with oversight for recall information and manufacturers have found electronic mail a useful tool in contacting consumers for product recalls.

  • ESIGN exceptions involving highly personal or financial interests, such as mortgage foreclosures and domestic law areas, are matters that may be unsuited to electronic information or access systems at this time. Consumer privacy interests and the high risk of loss or damage to personal interests as the result of a failure to receive required information in a timely manner causes consumers to rely on paper documentation and makes the electronic transfer of information unsuitable in some cases.

  • The nature of hazardous waste and dangerous substances management requires that written documentation accompany shipments, even though a portion of the documentation process may be accomplished through electronic means.

  • Overall, consumers, government, and industry leaders appear to prefer the option of electronic transactions accompanied by the reliability of paper documentation for some matters.

In Electronic Signatures: A Review of the Exceptions to the Electronic Signatures in Global and National Commerce Act, we are pleased to report that there has been significant progress in the use of electronic signatures since Congress passed ESIGN. There are, however, hurdles to overcome related to the lack of consumer confidence in electronic media as the sole method of conducting all business, financial, and personal transactions. This evaluation provides a review of the response to the exceptions to the ESIGN Act by federal and state agencies, private industry, and consumer groups and associations. This evaluation also presents an analysis of whether the exceptions to the Act are necessary to protect consumers in light of the current use of electronic signatures in the United States. In summary, the evaluation recommends that Congress retain the nine exceptions, with modifications to the utility cancellation notices exception to allow utility companies to send electronic cancellation notices to customers voluntarily enrolled in electronic billing services, and to the exception regarding contracts governed by the Uniform Commercial Code, to remove electronic letter of credit transactional records governed by Article 5 and electronic notices governed by Article 6 from the list of exceptions to the Act.