E-Sign
and UETA: What Should States Do Now?[1]
Introduction
Congress
passed the Federal Electronic Signatures in Global and National Commerce Act[2]
(“E-Sign”) in June 2000. This law
provides that electronic signatures and electronic records generally satisfy
legal requirements for signatures or writings.
E-Sign authorizes the substitution of electronic notices for paper
notices including most, but not all, types of consumer notices. E-Sign also includes a number of important
protections to ensure that consumers can receive, keep and use electronic
notices provided to them.
Over twenty
states have enacted some version of the Uniform Electronic Transactions Act
(“UETA”). This is a proposed Uniform Law on the same
subject matter as E-Sign that is recommended by the National Conference of
Commissioners on Uniform State Laws (“NCCUSL”). Some states have enacted the uniform version,[3]
while other states have added significant consumer protections not found in
the uniform version.[4]
E-Sign
and UETA are similar in many respects, but they are not at all similar in
the way they treat consumers. In consumer
transactions, E-Sign requires a specific and electronic consent process before
an electronic notice may replace a legally required written notice. UETA merely
requires that the parties agree to conduct transactions by electronic means,
but does not specify how that agreement is to be proven.
Instead, UETA states that agreement is determined from the context
and circumstances.[5] UETA’s agreement requirement applies to all
types of electronic notices (legal and contractual). UETA undercuts its own basic premise of agreement by permitting
the agreement to conduct transactions electronically to be found from the
context, including conduct. UETA also
permits the agreement for future electronic notices to be given only on paper.
UETA does not exempt any categories of consumer notices.
UETA alone
is worse for consumers than E-Sign on all major aspects except perhaps UETA’s
requirement of agreement for electronic notices sent pursuant to contract,
as well as its recognition that state agencies can impose added requirements
on retained records subject to the agency’s jurisdiction.
The passage of E-Sign removes the key reason for states to enact UETA—to
facilitate nationwide acceptance of electronic notices and electronic signatures.
Thus, a state might wisely choose not to enact UETA in light of E-Sign.
However, the National Conference of Commissioners on Uniform State
Laws, UETA’s author, has representatives in every state who are expected to
continue to seek to enact UETA. If
UETA is enacted at all, it should be enacted in a way that does not “modify,
limit, or supersede” the consumer protections of E-Sign. Ideally, it should
be accompanied by a companion consumer protection act.
Can
these two statutes coexist? What is
the impact of the federal E-Sign Act in states that have enacted UETA? Should
states that have not passed UETA pass it now?
If so, in what form? What else
can states do to protect their consumers?
E-Sign
contains important consumer protections that are absent from UETA. Like many other federal consumer protection laws, E-Sign contemplates
that states may add additional consumer protections which are consistent with
the federal act.[6] Surprisingly, however, E-Sign also contains
an apparent optional “reverse preemption” feature which permits a state to
“modify, limit, or supersede” parts of E‑Sign with the uniform version
of UETA.[7] Since E-Sign provides stronger consumer protections
than UETA in most areas, care must be taken that future state enactments of
UETA do not displace the federal consumer protections of E-Sign.
This article describes how to structure any future UETA enactment to
avoid interfering with E-Sign’s consumer protections. It also offers additional
provisions which can and should be added to state law, beyond both UETA and
E-Sign, to improve state-level consumer protection in electronic notices.
This article
is designed to assist advocates, lawmakers and policymakers, as they face
these choices:
Should
UETA be enacted in a state now that the federal E-Sign statute is in place?
Will
UETA, if enacted, displace E-Sign’s consumer protections under E-Sign’s
optional reverse preemption provision?
What
additional consumer protections are needed for electronic notices?
What
consumer protections may states enact as a companion to E-Sign?
Table
of Contents
Introduction
I. Key Consumer-Related Provisions of E-Sign
A.
E-Sign’s Consent Requirements
B.
E-Sign Prohibits Substituting Oral
Communications for Written Notices
C.
E-Sign’s Document Integrity and
Retention Requirements
D.
E-Sign Has Specific Exceptions
for Certain Consumer Notices
E.
E-Sign's Consumer Protections May Be Partially Eliminated by Federal
Agency Action.
II. Why UETA Alone Is Bad for Consumers
A.
UETA Permits Paper Agreement to Receive Future Notices Electronically
B.
UETA Does Not Require That Electronic Notices Can Be Opened and Read
C.
UETA Leaves Open a Loophole for Face-to-Face Transactions Where the Salesperson
Brings Computer Equipment to the Consumer for One-Time Use
D.
Both UETA and E-Sign Overlook That Email Can Be Less Certain of Delivery
than Regular Mail, but E-Sign’s Consent Rules Partially Address this Problem
E. UETA Does Not Fully Assure Unchanged Copies
for Later Consumer Use
F. Illusory Consumer Protection in UETA
III. Relationship of E-Sign and UETA
A.
Preemption
B. Displacement
C. Choices for States that Have Not Adopted UETA
Option
One – UETA with a Companion Consumer
Protection Law on Electronic Notices
Option
Two – Companion Consumer Protection
Law Permitted by E-Sign Without UETA
Option
Three – UETA with a “No Displacement” Statement
Option
Four – No UETA
Option
Five – UETA Alone – Not Recommended
D.
Effect of Earlier-Enacted UETAs
Pre-E-Sign
State Law Does Not Displace E-Sign
Does
E-Sign Preempt Prior UETAs?
E-Sign
Does Not Transform Nonuniform UETAs into Uniform Ones
Recommendation
for States with Pre-existing UETAs
E.
Can a State Permit Electronic Delivery of the Notices Exempted in E-Sign?
F.
UCITA Amendments Should Not Affect E-Sign.
IV. Language
to Implement These Approaches
Conclusion
Appendix
1 - Comparison of E-Sign and UETA on Key Issues
Appendix
2 - Recommended Provisions to Accompany Any State Enactment of UETA
E-Sign and UETA: What Should States Do Now?[8]
I. Key
Consumer-Related Provisions of E-Sign
The federal
E-Sign bill states these two general rules:
Signatures,
contracts or other records may not be denied legal effect, validity, or
enforceability solely because they are in electronic form; and
A
contract may not be denied effect, validity, or enforceability solely
because an electronic signature or electronic record was used in its formation.
E-Sign
expressly affects only requirements that contracts or other records be written,
signed or in non-electronic form. All
requirements concerning the content and timing of notices found in other law
are left undisturbed.[9] Whether an electronic notice must be “provided”
or just “made available” and how it is delivered are issues determined by
the underlying statute that requires a notice.[10]
Additionally, E‑Sign cannot be used to require a person, other than
governmental agencies in certain situations, to agree to use electronic records
or signatures.[11]
A. E-Sign’s Consent Requirements
E-Sign
qualifies its general rule of validity for electronic records with a special
consent requirement for consumer notices required by law.
E-Sign’s consent rule, found in section 101(c), applies where another
statute, regulation or rule of law requires information to be provided or
made available to a consumer in writing.[12] It requires all of the following:
There
must be an affirmative consent, which has not been withdrawn.
The
consent must be preceded by a clear and conspicuous statement informing
the consumer of all of the following:
Any
right or option to receive the information on paper (if the option exists),
How to withdraw the consent and whether any other consequences, such as fees or termination of the arrangement, will be imposed on the withdrawal,
How to update the contact information, and
How
to obtain a paper copy on request and the fee, if any, for that copy.
Before the consent is given, the consumer must be provided with a statement of the hardware and software requirements for access to and for retaining the electronic records.
The consumer's consent must be obtained or confirmed electronically (not just on paper).
The
manner of obtaining the electronic consent or confirmation must reasonably
demonstrate that the consumer can access information “in the electronic
form that will be used to provide the future information."[13]
The
consumer's consent must be reacquired if there is a change in the hardware
or software requirements needed to access or to retain the electronic
record and the change creates a material risk that the consumer will not
be able to access or store records delivered electronically.
E-Sign’s
requirement that consumer consent be given or confirmed electronically is
of crucial importance. Paper consent
to future electronic transactions creates a risk that consumers will be offered
boilerplate paper agreements to receive future electronic notices that they
may or may not be able to open and read.
The federal requirement that consent be given or confirmed electronically
eliminates this risk, at least for notices legally required to be in writing.
In contrast,
UETA merely requires agreement, but does not specify how that agreement is
to be proven. Instead, UETA states
that agreement can be determined from the context and circumstances.[14] UETA undercuts its own basic premise of agreement
by permitting the agreement to conduct transactions electronically to be found
from the context, including conduct. UETA
also permits an agreement to receive future electronic notices to be given
only on paper.
B.
E-Sign Prohibits Substituting Oral Communications for Written Notices
UETA would
allow a tape recording of a voice conversation to qualify as an electronic
record that can replace a notice required by law to be in writing. E-Sign
explicitly prohibits this for consumer notices.[15]
C.
E-Sign’s Document Integrity and Retention Requirements
Record
“integrity” standards are important because both UETA and E-Sign generally
allow electronic records to replace documents required by law to be in writing.
Yet the law traditionally has made certain inherent assumptions that about
the characteristics of paper “writings” that are not necessarily applicable
to electronic records:
A
paper writing is by its nature tangible. Once handed to a person a paper
writing will not disappear unless lost or destroyed by the recipient.
The
printed matter on the paper writing will not change each time someone
views it. The writing can be used at a later time to
prove its contents.
While
the information on the paper can be deliberately changed by forgery, that
takes an effort and some skill.
None of
those assumptions necessarily applies to an electronic record.
Congress recognized these distinctions when it passed E-Sign, and E-Sign’s
provisions are stronger on these points than UETA. UETA does not require that the format used
for electronic records be change-proof or tamper-proof. Under UETA, a record can be sent to a person
in a format that allows the record to be inadvertently changed every time
it is opened. Imagine the problems
that might result if the homeowner's copy of a mortgage note was saved in
an automatically-updating word processing format, such that every time the
homeowner reviewed the document electronically, the record was saved with
a new date on it. The mortgage company
will have kept its own electronic copy in a more secure fashion, and will
have the technical capacity to prove in a court of law that the electronic
document it has in its possession is the same one electronically signed by
the homeowner. Yet, if the homeowner
had been provided only with a version that can be inadvertently changed, the
homeowner will face a much tougher battle using his or her copy to prove the
terms of the contract.
