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prepared: 8/23/99 |
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Should a lender be allowed to send a foreclosure notice only to an email address that is five years old? |
If a consumer needs a paper copy of a disclosure or contract notice sent by email, should the consumer have to pay a fee to get a copy of that notice? |
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Should a salesperson be able to sign a consumer up to receive all future notices by email when the consumer does not own a computer? |
If a law requires that a certain type of contract be in writing, should a record of a phone call satisfy that requirement? |
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Should utility shutoff warnings go only to an email address that might be shared within a family and checked primarily by the children? |
Are the consumer warning bells going off in your head? Well, all of these scenarios and more will be permitted by the new Uniform Electronic Transactions Act (UETA). UETA is coming soon to your state legislature.
What is UETA?
UETA is a uniform law approved July 1999 by the National Conference of Commissioners on Uniform State Laws (NCCUSL).(1) If adopted by state legislatures, UETA will elevate electronic records and signatures to the same legal status accorded paper records and handwritten signatures. UETA is grounded on three premises:
· That most state law requirements for a writing can be satisfied by an electronic record, including an email.
· That most state law requirements for a signature can be satisfied by an electronic signature.
· That, in most cases, the parties to a contract can agree to any form of electronic communication.
UETA's Underlying Premises Are Problematic
Often, however, these premises do not apply in consumer contracts. The first premise will be true in only some consumer situations. An electronic record may be just as good as a written record for an inexpensive transaction that is completed in a short time. On the other hand, a consumer entering into a five-year car loan or a 30-year mortgage needs the note and contract in a form which he or she can keep. Home computers are replaced every few years, and previously downloaded contracts are unlikely to be copied over to a new system. Change-of-terms notices for a service provider operating only on the Internet probably can be delivered by email, but a notice that your car is being recalled for a safety problem should arrive in the mail.
The first premise also assumes that email arrives at least as reliably as regular mail, which is contrary to the experience of many consumers. Consumers currently may change email addresses more frequently than they move. Those with email addresses seem to check them either far more frequently or far less frequently than their daily check of the regular mail. In addition, an Internet email provider may go out of business, leaving a consumer with no choice but to obtain a new email address.
As to the second premise, an electronic signature does not always fully serve the purposes of a written signature. Where there is a risk of forgery, a written signature may provide additional safeguards because it may be harder to forge than a purported electronic signature. An electronic click made at home may not serve the purpose of emphasizing the seriousness or the particular risks of a transaction as well as a written signature.
The third premise of UETA is reflected in the broad deference it gives to the autonomy of contracting parties. It defers to the agreement without distinguishing between negotiated agreements and standard form contracts or contracts of adhesion. This approach could give wide latitude to drafters of standard form contracts to define and impose the conditions of electronic communication.
For example, UETA adopts the principle that each party should be able to determine when it will receive information electronically, and when it wishes to insist on receiving a paper communication. This sounds good in theory, but in practice it allows one-sided contracts. UETA also allows an on-line seller to insist on sending all information to the consumer electronically. The seller, however, can require that the consumer communicate any complaints, refund requests, billing disputes or other communications to the same company only by regular mail.
Here is another example of a perverse effect created by UETA's rule of autonomy to contracting parties. UETA contains definitions of both "sent" and "received." According to these provisions, material is "sent" when it enters a computer system or a server that is outside the control of the sender. Further, that information is "received" when it enters the recipient's computer. These definitions contain loopholes. A message is received even when the recipient cannot open or read it; or when the message was automatically discarded by a junk mail filter. The definitions nevertheless do capture the basic idea that something is received when it gets to you or to a place where you can retrieve it.
UETA permits the parties to the contract to vary these definitions so that "sent" and "received" can be redefined to be anything. Under UETA, a web seller could define information to have been received by the buyer at the moment that the seller posts that information to its own web site-even if the customer is not aware of its posting.
Other Drawbacks
UETA:
· Permits using a paper contract followed by an electronic change in the terms of that paper contract.
· Permits using email to substitute for legal requirements to provide a paper notice even when the consumer has not been doing business with the company by email.
· Permits an electronic signature to be made to a paper record.
· Exposes consumers to the risk that notices with a legal or contractual effect will be sent only to a rarely checked email address.
· Exposes consumers to the risk that notices with a legal or contractual effect will be considered received even if the consumer is unable to open or read them, or if the notice is automatically discarded by a junk mail filter.