E-Sign,
while not perfect, attempts to address this concern by requiring that the
record be provided in a format that can be accurately reproduced for later
reference by all parties who are legally entitled to retain the record.[16] It is important to note that, unlike the consent
provisions, the retention and integrity requirements of E-Sign are not limited
to consumers; they apply to all users of electronic records.
D.
E-Sign Has Specific Exceptions for Certain Consumer Notices
Congress
was convinced that some notices to consumers are so important that state law
requiring paper notices should not be preempted to allow electronic records
to replace paper writings for these types of notices.[17] E-Sign specifically excludes the following
consumer notices from the federal rule allowing electronic records to replace
writing requirements:[18]
Utility
termination and shut offs
Default, acceleration, repossession, foreclosure or eviction, or a right to cure, under a rental agreement or a mortgage on a principal residence
Cancellation or termination of health insurance or benefits, and of life insurance benefits (except annuities)
Product
recall or material failure of a product that risks endangering health
and safety.[19]
UETA has
no exceptions for any consumer notices.
E. E-Sign's
Consumer Protections May Be Partially Eliminated by Federal Agency Action.
The consumer
protections provided in E-Sign may prove to be ephemeral -- if opponents to
them successfully convince federal agencies to eliminate them. There are a
variety of ways this might take place:
E-Sign's
section 104(d) allows a federal regulatory agency to "exempt without
condition a specified category or type of record from the requirements
relating to consent in section 101(c) if such exemption is necessary to
eliminate a substantial burden on electronic commerce and will not increase
the material risk of harm to consumers."
The
federal exemptions listed in section 103(b)
are to be studied by the Secretary of Commerce, through the Assistant
Secretary for Communication and Information, after three years, and the
Secretary is to recommend whether the exemptions remain necessary.[20]
Also, any federal agency can -- after notice and opportunity for public
comment -- find that one or more
of these exemptions "are no longer necessary for the protection of
consumers" and can then omit it from the list.[21]
Finally,
the federal requirement that the consent be given or confirmed electronically
is to be studied by the secretary of Commerce and the Federal Trade Commission
after 12 months, with a report on benefits and burdens of the requirement.[22]
II. Why
UETA Alone Is Bad for Consumers
E-Sign’s
significant consumer protections on consumer consent, [(101(c))], ability
to retain electronic records [101(d)], document integrity [(101(e))] and exclusion
of certain essential consumer notices [103(b)(2)] should apply as baseline
requirements for all written notices that are to be delivered to consumers
electronically. However, E-Sign allows
states to “modify, limit or supersede” part of E-Sign by enacting the uniform
version of UETA. Consequently, it is essential to understand the dangers to
consumers if the uniform version of UETA is the prevailing law.[23]
UETA was
written as a rule for facilitating voluntary electronic transactions. In their desire to facilitate good transactions, UETA’s drafters
unintentionally opened the door to authorize some new unsavory practices. Here are some examples of why UETA should not
be permitted to simply displace E-Sign.
A.
UETA Permits Paper Agreement to Receive Future Notices Electronically
Under
UETA, a consumer who does not own a computer could sign a piece of paper in
a person-to-person transaction and later find that all notices, disclosures,
and records relating to that transaction are to be sent electronically to
an email address set up for the consumer by the salesperson.[24] UETA’s proponents respond that such conduct
would violate the basic contractual obligation of good faith and fair dealing,
and perhaps also be unconscionable. Consumer
advocates believe that clear standards provide better deterrence than relying
only upon the standards of good faith and unconscionability.
Over two
thirds of this nation's households are not yet online, and the percentages
of elderly and poor who do not own computers are much higher,[25]
yet UETA would allow crucial notices which now are required to be physically
handed to these consumers to be emailed instead. E-Sign, at least, does not permit paper form agreements to be used
as the sole method for consumers without computer skills or equipment to agree
to electronic notices. E-Sign prohibits
this by requiring that the consumer's consent must be either given or confirmed
electronically. Mere paper consent
to receive future electronic notices is not sufficient to permit an electronic
notice to replace a legally required paper notice.[26]
B.
UETA Does Not Require That Electronic Notices Can Be Opened and Read
Most people
have received electronic transmissions that would not open.
UETA would allow a consumer to mistakenly agree to receive documents
electronically even when the consumer cannot actually open and read the documents.
UETA gives a consumer no right to a paper copy of an important document when
the email won’t open or when it is unreadable if it does open.
To assure that the consumer actually has access to the necessary hardware
and software to access these documents, the consumer consent process should
test and assure capacity to receive electronic notices.
E‑Sign addresses this issue by requiring that the initial consent
both be electronic and that it “reasonably demonstrate” the ability to receive
notices using the consumer’s existing technology.
C. UETA Leaves Open a Loophole for Face-to-Face Transactions Where the Salesperson Brings Computer Equipment to the Consumer for One-time Use
Imagine
an elderly consumer sitting at home who is visited by an aluminum siding salesperson. The salesperson talks the consumer into agreeing
to an expensive contract for new siding. The documents state that the consumer “agrees” that all the information
relating to the transaction will provided electronically. The salesperson takes out a laptop, connects
to the Internet through the consumer's telephone line, and asks the consumer
to type her name on the computer as he scrolls through the FTC Notice for
Door to Door Sales about the consumer's right to cancel, the sales contract,
the mortgage on the house, the Truth in Lending disclosures, and other required
legal notices. When the salesperson
departs, the consumer is left with no paper copies of these key documents. UETA permits this process. E-Sign implicitly prohibits this (although
this prohibition could be stronger) by requiring electronic consent or confirmation
of consent. A consumer who is in a face-to-face transaction should not be
able to consent electronically by using the computer equipment belonging to
the seller. That consent does not meet the requirements of E-Sign's section
101(c) because it does not "reasonably demonstrate that the consumer
can access information in the electronic form." As Senator McCain said,
“[t]his should mean that the consumer must initiate or respond to an email
to consent or confirm consent.[27]
Congressional statements by the sponsors of this legislation indicate that
the only rational reading of E-Sign's strict requirements for consent would
prohibit this activity.[28]
To deal
clearly with this issue in state law, North Carolina recently enacted a flat
rule that whenever a consumer conducts a "transaction on electronic equipment
provided by or through the seller, the consumer [must] . .
.be given a written copy of the contract which is not in electronic
form."[29] This would prevent many unscrupulous business
practices from flourishing as a result of the new electronic enabling laws.
The North Carolina rule should ensure that the electronic transaction
is not used as a subterfuge to avoid actually providing the consumer
with information that the consumer needs and is legally entitled to receive.[30]
D. Both UETA and E-Sign Overlook
That Email Can Be Less Certain of Delivery than Regular Mail, but E-Sign’s
Consent Rules Partially Address this Problem
Both UETA
and E-Sign fail to fully address the significant differences between the ease
and lack of cost involved in receiving mail through the U.S. Postal Service,
and the complexities, ongoing expense, and uncertainties involved with receiving
email. The expense includes access to a working computer
and access to the Internet. The uncertainties
include Internet service provider failure, use of a stale email address and
junk mail filtering programs that may incorrectly filter out the message.
Until the receipt of email reaches the same level of certainty as the
U.S. mail, some care must be taken to assure that the consumer has at least
the same expectation of actual receipt of email as for U.S. mail.
Neither UETA nor E-Sign fully recognizes the higher degree of delivery uncertainty with email, but E-Sign takes three important partial steps. First, E-Sign requires that the initial consent be given or confirmed electronically, so that any consumer consenting to receive legally required notices under E-Sign must have and demonstrate the capacity to send email or to go online at the time of the initial consent. Second, E-Sign recognizes that some types of consumer notices are so important that they should be provided on paper.[31] Third, E-Sign permits additional state law provisions to address delivery issues. Recommended language for a state companion act is found in Part IV.
E. UETA Does Not Fully Assure
Unchanged Copies for Later Consumer Use
UETA does
not fully account for the different inherent characteristics between paper
documents and electronic records. Unlike
paper records, electronic records can be accidentally altered when one intended
only to view the contents. For electronic
records to provide the same degree of certainty as paper records, the electronic
records must be protected from both inadvertent and intentional changes, that
is, they must be maintained in a “read-only” form. Under UETA, a person could inadvertently change
a single byte on an electronic document memorializing an important transaction
and then find that the electronic record is useless if a dispute arises, because
the record is no longer exactly as it was when it was signed by the parties.
UETA requires that an electronic record substituting for a legal notice
be capable of retention, but it does not say that the form of retention must
permit accurate later reproduction.[32] E-Sign adds a requirement that the document
be provided in a form in which it can be accurately reproduced by all parties
who are entitled to a copy.[33] E-Sign also contains a provision permitting
a court to deny enforcement of an electronic record that was not properly
retained.[34]
F.
Other Provisions.
UETA's
proponents contend that UETA's section 10 includes a new consumer protection
in the form of a right to cancel a transaction when a record was sent in error
and all benefit and value is returned. However,
this error correction provision explicitly does not apply if the original
transaction included an "opportunity for prevention or correction"
of the error, such as any confirmation screen.
Unless interpreted by a court to require an effective, well-designed
prevention opportunity that draws an active response from the consumer, rather
than just any passive order confirmation screen, any benefits of the error
correction provision of UETA section 10 are likely to be largely illusory.
III.
Relationship of E-Sign and UETA
A.
Preemption
E-Sign
is a messy concoction of provisions that 1) partially preempt state law, 2)
allow states to regain control over their own electronic rules subject to
some limitations, and 3) apply a federal rule to state transactions unless
a state acts in a very specific way. The mission is to thread our way through
the complexities of this statute and decipher how it relates to existing and
future state laws on electronic signatures and electronic records. Several
sections have very different standards:
Section
101 - General Rule of Validity. Section 101
applies to any rule of law regarding the legality of a signature
or a writing requirement. To the extent that state rules are different
from any of the rules in section 101 --
either the general rule in subsection (a) or any of the limitations
on that general rule in the remaining following subsections (including
the consumer protection provisions in (c), (d) and (e)) -- the initial
rule is that those differences are preempted. Thus,
if nothing else happens in a state, the general rules for electronic records
and signatures established section 101 are the prevailing law.
Section
102 - Exemption to Preemption. This section is somewhat misnamed because it
achieves several different purposes. First, it allows states to partially
avoid the preemptive effects of E-Sign’s section 101, so long as the states
follow the rules set out in section 102. This permission to the states
is only partial because a state's attempt to avoid the preemptive effect
of E-Sign’s section 101 is limited by the two tests established in section
102.
One
distinction that arises from a close analysis of the relationship of section
102 to the rest of E-Sign is the difference between a state's ability
to avoid preemption, and the question of whether the particular requirements
in E-Sign can be displaced by state action. In other words, the difference between a state being able to maintain
the effectiveness of its own laws, and acting to intentionally nullify the
application of the particular requirements of E-Sign as to that state. This issue is particularly important to the
question of whether the consumer protections
in section 101(c), (d) and (e) apply to consumer transactions in a
state when there has also been any state activity. Congressional intent indicates
that a state that intends to displace the federal consumer protections must
do so deliberately, even if it otherwise acts to avoid the preemptive
effects of E-Sign’s general rule, which authorizes substitution of writings
and signatures with electronic records and electronic signatures.[35]
Similarly, no preexisting state law can be used to displace the specific
requirements of E-Sign, yet parts of that preexisting state law may not be
preempted under section 101. (See discussion in Part C, Option 1, below.)
Section
103 - Specific Exceptions. This section has two impacts, one overt
and one implicit. The protections in this section are cast as an exception
to the preemptive effects of section 101 ("The provisions of section
101 shall not apply to . . . ."). Unfortunately, the section 103
exemptions from electronic delivery affect only the applicability of the
federal law on the subject, they do not mandate that state laws observe
those exemptions; thus states remain free to recognize electronic records
for the enumerated communications. (See
discussion in Parts III C and III D below for more on this.) In states where valid state laws allow these
notices to be electronic and no state law requires paper, E-Sign’s exemptions
do not apply.
The
other effect of the exemptions listed in section 103 is to limit the exemptions
to UETA that a state may enact. Section 3(b)(4) of the Uniform version of
UETA anticipates that states will exempt certain transactions from the effects
of UETA. However, E-Sign specifically limits a state's ability to displace
E-Sign with such exceptions in section 102(a)(1), which reaffirms that to
"the extent [that] exception is inconsistent with this title or title
II . . .” those UETA exceptions are preempted.
As the only exemptions listed in E-Sign are listed in section 103,[36]
those exemptions provide the test against which state exemptions from UETA
should be measured.[37]
Section
104 - Applicability to Federal and State Governments. This section
includes limitations on the authority that states (and the federal agencies)
otherwise have to adopt interpretive guidelines on electronic records
under E-Sign. It specifically preempts states from adopting regulations
which are inconsistent with E-Sign, or that do not meet the listed requirements
in section 104(b)(2).[38] Federal and state agencies are also prohibited
from reimposing any requirement that a record be in a tangible printed
form, except in certain narrow circumstances. However, section 104 limits
state action only so long as section 101 applies, because section 104
anticipates rulemaking pursuant to section 101. If a state escapes
the preemptive effects of section 101, then section 104 should not limit
a state’s rulemaking authority with regard to its own laws.[39] E-Sign's limitations on a state's rulemaking
ability provide one of the best reasons for states to adopt the uniform
version of UETA, as UETA's sections 12(f) and (g) allow states considerable
latitude in these areas, however, UETA should not be adopted unless
the state also adopts a companion act providing for consumer protections.[40]
B.
Displacement
E-Sign’s
section 102 permits states to displace part of E-Sign. A state can displace
part of E-Sign, that is, avoid the preemptive effect of section 101, if it
meets one of the two tests established in section 102. As such it appears
to operate as an optional “reverse preemption” provision.
The only part of E-Sign that states may modify or supersede, that is,
displace, is section 101 (though, as noted above, displacing section 101 also
displaces those provisions that derive directly from section 101, such as
the limits on state action set forth in section 104). Section 101(a) contains the general rule authorizing substitution
of writings and signatures with electronic records and electronic signatures,
and sections 101(c), (d), and (e), and 103(b) contain the key consumer protections.
A sensible reading of section 102(a)'s authorization for a state to
“modify, limit, or supersede” section 101 would be that states are permitted
to alter section 101(a)’s general rule authorizing the use of electronic records
and signatures by imposing either UETA or other allowable state law, leaving
E-Sign’s rules for consumer consent still applicable. However, another reading of section 102 is that it permits states
to modify or displace all of section 101, including the consumer consent requirements
of section 101(c) and the related consumer protections of sections 101(d)
and (e). The effect on the exemptions
to E-Sign in section 103(b) is discussed in Part III D, below.
This section
discusses the options available to states in light of E-Sign. If a state that has not already adopted UETA proceeds to do so,
it should include the language recommended in Part IV in a companion law. This companion law should be enacted at the
same time the state adopts UETA, and in the same bill.
If a state
has already adopted UETA, we recommend that the state either enact a new law
establishing consumer protections or add a section to its UETA clearly establishing
or deferring to E-Sign’s consumer protections. Part IV offers text for such
state legislation.
E-Sign
contemplates two kinds of state legislation on electronic notices and electronic
signatures. These two kinds of state statutes are: 1) UETA,
and 2) another law which "specifies the alternative procedures or requirements
for the use or acceptance (or both) of electronic records or electronic signatures."[41] Nothing prohibits a state from enacting both
UETA and a companion consumer protection law, and indeed the legislative history
suggests that this was contemplated.[42] The companion law must:
Be consistent with E-Sign
Specify alternative procedures or requirements for the use or acceptance of electronics records and signatures
Not favor one technology over another, and
Make
reference to the federal Act if it is adopted after E-Sign.
States
are being asked by NCCUSL commissioners to adopt UETA. Part B discusses five
choices for states. Options One, Two
and Three are recommended. Option
One is UETA with a companion consumer protection statute; Option Two is a
consumer protection statute without UETA; and Option Three, a minimalist approach,
calls for UETA with an additional provision stating that the consumer protections
in E-Sign are preserved. Option Four - no UETA at all, is perfectly acceptable,
but given the strong push made by NCCUSL, may not prevail.
Option Five, UETA alone, is not recommended. Part IV provides statutory language to implement these recommended
options.
States
that adopted some version of UETA prior to the passage of E-Sign have different
issues to consider, and may also wish to enact a companion statute. Part III
D, below, discusses strategies in these states.
C. Choices for States that Have Not Adopted UETA
E-Sign
section 102(a)(1) creates uncertainty about what consumer protections apply
in a state that enacts the uniform version of UETA in the future. A key question is the scope of the displacement effected by the
adoption of UETA. It is not clear
whether passage of UETA displaces just E-Sign’s validation of electronic signatures
and contracts [found primarily in section 101(a)] or displaces that provision
plus its consumer protections [found in section 101(c)(d) and(e)]. E-Sign
can be read either way.[43]
The displacement rule could have been intended to reach only the general rule
of validity in section 101(a), even if more than section 101(a) can be affected
by state law. Even if the provision is read broadly, it still does not state
that passage of UETA automatically displaces E-Sign, only that a state may
use it to do so.
A reasonable
interpretation of the federal law's optional displacement provision, also
referred to here as a “reverse preemption” provision, is that the consumer
protection provisions in the federal E-Sign continue to apply in a state which
has passed UETA unless the state law enacting UETA states an express intent
to displace E-Sign’s consumer protection provisions.
This interpretation is supported by the legislative history:
Of course,
the rules for consumer consent and accuracy and retainability of electronic
records under this Act shall apply in all states that pass the Uniform Electronic
Transactions Act or another law on electronic records and signatures in the
future, unless the state affirmatively and expressly displaces the requirements
of federal law on these points. A state which passed UETA before the passage
of this Act could not have intended to displace these federal law requirements.
These states would have to pass another law to supersede or displace
the requirements of section 101. In
a state which enacts UETA after passage of this Act, without expressly limiting
the consent, integrity and retainability subsections of 101, those requirements
of this Act would remain in effects. The
general provisions of UETA, such as the requirement for agreement to receive
electronic records in UETA are not inconsistent with and do not displace the
more specific requirements of section 101, such as the requirement for a consumer's
consent and disclosure in section 101(c).44[44]
Displacement
of federal consumer protections is a rare event, and one that should not simply
be implied in the absence of a clear legislative statement of intent to do
so.
Nonetheless,
UETA’s proponents argue that any uniform enactment of UETA eliminates the
application of the consumer protections in E-Sign.[45] While this seems an unlikely result when
there has been no statement of an intent to displace those protections in
addition to E-Sign’s provisions regarding the use of electronic records and
signatures, the safest course for any state enacting UETA is either to:
1) reenact
E-Sign's consumer protections into state law in a statute which is a companion
to UETA and to E-Sign, or
2) expressly
state that enactment of UETA is not intended to modify, limit or supersede
the consumer protections of E-Sign sections 101(c), (d) and (e); and to copy
into state law the exemptions in section 103(b).
Option
One – UETA with a Companion Consumer Protection Law
on Electronic Notices
The preferred
approach is for a state to enact both UETA and a companion law of the type
permitted under section 102(a)(2) of E-Sign.
This route is best for a number of reasons. First, it would allow the
state to address issues which are not included in E-Sign.
Second, this approach ensures that a state can continue to apply its
own rules for record retention for evidentiary, audit or regulatory purposes.[46]
This subsection
discusses the electronic notice[47]
provisions of such a law. The state
companion statute should reenact certain parts of E-Sign into state law and
add other provisions. The E-Sign consumer
protections that should be reenacted into state law are the provisions relating
to:[48]
1) Consumer electronic consent to engage in electronic
transactions (Recommendation # 1).
2) Document retention and integrity (Recommendation
# 2).
3)
Exclusion of recordings of oral communications from the definition of an electronic
record (Recommendation # 3).
4) Exemptions of certain notices from electronic
records ((Recommendation # 4).
5) A definition of consumer transactions (Recommendation
#5).
Adding
all of these items to the companion act is essential to ensure that a post
E-Sign UETA will not undo what E-Sign has just done to protect consumers.
The companion
act should also address issues left to the states for further legislation
under E-Sign section 102(a)(2), and not addressed by UETA.
Those issues include:
6)
A general no-waiver rule for the state’s electronic consumer protections (Recommendation
# 6).
7)
A mutuality rule so that consumers can effectively respond to notices which
they receive electronically Recommendation # 7).
8)
The time at which an electronic record is considered delivered (Recommendation
# 8).
9) The time at which an electronic record becomes
effective (Recommendation # 9).
10)
The effect of a record that cannot be, or is not, opened or read when received
(Recommendation # 10).
11)
Preservation of hand delivery of documents in face-to-face transactions
(Recommendation # 11).
12)
Designation of the place where an electronic contract with a consumer
is formed (Recommendation # 12).