· Permits a party to redefine "sent" and "received" so that both are satisfied merely by posting a notice to a web site.
· Allows a record of a telephone call to substitute for a written record.(2)
· Fails to include a right to a free, written copy of a contract or notice delivered electronically.
· Lacks a rule stating that an electronic record is not considered delivered if it is delivered in a form which cannot be opened and read by the recipient.
· Offers no unfettered right on the part of the consumer to revoke an authorization to communicate electronically and revert to paper communication. (The consumer may revoke the authorization with respect to future transactions, but not for the initial transaction).
· Lacks a statutory restriction on the use of old email addresses.(3)
Challenges for Consumers Abound
Electronic commerce has pluses and minuses for consumers. For those consumers who have access to the Internet, on-line shopping holds out the promise of increased price competition and selection. At the same time, electronic commerce also offers some new opportunities for sellers to hide contract terms, posting them in ways that make the consumer unlikely to find or read them, or even sending the terms only after payment. UETA also produces some new opportunities for scam artists, e.g., by allowing a seller to switch to electronic communication after a paper contract has been signed. For the creative and criminal mind, UETA offers few limits.
UETA was introduced in California before it was finalized as a uniform act. Some important improvements for consumers were added to the California version.(4) These improvements are absent from the uniform version which will be offered in other state legislatures. Legislators, consumers, consumer law enforcement officials, consumer advocates, and others should consider insisting upon both the California changes and other improvements to UETA before it moves forward in their states.
A Roadmap for Improving UETA
Two kinds of changes should be made to UETA in each state legislature. First, those interested in consumer protection should develop a list of state statutes which should be exempt from the general UETA rule permitting electronic records and electronic signatures to replace written records and signatures. Section 3 of UETA allows a state to exempt specifically identified state laws from UETA's reach.
Second, both the California amendments and certain other consumer protections should be added. Unfortunately, the drafters of this law did not see consumer protection as their job. They argue that UETA is merely a procedural law which facilitates electronic commerce without changing underlying substantive laws. Procedural rules, though, often affect substantive rights. Permitting electronic delivery of consumer notices, contracts, and disclosures may undermine effectiveness of some existing consumer protection statutes.
Types of statutes that should be exempted from UETA
· All statutes which require that specifically identifiable text or disclosures in a record or a portion of a record be separately signed or initialed. Separate signature and separate initialing requirements are often used in consumer laws to draw attention to contractual provisions with a special impact on the customer. If these statutes are not exempted, some of their requirements may be weakened by UETA's broad substitution of electronic signatures for ordinary signatures.
· Statutes with special notice requirements or where the notices trigger particular legal rights such as the running of a time period to appeal. Special notice statutes include a notice before infringing upon a medical patient's privacy. Notices affecting legal rights include health-care denial notices.
· Statutes affecting post-contract rights or activities. Examples of these statutes include foreclosure statutes, auto conditional sale and loan repossession-related notices, and eviction notices.
· Statutes which were passed to restrain particular types of activities. Statutes falling into this category include statutes requiring notices before life, health and Medigap insurance policies may be replaced; credit repair statutes; usury laws; and statutes addressing the rent-to-own business, payday loans, and foreclosure consultants.
All of these types of state laws were exempted in the California version of UETA.(5)
Necessary substantive improvements to UETA
Consumer protection law enforcement officers and consumer advocates should push to add certain basic consumer protections to UETA as a precondition to any broad substitution of electronic records for writings and of electronic signatures for written signatures. UETA can be improved by:
· Restricting UETA only to agreements to communicate electronically which are made electronically. (This change was made in the California UETA bill.) (6)
· Adding a right to revoke an authorization to receive communications electronically. (This change was made in the California UETA bill.)
· Restricting the use of stale email addresses.
· Adding a requirement of good faith and fair dealing in the implementation of an agreement to communicate electronically.
· Deleting transactions resulting from telephone calls for personal, family, or household purposes from coverage of the Act, and narrowing the definition of electronic record so it does not include phone calls.
· Adding a right to get a paper copy of any document delivered electronically at any time and without charge.(7)
· Tightening the definitions of "sent" and "received" so that they cannot be unreasonably varied by agreement. (This change was made in the California UETA bill.)
· Restricting redefinition by agreement of "sent" and "received." (The California version of UETA only contains a reasonableness restriction on redefinitions of sent and received).(8)
· Requiring that if notices of the right to cancel are delivered electronically, then the right to cancel must also be permitted to be exercised electronically.(9) (This change was made in the California UETA bill.)