13)
Protections in connection with the transfer of electronic loan notes
(Recommendation # 13).
Finally,
any state law addressing electronic records and signatures adopted after E-Sign
should also:
14)
Establish that state law supplements, rather than displaces, the federal E-Sign
law (Recommendation # 14).
Option
Two – Companion Consumer Protection Law Permitted
by E-Sign Without UETA
Another
choice is for a state to enact the recommended provisions as a companion to
E-Sign, without also enacting UETA. The
benefits of this approach are the same as those discussed in the “UETA plus
companion” approach, and the enacting language would be very similar to the
language recommended for that approach. See Part IV.
Option
Three – UETA with a “No Displacement” Statement
Despite
the poor case for a need for UETA after E-Sign, UETA’s author, the National
Conference of Commissioners on Uniform State Laws, is expected to continue
to seek state by state enactment of UETA.
At a minimum, any future UETA enactment should include plain language
stating:
This
act is not intended to modify, limit, or supersede the requirements of section
101(c), (d), or (e), or to authorize the electronic delivery of any notice
of the type described in section 103(b), of the federal Electronic Signatures
in Global and National Commerce Act.
Without
this language, there might be litigation over whether or not a future UETA
was intended to displace E-Sign, including E-Sign's consumer protections. There is also a risk that E‑Sign’s exemptions could be undone
by UETA, so that even essential notices such as utility shutoff notices could
be sent electronically to someone who might be unable to open and read them.
Without this “no displacement” language as part of any UETA bill, a
state’s consumers are better off without UETA.
Option
Four – No UETA
States
may choose not to enact UETA, and simply rely on E-Sign to both authorize
electronic notices and to provide accompanying consumer protections.[49] This approach gives consumers the protection
of the federal consent and related requirements, and leaves the federal exemptions
for key consumer notices (such as utility shutoff, foreclosure and life and
health insurance cancellation) in place. It also provides the better rules
for document integrity and retention contained in E-Sign, and avoids the UETA
loophole allowing a recording of a phone call to satisfy a requirement for
a writing.
At the
same time, this approach leaves a state’s consumers open to a possible future
watering-down of federal consumer protection standards.
The federal exemptions are to be studied by the Secretary of Commerce,
through the Assistant Secretary for Communication and Information, after three
years. The Secretary is to recommend whether the exemptions remain necessary.
The federal requirement that the consent be given or confirmed electronically
is to be studied by the secretary of Commerce and the Federal Trade Commission
after 12 months, with a report on benefits and burdens of the requirement.
Despite
this concern, however, the “no UETA” approach is a clean and simple solution,
and one that consumer protection policymakers and advocates should seriously
consider.
Option
Five – UETA Alone – Not Recommended
UETA alone
is not recommended, for the reasons discussed in Part II. Because of the risk
that a court might hold that UETA displaces all of E-Sign section 101, including
its consumer protections, consumers are better off without UETA alone.
D.
Effect of Earlier-Enacted UETAs
There
are two potential consequences in a state that passed UETA – or another law
legalizing electronic signatures and electronic records[50]
– before E-Sign was enacted:
1)
E-Sign completely preempts and displaces the state UETA, leaving E-Sign the
only effective law on the issues addressed in E-Sign and UETA.
2)
E-Sign preempts and displaces UETA on those issues that are addressed
in E-Sign, but leaves other parts of the state law intact if they meet the
standards of general preemption analysis.
Some
may argue that a third result might be possible: that E-Sign does not apply
in the state because a previously enacted UETA – or the other state law –
meets one of the tests in E-Sign section 102(a)(1) or (2).
Given the clear Congressional intent, as expressed in E-Sign as well
as in the accompanying legislative history, this argument should not succeed.
The issue is especially complex because it is entirely possible for both UETA and E-Sign to be applicable in a state. The question then becomes, what happens to a non-uniform previously passed UETA?
1. Pre-E-Sign
State Law Does Not Displace E-Sign
E-Sign
should apply in all states that had previously passed UETA – both uniform
and non-uniform – and as well as any other law legalizing electronic records
and electronic signatures. This means that – at the least – on all issues
that are addressed in E-Sign, E-Sign is the prevailing law. For the purposes
of consumer protection, the provisions of E-Sign’s section 101(c), (d) and
(e) should apply in all those states. The question of whether any part of
the pre-E-Sign state law is still in effect after E-Sign is addressed below.
E-Sign’s
legislative history establishes that prior state statutes do not displace
it. Statements by the bill sponsors and other members
closely involved with the passage of E-Sign bill indicate it was Congress’
intent that E-Sign could be displaced (in part) only by a post-E-Sign state
statute:
A state which passed UETA before
the passage of this Act could not have intended to displace these federal
law requirements. These states would
have to pass another law to supersede or displace the requirements of section
101.[51]
Speaking
to a related topic, Congressman Bliley, the original sponsor of the E-Sign
bill in the House,[52] and
the Chair of the Conference Committee on E-Sign, emphasized that prior passage
of a state law does not eliminate the application of E-Sign in a state.
[A] State could not argue that
section 101 does not preempt its statutes, regulations, or other rules of
law because they were enacted or adopted prior to the enactment of this Act.
. . .[53]
Logic
also supports the conclusion that prior statutes do not displace E-Sign. E-Sign and prior state UETAs can coexist without
either being displaced. A merchant
dealing with a consumer can comply with both the general rules of UETA and
the more specific E-Sign consumer protections. In addition, it would be extremely odd for a UETA enacted before
E-Sign to displace the subsequent federal statute. If Congress had wanted prior uniform UETAs to displace E-Sign, it
could have made E-Sign applicable only in states lacking a uniform UETA. It did not do so. Thus, a state may only displace E-Sign with legislation enacted
after E-Sign that meets one of the two tests set forth in section 102.[54]
2. Does
E-Sign Preempt Prior UETAs?
The
honest answer is “maybe.” It depends
on what is in those statutes, whether they interfere with E-Sign, and the
extent to which they address issues left to the states by E-Sign.
Uniform
UETAs. E-Sign probably does not preempt preexisting
uniform UETAs. As the statute expressly allows them to be enacted after E-Sign,
they would seem to pass a general consistency test. With a preexisting uniform
UETA (or with a post E-Sign UETA that does not state an intent to displace
E-Sign), E-Sign’s rules would simply apply as an overlay to UETA’s more general
rules. For example, in a consumer
transaction, UETA requires general agreement to communicate electronically,
while E-Sign adds a requirement for a specific form of consent for legally
required notices to consumers.
Non-Uniform UETA. Again, Congressman Bliley provides us the window to congressional intent:
It is intended that any State
that enacts or adopts UETA in its State to remove itself from Federal preemption
pursuant to subsection (a)(1) shall be required to enact or adopt UETA without
amendment. Any variation or derivation from the exact UETA document reported
and recommended for enactment by NCCUSL shall not qualify under subsection
(a)(1). Instead, such efforts and other efforts may or may not be eligible
under subsection (a)(2). Thus, a State that enacted a modified version of
UETA would not be preempted to the extent that the enactment or adoption by
a State met the conditions imposed in subsection (a)(2).[55]
A
non-uniform version of UETA will not meet the requirements of the first test
for displacement, E-Sign’s section 102(a)(1), that allows a state to displace
E-Sign with a statute that “constitutes an enactment or adoption of the Uniform
Electronic Transactions Act as approved or recommended for enactment in all
the states by the National Conference of Commissioners on Uniform State Laws
in 1999.”
When
a state non-uniform UETA, passed prior to E-Sign
is evaluated under the second test for displacement, E-Sign section
102(a)(2)(A), there are two possible outcomes.
First, if the state law is not consistent with E-Sign, it is preempted.
It does not qualify for displacement, or “reverse preemption,” under either
the first test of section 101(a)(1) (uniform UETA) or under the second test
of section 102(a)(2)(A) (other state law consistent with E-Sign). However, a second possible outcome is that
parts of the state law are preempted and other parts are not. It is easy to imagine many pre-E-Sign provisions
that are consistent with E-Sign, such as a definition of when something is
delivered, a topic E-Sign leaves open to the states.[56]
The
analysis for nonuniform UETAs is first: "Is there explicit preemption,"
and if not, "Is there implied preemption because the state law conflicts
with the federal law?"
Explicit
preemption. Whether a federal statute preempts state law
depends upon whether Congress intended that it do so.[57] Congress can evince that intent either explicitly,
with the language of the statute, or implicitly. Only three parts of E-Sign
contain explicitly preemptive language: sections 101(a), 102(a)(1), and 104. First, Section 101(a) says that its rule is “notwithstanding any
other provision of law.” This phrase
applies to section 101(a) of E-Sign, which states the twin general rules:
A
rule that a signature, contract, or other record in a transaction relating
to interstate commerce may not be denied legal effect, enforceability,
or validity solely because it is in electronic form, and
A
rule that a contract relating to a transaction in interstate commerce
cannot be denied legal effect, validity, or enforceability solely because
an electronic signature or electronic record was used in its formation.
A
nonuniform provision of a state UETA which regulates when and how electronic
signatures and records can be sent or delivered, or the effect of a record
or signature on the sender’s or recipient’s rights, should not be explicitly
preempted because it does not deny effect to an electronic signature or
electronic record solely because it is in electronic form.
(E-Sign section 101.)
The
explicit preemption extends to exemptions to the scope of the uniform UETA,
but only if those exemptions are inconsistent with E-Sign.
This is the cross reference of E-Sign's exemptions for certain transactions
and consumer notices in section 103 with the explicit language in section
102(a)(1).[58]
Thus it appears that any exemptions from UETA are limited to those that are
consistent with E-Sign; inconsistent exemptions are preempted.
The
other explicit preemption in E-Sign is found in section 104, in which a state's
authority to issue interpretative regulations of the effects of section 101
are preempted by the specific limitations in section 104. The phrasing of
section 104 is specific, and therefore the preemption is explicit. However,
the preemption explicitly flows only along with the application of the rules
of section 101. To the extent that section 101 preempts state law, then
the state is limited in how it can apply its own rules. However, once a state
avoids the preemption found in 101 -- by complying with the requirements in
section 102 -- the provisions of section 101 no longer apply in the state,
and accordingly the limitations of section 104 do not apply either. Some may argue that the preemptive provisions in section 104 are
general in nature – that they apply to both a state UETA as well as the federal
E-Sign law. But this interpretation is defeated by a close analysis of the
language of section 104, as well as by the legislative history.[59] There is no equivalent language about interpreting
UETA or other state law enacted pursuant to section 102(a)(2) in compliance
with the strictures in section 104. This is despite the fact that the uniform
version of UETA quite specifically includes the grant of authority to states
in sections 12(f) and (g).
Implicit
Preemption. Even where Congress does not explicitly state
that it intends to preempt state law on the subject of the federal statute,
courts may construe an implicit intent in one of two ways. First, a federal statute that creates a scheme
“so pervasive as to make reasonable the inference that Congress left no room
for the States to supplement it” demonstrates implicit intent to preempt state
regulation.[60]
Second,
federal law may preempt state law to the extent that it actually conflicts
with federal law.[61] The conflict may arise where it is physically
impossible to comply with both the federal and state regulations, or “where
the law stands’ as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.’”[62]
However,
it is doubtful that there can be any implied preemption in the case of E-Sign.
Nothing about this federal statute meets any of the tests for implied preemption.
The entire construct of E-is to fill a void regarding electronic commerce
unless and until the states move to act. Under the "pervasive scheme" prong
of implicit preemption (as opposed to the "actual conflict" prong),
where the subject matter of the regulation is one traditionally handled by
the states, the Supreme Court has stated the following:
The
settled mandate governing this inquiry, in deference to the fact that a state
regulation of this kind is an exercise of the 'historic police powers of the
States,' is not to decree such a federal displacement 'unless that was the
clear and manifest purpose of Congress,' In other words, we are not to conclude that
Congress legislated the ouster of [the state statute by the federal rule]
in the absence of an unambiguous congressional mandate to that effect.[63]
So,
by definition, the first test – whether the federal law creates a scheme “so
pervasive as to make reasonable the inference that Congress left no room for
the States to supplement it” does not apply. Instead, the premise of E-Sign
– as evidenced in section 102 – is that federal and state law will work together
to create a set of rules for electronic transactions.
The
second standard for implied preemption is also simple to apply to E-Sign –
if the issue does not conflict with E-Sign, there can be no preemption of
a provision addressing it in state law. Indeed, the legislative history on
E-Sign is replete with examples of issues affecting electronic records which
are not addressed in E-Sign and which Congress deliberately left to the states
to address. The primary example of this is the question of when an electronic
record is considered delivered.[64]
The
national standard for electronic transactions that is contemplated by E-Sign
is articulated in 1) E-Sign’s section 101, 2) along with the uniform version
of UETA, and 3) any other provisions which are consistent with E-Sign and
not addressed in E-Sign. Whether these “other” provisions are contained in
a non-uniform version of UETA or in another state law, should not matter.
The determination of whether any provision not in the uniform version of UETA
affecting electronic records and electronic signatures is preempted by federal
law is measured by one of two tests:
1) If the matter is addressed
in E-Sign, then the provision must be consistent with E-Sign, or else it is
preempted.
2)
If the matter is not addressed in E-Sign, it is not preempted.
Some
nonuniform provisions of a state UETA should survive E-Sign under this preemption
analysis. It is easy to imagine a
pre-E-Sign provision that is consistent with E-Sign. Questions left open by
Congress for the states to address, such as the definition of when something
is delivered, should be effective when answered by a non-uniform state UETA
or other state law.
3.
E-Sign Does Not Transform Nonuniform UETAs into Uniform Ones
UETA’s
proponents suggest that even if all or many of the nonuniform parts of an
enacted UETA are preempted, the uniform parts survive, transforming a nonuniform
UETA into a uniform one.[65] This
argument turns the insistence of state legislatures on non-uniform UETAs on
its head.[66]
Nonuniform UETAs were enacted in states that were originally offered the uniform
UETA. Those state legislatures deliberately
refused to pass UETA without changes, generally to protect consumers.
If those state legislatures had found UETA adequate without the nonuniform
consumer protection additions, then they could have simply enacted the uniform
version. The fact that state legislators made nonuniform changes to UETA
is strong evidence that those legislators did not intend the uniform version
of UETA to become law in their states. Clearly,
E-Sign applies to these states – because no state law has displaced the application
of E-Sign. The tests for whether some of the non-uniform provisions of UETA
are still good are determined by the questions examined above, 1) if the matter
is addressed in E-Sign, then the provision must be consistent with E-Sign,
and 2) if the matter is not addressed in E-Sign, it is not preempted, and
is still good law.
4.
Recommendation for States with Pre-existing UETAs
States
that passed a nonuniform version of UETA prior to E-Sign should examine the
provisions of their nonuniform act and determine whether those provisions
are consistent with E-Sign. If they
are not consistent, for example, the state had chosen a strategy of exemptions
(broader than the federal exemptions) to UETA to address consumer protection
concerns, then that state should revise its statute to address the same consumer
protection issues in a different manner such as in the companion consumer
protection statute set forth in Part IV. Furthermore, E-Sign permits state
legislatures to address issues left open by E-Sign, including delivery, format,
and effect of electronic messages.
States
that passed any UETA prior to E-Sign should adopt a companion act addressing
consumer protection issues left to the states by E-Sign. To regain state control over record retention issues, states which
passed UETA prior to the passage of E-Sign may choose to pass the uniform
version of UETA, but should do
so only with a companion consumer protection act. See the recommendations in Part III B, above.
E. Can a State Permit Electronic
Delivery of the Notices Exempted in E-Sign?
The
impact of E-Sign’s exemption of key consumer notices in section 103(b) on
state law is also tricky. Unfortunately,
the answer to this question is probably “yes, the state can displace this
provision if the state deliberately acts on these notices.” A close analysis
of the structure of E-Sign is necessary.
Section
101(a) of the federal law preempts other laws on the issue of allowing electronic
signatures and electronic records to replace paper writings: “Notwithstanding
any statute . . . with respect to any transaction in or affecting interstate
or foreign commerce . . ..” Section
101(c) then establishes an exception to the preemptive rule in section 101
for consumer transactions: “Notwithstanding subsection (a), if a statute .
. . requires that information relating to a transaction . . . be provided
. . . to a consumer in writing, the use of an electronic record to provide
. . . satisfies the requirement that such information be in writing if – .
. . .”
Section
102(a) allows a state to “modify, limit or supersede the provisions of
section 101" only if the
state rule meets the specific requirements of that section.
The
exemption for certain consumer notices is contained in section 103(b) of E-Sign.
The lead-in language of that section is: “The provisions of section 101 shall
not apply to – . . . .” As a result, it appears that the effect of section
103 is to leave state law in place on these notices.[67]
The federal E-Sign law does not change the state law and does not prohibit
these notices from being provided electronically. Although Congressional intent
is clear that these important notices should continue to be provided in writing,[68] it appears
that a state’s enactment of the uniform version of UETA could have the effect
of allowing these notices to be provided electronically. However, it is
also crystal clear that a state may continue to require that these notices
be provided in writing.
Because
UETA does not contain exemptions to mirror E-Sign section 103(b)(2), it is
essential for any state enacting UETA to repeat the federal exemptions in
its UETA. This is further discussed in Part IV.
F.
UCITA Amendments Should Not Affect E-Sign.
A
recent action by NCCUSL has further complicated the picture.
NCCUSL has a very controversial
proposed uniform state law dealing with computer information, including software
and internet service providers, called UCITA.[69]
In summer 2000, NCCUSL amended UCITA to try to displace E-Sign with UCITA's
rules on the enforceability of electronic records and signatures. This appears in UCITA section 905.
UCITA's
provisions have even worse implications for consumers than UETA:[70]
While
UETA requires agreement to communicate electronically, [71]
UCITA simply authorizes electronic communications in the place of paper
communications whether or not there has been any agreement.[72]
UETA
states a "bounce-back" rule,[73]
so that if the sender knows a message was not sent or received (perhaps
because it "bounced" ), then other law decides whether or not
that notice has an effect. In
UCITA, by contrast, "sent" but has no bounce back
rule.
UETA
also contains a rule that it does not displace statutory requirements
to deliver information by means other than first class mail, such as hand
delivery, certified mail, or other method.[74]
UCITA fails to address this topic.
UETA
plainly states that the format requirements of other law remain undisturbed.
[75]
UCITA is silent on this point.
UCITA
should not actually qualify as a displacing statute under E-Sign. E-Sign requires displacing statutes other than
UETA to provide alternative procedures
or requirements for the use or acceptance of electronic records or signatures
which are consistent with E-Sign.[76] See Part III B, above.
UCITA is not consistent in any manner with E-Sign:
E-Sign
requires affirmative electronic consent to consumers' use of electronic
records in place of legally required written notices.[77] UCITA does not require that the consent to communicate electronically be given by electronic
means, but instead would appear to permit a paper form contract for future
electronic notices.
UCITA does not
require any disclosure to the consumer about the consequences of a request
to revert to paper notices at a later time, which is required by E-Sign.[78] UCITA does not require any disclosure to the
consumer at the time of consent or at any other time about what hardware
and software will be needed to receive the communications which are to
be provided electronically, another requirement of E-Sign.[79]
Because
UCITA is weaker than both E-Sign and UETA, it should not qualify as a displacing
statute. To avoid the need for litigation on this question, however, states
should take care not to adopt UCITA section 905.[80]
IV.
Language to Implement These Approaches
The
following language is offered for Options One and Two – UETA with a companion
consumer protection statute or a companion consumer protection act alone to
accompany E-Sign. The text of the recommended language is also set forth,
without accompanying explanation, in Appendix 2.
The discussion for Option 3 - UETA
with “no displacement” – sets forth
suggested language. No language is
needed for Option Four – the “no UETA”
approach. Because Option Five is not recommended, no language is offered for
it.