· Defining the on-line consumer transaction to have been made at the consumer's home.(10)
· Broadening when a consumer can raise an error defense for orders placed using electronic agents by eliminating the current rule that defeats the defense whenever a confirmation screen is used in the transaction.
· Tightening the definition of an electronic signature so that it must occur in connection with an electronic record, not a paper one. (This change was made to the California UETA bill.)
· Eliminating the broad authorization for electronic acknowledgement, verification, and sworn statements. (This change was made to the California UETA bill.)
Consumer protection enforcement officials and consumer advocates in other states can look to the California precedent which should make it easier to argue for and obtain these critical amendments to UETA.
Electronic Commerce is Here to Stay
Advocates need to recognize that electronic commerce is here and will affect all consumers, rich or poor. Consequently, consumer laws must be evaluated in light of electronic commerce. In many cases, consumer laws will be rendered obsolete if they are not updated at the same time that rules facilitating electronic commerce are put into place.
Despite its problems, UETA is more balanced than many of the electronic record and electronic signature proposals that have been made in Congress. Some of those proposals would simply substitute electronic records and signatures for written records and signatures without any exceptions. Unlike those proposals, UETA contemplates that some statutes will be exempt, and it expressly preserves state law requirements for the formatting of records when those records are delivered electronically. UETA also avoids formalistic definitions of assent and mechanical rules that attribute messages to consumers who did not send them-a weakness found in some other electronic commerce proposals.
With the addition of the pro-consumer changes made in California and other strengthening amendments, UETA could become a statute that facilitates electronic commerce without harm to consumers.
Many key issues must be resolved before UETA can serve the purpose of facilitating electronic commerce when both parties desire to deal electronically without creating new avenues for the abuse of consumers. Much work is needed by consumer enforcement agencies, public and private consumer advocates, and state legislators to meet that challenge.(11)
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(1) The full text of UETA, with official commentary, can be downloaded from: http://www.law.upenn.edu/library/ulc/ulc_frame.htm
The above address will take you to the NCCUSL Drafts of Uniform and Model Acts Official Site page. Click on the Final Acts link, which will take you to the NCCUSL Final Acts page. Scroll through the Index on this page and choose the Uniform Electronic Transactions Act link, which will take you to the UETA Final Draft link at the bottom of the page.
(2) UETA defines an electronic record to include information that is either inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. A telephone call that is tape-recorded or digitally retrievable is an electronic record under this definition.
(3) Even in a five-year car loan or a 30-year mortgage, UETA would allow the creditor to keep using the same email address whether or not there is any reason to believe that address is still good. UETA does contain a limited restriction on the use of bad addresses if the email bounces back to the sender.
(4) The full text of the California's UETA bill, SB 820, can be found at: http://www.sen.ca.gov/htbin/testbin/ca-html?GOPHER_ROOT2:[BILL.CURRENT.SB.FROM0800.SB0820]CURRVER.TXT;1/bill/SB820
(5) Wide consultation with regulators, law enforcement, and consumer groups will be needed to develop that list in each state. Coalition-building will critical in this process.
(6) A seller should not be able to use a preprinted paper contract to sign a consumer up to receive all future communications by email. Requiring that the initial agreement be made electronically at least ensures that the consumer had the capacity to process email at the time the agreement was first made.
(7) Consumers are unlikely to request a paper copy unless they need one. When they need a paper copy, they should be able to get it promptly and without a fee.
(8) It is unfair if a contract provision promises notice to a consumer of an important event, e.g., an increase in the loan interest rate, but then uses a redefinition of sent and received to require the consumer to "come and get it from our web site."
(9) The current rule of UETA could lead to confusion: it would allow a seller to email the notice of right to cancel but insist that the notice be mailed back to exercise that right.
(10) This may affect which state's consumer protection laws are applicable, among other issues.
(11) A copy of the pro-consumer amendments made in the California UETA bill, plus proposed legislative language to implement the additional consumer protections described here can be found at www.consumersunion.org/finance/finance.htm.
This article will appear in the July/August issue of NCLC Reports, Credit & Usury Edition. Prepared by: Gail Hillebrand, Consumers Union of U.S., West Coast Regional Office, San Francisco, CA 94103. Phone: 415-431-6747 Fax: 415-431-0906 Email: hillga@consumers.org