1) Consumer consent to engage in electronic transactions
should be given or confirmed electronically and should include disclosures
Recommended
language:
Section
1. (a) Notwithstanding the Uniform Electronic Transactions
Act, the use of an electronic record to provide or make available (whichever
is required) information required by a statute, regulation, or rule of law,
to be provided or made available to a consumer shall satisfy any requirement
that the record be in writing, if—
(1)
the consumer has affirmatively consented to such use and has not withdrawn
such consent;
(2) the consumer, prior to
consenting, is provided with a clear and conspicuous statement‑‑
(i) informing the consumer of (I) any right or option of the consumer to have the record provided or made available on paper or in nonelectronic form, and (II) the right of the consumer to withdraw the consent to have the record provided or made available in an electronic form and of any conditions, consequences (which may include termination of the parties' relationship), or fees in the event of such withdrawal;
(ii) informing the consumer of whether the consent applies
(I) only to the particular transaction which gave rise to the obligation to
provide the record, or (II) to identified categories of records that may be
provided or made available during the course of the parties' relationship;
(iii) describing the procedures the consumer must use to
withdraw consent as provided in clause (i) and to update information needed
to contact the consumer electronically; and
(iv) informing the consumer (I) how, after the consent,
the consumer may, upon request, obtain a paper copy of an electronic record,
and (II) whether any fee will be charged for such copy;
(3) the consumer‑‑
(i) prior to consenting, is provided with a statement of
the hardware and software requirements for access to and retention of the
electronic records; and
(ii) consents electronically, or confirms his or her consent
electronically, in a manner that reasonably demonstrates that the consumer
can access information in the electronic form that will be used to provide
the information that is the subject of the consent; and
(4) after the consent of
a consumer in accordance with subparagraph (1), if a change in the hardware
or software requirements needed to access or retain electronic records creates
a material risk that the consumer will not be able to access or retain a subsequent
electronic record that was the subject of the consent, the person providing
the electronic record‑‑
(i) provides the consumer with a statement (I) describing
the revised hardware and software requirements for access to and retention
of the electronic records, and (II) complying with section 1(a)(2)(iii) by
describing the procedures the consumer must use to withdraw consent as provided
in clause (i) and to update information needed to contact the consumer electronically;
and with section 1(a)(2)(iv) by informing the consumer (I) how, after the
consent, the consumer may, upon request, obtain a paper copy of an electronic
record, and (II) whether any fee will be charged for such copy; and
(ii) again complies with this subsection.
[Source: E-Sign § 101(c).]
Explanation:
This
language uses the requirements for consumer consent in section 101(c) of the
federal E-Sign bill. This language
follows E-Sign’s approach of applying the consent rule to all notices required
by statute, regulation or rule of law to be in writing. The language is slightly different from that
of E-Sign’s section 101(c) because in addition to applying to those notices
required by law to be writing, it also applies the consent rules to notices
which are implicitly, but not explicitly,[81]
required to be provided in writing.[82]
(b) Notwithstanding the Uniform Electronic Transactions
Act, the use of an electronic record to provide or make available information
required by contract shall satisfy any promise that the information will be
provided or made available in writing only if the consumer –
(1)
prior to consenting, is provided with a statement of the hardware and
software requirements for access to and retention of the electronic records;
and
(2) consents electronically
to receive written notices electronically, or confirms consent electronically,
in a manner that reasonably demonstrates that the consumer can access information
in the electronic form that will be used to provide the information that is
the subject of the consent.
[Source:
This is a streamlined version of E-Sign’s section 101(c)’s requirements for
legally required notices.]
Explanation: Subsection (b) provides a condensed consent rule for electronic receipt
of notices which a contract promises will be provided in writing. A more concise rule is offered here because
these are notices that are not required by law to be given in writing. Notices required by law fall under E-Sign section
101(c) and subsection (a) of this language. Notices sent pursuant only to contract are offered the protection
of electronic consent or electronic confirmation of prior written consent,
in a manner reasonably designed to ensure that the consumer will be able to
open the subsequent contractual notices.[83]
2)
Federal rules from E-Sign should be applied to document retention and integrity
requirements
Recommended
language:
Section
2. (a) If a statute, regulation, or other rule
of law requires that a contract or other record be retained, that requirement
is met by retaining an electronic record of the information in the contract
or other record that–
(1) accurately reflects the information
set forth in the contract or other record; and
(2) remains accessible to all
persons who are entitled to access by statute, regulation, or rule of law,
for the period required by such statute, regulation, or rule of law, in a
form that is capable of being accurately reproduced for later reference, whether
by transmission, printing, or otherwise.
[Source:
E-Sign § 101(d)]
(b)
Notwithstanding subsection (a), if a statute, regulation, or other rule of
law requires that a contract or other record be in writing, the legal effect,
validity, or enforceability of an electronic record of such contract or other
record may be denied if such electronic record is not in a form that is capable
of being retained and accurately reproduced for later reference by all parties
or persons who are entitled to retain the contract or other record.
[Source:
E-Sign § 101(e)]
Explanation: The recommended language is identical to that in E-Sign.[84] It sets a more complete standard than UETA for the accuracy and integrity of a record.[85] Unlike E-Sign, UETA does not specify to whom the record must remain accessible for later reference, nor for how long. The recommended language, taken from E-Sign, adds requirements that the record remain accessible:
1)
to all persons who are entitled to access by statute, regulation, or
rule of law;
2)
for the period required by law [this probably could be inferred into UETA
Section (12)]; and
3)
in a form that is capable of being accurately reproduced for later reference
by all parties.
This
language, like E-Sign section 101(e), also contains a sanction not found in
UETA. It allows a court to deny enforceability to
a record required to be in writing if the record is not in a form which is
capable to being retained and accurately reproduced by all parties who are
entitled to retain it.
3) Oral communications cannot be electronic
records in consumer transactions
Recommended
language:
Section
3. In consumer transactions, an oral communication
or a recording of an oral communication shall not qualify as an electronic
record.
[Source:
E-Sign §101(c)(6)] (Note: this is needed only in states that enact UETA)
Explanation: The definition of “electronic record” under
both E-Sign and UETA includes any information that is electronically
stored and retrievable in perceivable form.
Taken literally, this includes a tape recording of a phone call. E-Sign recognizes that a recording of a telephone
call should not be allowed to satisfy the requirement that a record be given
to a consumer, because the recording is not in a form that can be easily referenced
by the consumer.[86] Adding this language to a state companion
law would close this loophole in UETA. If a state enacts only a companion statute and not UETA, this section
is not needed.
4) Prohibit
electronic delivery as a complete substitute for certain essential notices
Recommended
language:
Section
4. Notwithstanding the provisions of the Uniform
Electronic Transactions Act, the requirement that a notice be in writing is
not satisfied by providing or delivering any of the following types of notices
electronically. This provision applies to notices of --
(a) the cancellation or termination of utility services
(including water, heat, and power);
(b) default, acceleration, repossession, foreclosure, or
eviction, or the right to cure, under a credit agreement secured by, or a
rental agreement for, a primary residence of an individual;
(c) the cancellation or termination of health insurance
or benefits or life insurance benefits (excluding annuities);
(d) recall of a product, or material failure of a product,
that risks endangering health or safety;
(e) any document required to accompany any transportation
or handling of hazardous materials, pesticides, or other toxic or dangerous
materials.
[Source:
E-Sign §103(b)(2)]
Explanation: This
list of exempted notices is identical to the exemptions to E-Sign.[87] By including these exemptions, Congress recognized
that electronic delivery does not currently provide the same degree of assurance
of receipt as does the U.S. mail. These
exemptions should be specifically enacted by any state which enacts UETA to
assure that these essential notices continue to be provided on paper.[88]
The
exemption does not mean that notices such as utility shut-off notices can
never be sent electronically, it only means that the electronic notice alone
does not suffice. Because this list
of exemptions is identical to those permitted under E-Sign, this addition
to state law should be consistent with E-Sign and thus permitted under E-Sign
section 102(a)(2).
A
state which does not enact UETA does not need this companion provision.
5) Definition of consumer transaction
Recommended
language:
Section
5. “Consumer” means a natural person acting with
respect to or affecting primarily personal, family or household purposes.
[Source: The “primarily for personal, family or household
purposes” test is widely used in federal and state consumer statutes; however
the “acting with respect to or affecting” language is new and slightly broader.
The North Carolina law uses this language, see N.C.G.S. § 66-308.1(4).]
Explanation:
UETA will apply to all sorts of personal transactions,
including purchases, credit, securities transactions, interactions with government,
etc. The protections for consumers should apply as broadly as possible.
This language is consistent with,[89]
but not exactly the same as, that in E-Sign.[90]
6)
Rules for consumer contracts should not be changeable in form contracts
Recommended
language:
Section
6. In consumer transactions, the rules and requirements
set out in this Act may not be changed by agreement of the parties.
[Source:
new]
Explanation: This
provision should be included to avoid any argument that consumers waive the
companion statute’s consumer protection provisions when signing a form contract.
While E‑Sign’s language does not address waiver, its provisions
would make little sense if they could be waived.
An explicit no-waiver provision is entirely consistent with E-Sign
and thus should be permitted.
7) Permit consumers to respond electronically to
electronic notices
Recommended
language:
Section
7. When a consumer is required to provide notice
to exercise or preserve the consumer's rights under any law, the consumer
may exercise or preserve that right in the same manner in which the consumer
was provided with notice of that right.
[Source:
new]
Explanation:
This
section is needed as a companion to UETA to avoid interference with state
notice of right to cancel statutes. Those
statutes generally say that the consumer may exercise the right to cancel
by returning the notice of right to cancel in writing. Because UETA requires that each party “agree”
to receive an electronic notice, a merchant could put in its contract a clause
that says, in essence, “Company many communicate with consumer electronically,
but consumer must communicate with company on paper.” Such a clause, if enforced,[91]
could render a consumer’s electronic reply to an electronic notice of right
to cancel ineffective. This language
closes that loophole. If a state enacts
only a companion statute and not UETA, this section may not be needed.
This
language should not be preempted under E-Sign section 102(a)(2)(A). It addresses an issue not addressed in E-Sign, it facilitates electronic
communication from consumers to merchants, and it is technology-neutral.
8) Require that electronic delivery have the same
degree of assurance of receipt as does the U.S. Mail
Recommended
language:
Section
8. Notices required to be provided, sent or delivered
to a consumer shall be considered received only when the notice is opened,
acknowledged, or automatically acknowledged by a flag that tells the sender
it has been opened.
[Source:
new]
Explanation: Computers crash, ISPs and email addresses change,
and often there is no system for forwarding mail. Even corporate email systems seem to break
down fairly frequently. Until email
reaches the at least the degree of reliability of the U.S. Postal Service,
care must be taken to assure that consumers actually receive important information
that is sent electronically. The recommended
language gives three ways to trigger effectiveness of a notice: 1) actual opening; 2) manual acknowledgment;
or 3) a technological automatic acknowledgment received by the sender.
E-Sign
leaves delivery requirements for electronic records to state laws.[92] The legislative history states in part:
State
and federal law requirements on delivery documents have not been addressed
in this Act. The underlying rules
on these issues still prevail. It
is our view that records provided electronically to consumers must be provided
in a manner that has the same expectation for the consumer’s actual receipt
as was contemplated when the state law requirement for provided was passed.[93]
9) Timeframes triggered by legally required notices
should start when the consumer opens or acknowledges the notice
Recommended
language:
Section
9. (a) Any time period for action by or rights
to a consumer which is triggered by the sending or receipt of a notice is
triggered by an electronic notice no earlier than the earliest of these dates:
the date the consumer opens the notice, the date the consumer acknowledges
electronic receipt of the notice; or the date on which the technology by which
the notice is sent provides confirmation that the notice has been received
and opened by the consumer.
[Source:
new]
Explanation: Some
people who use email check it frequently throughout a single day. Others, particularly those who have previously
used email for personal use and not for business use, may check it infrequently.
Electronic notices that replace paper notices may, in some cases, trigger
time periods in which consumers must act or lose legal rights.
In those cases, the time period should start to run when the email
is opened or acknowledged by the consumer, or when the consumer’s machine
sends an automatic acknowledgement that the message has been opened.
10) Records should be effective as against a consumer
only when they are received in a manner in which they can be opened, read,
stored and printed
Recommended
language:
Section
10. An electronic record sent in a transaction
with a consumer is not sent to or received by a consumer until it is received
by the intended recipient in a manner which can be opened, read, stored and
printed by that recipient.
[Source:
new]
Explanation: Email can arrive in a form in which it cannot be opened, or can be opened
but not read. Records which the consumer
can’t see, use, or retain should not be given broad legal effect. E-Sign is silent on the effect of a record
that can’t be opened, although it does say that a record may be denied enforceability
if a law requires it to be in writing and it is in a form in which it can’t
be retained and accurately reproduced for later reference by all parties.[94] UETA’s comments say that a record is sent when
it leaves the control of the sender, and that “whether a record is unintelligible
or unusable by the recipient is a separate issue from whether that record
was sent or received. The effectiveness
of an illegible record, whether it binds any party, are questions left to
other law.”[95] Most other law is likely to be silent on the
topic of notices that are unopenable when they arrive, since this hasn’t been
an issue with mailed paper notices. This
language for the companion act provides law to address the effect of inability
to open, read, and use an electronically delivered notice.
11) Hand delivery should be preserved in face-to-face
transactions if sales materials are hand delivered
Recommended
language:
Section
11. When the parties to a transaction in which
one of the parties is a consumer are both physically present in the same location,
or one party is present along with the agent of another, any contract, policy,
notice, disclosure or other document provided at that time which is provided
in a form other than orally must also be provided in the same medium, other
than orally, in which sales materials are provided. This section does not prevent the additional
delivery of the same documents by other means.
[Source:
new. Adapted from North Carolina requirements for paper copies in face-to-face
transaction, see N.C.G.S. § 66-308.16(d).]
Explanation: This
addresses the issue of the door to door salesperson with the laptop who uses
paper sales material but then induces the consumer to click to sign an electronic
contract, leaving the consumer without a copy of the contract. Because a contract is usually not a legally
required document, such a practice might evade the consent requirements of
E-Sign section 101(c).
North
Carolina addresses this issue by requiring that, in any consumer transaction
where the electronic equipment is provided by the seller, the consumer must
be given a written nonelectronic copy of the contract, and any consent to
receive future electronic notices must be made or confirmed on electronic
equipment not provided by the seller.[96]
The
recommended language offered here is based on the North Carolina approach. However, it is more clearly technology neutral.
It simply requires that the contract and other documents be given in
the same medium as the sales material. If a salesperson makes a fully electronic sales
pitch, paper copies of the contract are not required. If, however, the salesperson uses paper sales
materials in an in‑person sale, then the contract and other documents
must be provided in that same medium. Of course, those documents may be provided electronically as well
if the seller so desires.
12) Place of contracting is the consumer’s residence
Recommended language:
Section 12.
A transaction entered into by a consumer electronically is entered
into at the individual’s place of residence.
[Source: N.C.G.S. § 66-308.16(d).]
Explanation: E-Sign
and UETA are both silent about the place of formation of an electronic contract.
States may wish to clarify by statute that acts by a consumer to enter
into an electronic contract occur in the consumer’s home state and county.
The North Carolina law, which enacts both UETA and companion provisions
as authorized by E-Sign, contains this type of “place of formation” rule.[97]
13) Rules
for electronic transferable records must assure consumers need not pay twice
on a single note.
Recommended language:
Section. 13.
Notwithstanding the provisions of the Uniform Electronic Transactions
Act, the following rules apply to transferable records of transactions involving
consumers:
(a) If payment is made to a person
that the system indicates is in control of a transferable record, the obligor
is discharged to the extent of the payment.
(b) A transferable record remains
subject to the defenses of alteration and unauthorized signature whether or
not those defenses are apparent on the face of the record.
(c) A record does not qualify
as a transferable record if a system is unable to reliably establish the person
entitled to enforce the record or the system permits the creation of multiple
copies that appear to be authoritative copies.
(d) A consumer is entitled, on
request and without charge, to a printed or printable copy of a transferable
record at any time.
[Source: new]
Explanation. Both UETA and E-Sign establish that negotiable
instruments may be created and stored electronically.[98] E-Sign’s authorization applies only to negotiable
instruments secured by real property. UETA applies to any kind of electronic loan note. Both E-Sign and UETA give holder in due course
status to the new holder of the electronic note even though that holder is
not in possession of the original note. “Original”
is, of course, a questionable concept in electronic notes, because there can
be multiple identical electronic copies.
Both E-Sign and UETA use the
concept of “transferable record” to define a way of storing and transferring
electronic notes which is intended to create a unique, electronic copy which
is identified as the authoritative copy.
If these statutes work as hoped, there will never be more than one
authoritative copy. This companion
provision is designed to protect consumers if this optimism is misplaced. This provision protects the consumer if he
or she pays on a duplicate electronic loan note, and clarifies that the defenses
of alteration and unauthorized signature remain available.
Under the holder in due course
rule, a consumer may be unable to raise defenses to a loan note which are
not apparent on the face of the note. The
holder in due course rule assumes that the face of a paper loan note will
show all but perhaps the most sophisticated of alterations. If an electronic
loan note is altered or duplicated, it is far less likely than with a paper
loan note that there will be any evidence of that change on the face of the
loan note. The conferral of holder in due course status
on assignees of electronic loan notes makes it particularly important to explicitly
protect the consumer borrower from the consequences of alteration, unauthorized
signature, and payment when there are multiple apparently authorized copies
being held by different parties.[99]
14) Establish relation with federal E-Sign.
Recommended Language:
Section 14.
The requirements of this Act are designed to supplement, not to modify,
limit, or supersede, the provisions of the federal Electronic Signatures in
Global and National Commerce Act. If
any part of this Act is held to be preempted by federal law, the provisions
of the Uniform Electronic Transactions Act shall be without further force
and effect with respect to transactions entered into primarily for personal,
family, or household purposes.
Explanation: This section indicates the state’s intent is
to supplement, not to modify, limit, or supersede, federal law. The effect of this should be that both federal
law and state law should apply. Secondly,
it establishes the state’s intent to protect consumers from the risks created
by the uniform version of UETA, by stating that if the companion act’s consumer
protection provisions are preempted for some reason, UETA also will not apply
to consumer transactions. In this case, E-Sign would provide the only law governing electronic
records in consumer transactions in that state.
15) States
that enacted UETA before E-Sign should add a coordinating provision
Passage of UETA before E-Sign
may create confusion and litigation over 1) whether the federal consumer protections
apply in the state, and 2) whether the non-uniform provisions of the state’s
UETA apply after E-Sign.[100]
States that have already passed UETA should consider adding the following
provision to avoid future litigation over whether the state’s UETA remains
in effect if parts of it are preempted:
Recommended Language:
Section 15.
(a) No law of this state is intended
to limit, modify, or supersede the requirements of Sections 101 (c), (d),
or (e), or to authorize electronic delivery of any notice of the type described
in Section 103(b) of the Electronic Signatures in Global and National Commerce
Act.
(b) If any part of this Act is
held to be preempted by federal law, the provisions of the Uniform Electronic
Transactions Act shall be without further force and effect with respect to
transactions entered into primarily for personal, family, or household purposes.
Explanation: Nothing
in the federal E-Sign law mandates that a state's passage of UETA or other
law regarding the use of electronic signatures automatically displaces the
federal law. Instead, E-Sign gives
states a choice. Thus, E-Sign’s important
consumer protections should not be displaced unless a state’s enactment includes
deliberate language evidencing an intent to "modify, limit or supersede"
the federal E-Sign law. Adding language clearly stating an intent not
to displace, however, adds clarity and avoids uncertainty and litigation.
Conclusion
Consumers welcome the opportunity to engage in safe and secure online transactions. However, safety, security, and consumer confidence are built upon this nation’s long history of providing strong consumer protections. Consumer protections equivalent to those found in the offline world must be built into the online marketplace. States should consider declining UETA now that E-Sign is in place. Any state enacting UETA after E-Sign should clarify that UETA is subordinate to E-Sign’s consumer protections. It would be even better for states enacting UETA to combine it with a companion statute adding the consumer protections as permitted by E-Sign. Strong consumer protection should build confidence in and encourage the use of electronic commerce.
Appendix 1
Comparison of E-Sign and UETA on Key Issues
E-Sign and UETA differ in other
important ways. Here are the answers
to some key consumer protection questions under E-Sign and UETA:
Question:
Is real consumer consent required?
Answer:
E-Sign:
Yes. Required for those notices that are required by law to be in writing
UETA:
Yes and no. Agreement is required for contracts and notices,
but it may be inferred from the context, including conduct.
Question:
Must the consent be electronic?
Answer:
E-Sign:
Yes. Consent must be given or confirmed electronically.
UETA:
No. Consent may
be given on paper for future electronic communications.
Question:
Are pre-consent disclosures required?
Answer:
E-Sign:
Yes. Disclosures must include: 1) the types of needed hardware and software;
2) how to request a paper copy and the cost, if any; 3) how to update contact
information, and 4) how to withdraw consent.
UETA:
No. No pre-consent
disclosures are required.
Question:
Can a recording of a phone call replace a written notice?
Answer:
E-Sign:
No, for consumer transactions. Does not permit oral communications or recordings
of oral communications to qualify as an electronic record in consumer transactions.[101]
UETA:
Yes. A tape recording of a voice conversation is an electronic record.
Question:
Are any types of consumer notices exempt?
Answer:
E-Sign:
Yes. E-Sign exempts these consumer notices:[102]
Utility termination and shut
offs;
Default, acceleration, repossession,
foreclosure or eviction, or a right to cure, under a rental agreement or a
mortgage on a principal residence;
Cancellation or termination of
health insurance or benefits, and of life insurance benefits (except annuities);
and
Product recall or material failure
of a product that risks endangering health and safety.
UETA:
No. UETA leaves
it to each state to decide what consumer law provisions, if any, should be
exempted. It is unclear whether federal
exemptions automatically apply in a state that has enacted UETA.
To avoid questions, a state that enacts UETA should enact UETA exemptions
to match the federal exemptions. Exemptions from UETA that match the federal
exemptions are not preempted.[103]
Question:
Does either statute contain a loophole that allows posting rather than
sending of notices required by law?
Answer:
E-Sign:
No. The federal
statute defers to other law on whether the information must be “provided”
or merely “made available” to the consumer. E-Sign does not define “send” or “receive.”
In fact, the legislative history makes clear that the underlying law’s requirements
regarding the method of delivery still apply to the electronic delivery allowed
by E-Sign.[104]
UETA:
Unclear. Section 15 of UETA seems to create a posting loophole by permitting
both “send” and “receive” to be redefined by agreement of the parties, but
the chair of the UETA drafting committee stated in a public forum of Attorneys
General consumer protection staff that UETA section 15, which allows posting,
was not intended to interfere with UETA section 8, which requires sending.
UETA section 15(g) may defer this question to the policy of the underlying
statute.
Appendix 2
Recommended Provisions to Accompany
Any State Enactment of UETA
The following language is offered
for Options One and Two – UETA with a companion consumer protection statute
or a companion consumer protection act alone to accompany E-Sign. The text
of the recommended language is also set forth, without accompanying explanation,
in Appendix 2. The discussion for
Option 3 - UETA with “no displacement” – sets forth suggested language. No language is needed for Option Four – the “no UETA” approach. Because Option Five
is not recommended, no language is offered for it.
1) Consumer
consent to engage in electronic transactions should be given or confirmed
electronically and should include disclosures
Recommended language:
Section 1. (a) Notwithstanding the Uniform Electronic Transactions Act, the use
of an electronic record to provide or make available (whichever is required)
information required by a statute, regulation, or rule of law, to be provided
or made available to a consumer shall satisfy any requirement that the record
be in writing, if—
(1) the consumer has affirmatively consented to such use and has not withdrawn such consent;
(2) the consumer, prior to consenting, is provided with a clear and conspicuous statement‑‑
(i)
informing the consumer of (I) any right or option of the consumer to have
the record provided or made available on paper or in nonelectronic form, and
(II) the right of the consumer to withdraw the consent to have the record
provided or made available in an electronic form and of any conditions, consequences
(which may include termination of the parties' relationship), or fees in the
event of such withdrawal;
(ii) informing the consumer of
whether the consent applies (I) only to the particular transaction which gave
rise to the obligation to provide the record, or (II) to identified categories
of records that may be provided or made available during the course of the
parties' relationship;
(iii) describing the procedures
the consumer must use to withdraw consent as provided in clause (i) and to
update information needed to contact the consumer electronically; and
(iv) informing the consumer (I)
how, after the consent, the consumer may, upon request, obtain a paper copy
of an electronic record, and (II) whether any fee will be charged for such
copy;
(3)
the consumer‑‑
(i) prior to consenting, is provided
with a statement of the hardware and software requirements for access to and
retention of the electronic records; and
(ii) consents electronically, or confirms his or her consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent; and
(4)
after the consent of a consumer in accordance with subparagraph (1),
if a change in the hardware or software requirements needed to access or retain
electronic records creates a material risk that the consumer will not be able
to access or retain a subsequent electronic record that was the subject of
the consent, the person providing the electronic record‑‑
(i) provides the consumer with
a statement (I) describing the revised hardware and software requirements
for access to and retention of the electronic records, and (II) complying
with section 1(a)(2)(iii) by describing the procedures the consumer must use
to withdraw consent as provided in clause (i) and to update information needed
to contact the consumer electronically; and with section 1(a)(2)(iv) by informing
the consumer (I) how, after the consent, the consumer may, upon request, obtain
a paper copy of an electronic record, and (II) whether any fee will be charged
for such copy; and
(ii) again complies with this
subsection.
[Source:
E-Sign § 101(c).]
2) Federal
rules from E-Sign should be applied to document retention and integrity requirements
Recommended language:
Section 2.
(a) If a statute, regulation, or other rule of law requires that a
contract or other record be retained, that requirement is met by retaining
an electronic record of the information in the contract or other record that–
(1) accurately reflects the information
set forth in the contract or other record; and
(2) remains accessible to all
persons who are entitled to access by statute, regulation, or rule of law,
for the period required by such statute, regulation, or rule of law, in a
form that is capable of being accurately reproduced for later reference, whether
by transmission, printing, or otherwise.
[Source: E-Sign § 101(d)]
(b) Notwithstanding subsection
(a), if a statute, regulation, or other rule of law requires that a contract
or other record be in writing, the legal effect, validity, or enforceability
of an electronic record of such contract or other record may be denied if
such electronic record is not in a form that is capable of being retained
and accurately reproduced for later reference by all parties or persons who
are entitled to retain the contract or other record.
[Source: E-Sign § 101(e)]
3) Oral communications cannot be electronic records in consumer transactions
Recommended language:
Section 3.
In consumer transactions, an oral communication or a recording of an
oral communication shall not qualify as an electronic record.
[Source: E-Sign §101(c)(6)] (Note: this
is needed only in states that enact UETA)
4) Prohibit electronic delivery as a complete substitute for certain
essential notices
Recommended language:
Section 4.
Notwithstanding the provisions of the Uniform Electronic Transactions
Act, the requirement that a notice be in writing is not satisfied by providing
or delivering any of the following types of notices electronically. This provision
applies to notices of --
(a) the cancellation or termination
of utility services (including water, heat, and power);
(b) default, acceleration, repossession,
foreclosure, or eviction, or the right to cure, under a credit agreement secured
by, or a rental agreement for, a primary residence of an individual;
(c) the cancellation or termination
of health insurance or benefits or life insurance benefits (excluding annuities);
(d) recall of a product, or material
failure of a product, that risks endangering health or safety;
(e) any document required to
accompany any transportation or handling of hazardous materials, pesticides,
or other toxic or dangerous materials.
[Source: E-Sign §103(b)(2)]
5)
Definition of consumer transaction
Recommended language:
Section 5.
“Consumer” means a natural person acting with respect to or affecting
primarily personal, family or household purposes.
[Source:
The “primarily for personal, family or household purposes” test is
widely used in federal and state consumer statutes; however the “acting with
respect to or affecting” language is new and slightly broader. The North Carolina
law uses this language, see N.C.G.S. § 66-308.1(4).]
6) Rules
for consumer contracts should not be changeable in form contracts
Recommended language:
Section 6.
In consumer transactions, the rules and requirements set out in this
Act may not be changed by agreement of the parties.
[Source: new]
7) Permit consumers to respond electronically
to electronic notices
Recommended language:
Section 7.
When a consumer is required to provide notice to exercise or preserve
the consumer's rights under any law, the consumer may exercise or preserve
that right in the same manner in which the consumer was provided with notice
of that right.
[Source: new]
8) Require that electronic delivery have the
same degree of assurance of receipt as does the U.S. Mail
Recommended language:
Section 8.
Notices required to be provided, sent or delivered to a consumer shall
be considered received only when the notice is opened, acknowledged, or automatically
acknowledged by a flag that tells the sender it has been opened.
[Source: new]
9)
Timeframes triggered by legally required notices should start when
the consumer opens or acknowledges the notice
Recommended language:
Section 9.
(a) Any time period for action by or rights to a consumer which is
triggered by the sending or receipt of a notice is triggered by an electronic
notice no earlier than the earliest of these dates: the date the consumer opens the notice, the date the consumer acknowledges
electronic receipt of the notice; or the date on which the technology by which
the notice is sent provides confirmation that the notice has been received
and opened by the consumer.
[Source: new]
10) Records
should be effective as against a consumer only when they are received in a
manner in which they can be opened, read, stored and printed
Recommended language:
Section 10.
An electronic record sent in a transaction with a consumer is not sent
to or received by a consumer until it is received by the intended recipient
in a manner which can be opened, read, stored and printed by that recipient.
[Source: new]
11)
Hand delivery should be preserved in face-to-face transactions if sales
materials are hand delivered
Recommended language:
Section 11.
When the parties to a transaction in which one of the parties is a
consumer are both physically present in the same location, or one party is
present along with the agent of another, any contract, policy, notice, disclosure
or other document provided at that time which is provided in a form other
than orally must also be provided in the same medium, other than orally, in
which sales materials are provided. This
section does not prevent the additional delivery of the same documents by
other means.
[Source: new. Adapted from North
Carolina requirements for paper copies in face-to-face transaction, see N.C.G.S.
§ 66-308.16(d).]
12)
Place of contracting is the consumer’s residence
Recommended language:
Section 12.
A transaction entered into by a consumer electronically is entered
into at the individual’s place of residence.
[Source: N.C.G.S. § 66-308.16(d).]
13)
Rules for electronic transferable records must assure consumers need
not pay twice on a single note.
Recommended language:
Section. 13.
Notwithstanding the provisions of the Uniform Electronic Transactions
Act, the following rules apply to transferable records of transactions involving
consumers:
(a) If payment is made to a person
that the system indicates is in control of a transferable record, the obligor
is discharged to the extent of the payment.
(b) A transferable record remains
subject to the defenses of alteration and unauthorized signature whether or
not those defenses are apparent on the face of the record.
(c) A record does not qualify
as a transferable record if a system is unable to reliably establish the person
entitled to enforce the record or the system permits the creation of multiple
copies that appear to be authoritative copies.
(d) A consumer is entitled, on
request and without charge, to a printed or printable copy of a transferable
record at any time.
[Source: new]
14) Establish relation with federal E-Sign.
Recommended Language:
Section 14.
The requirements of this Act are designed to supplement, not to modify,
limit, or supersede, the requirements of the federal Electronic Signatures
in Global and National Commerce Act. If
any part of this Act is held to be preempted by federal law, the provisions
of the Uniform Electronic Transactions Act shall be without further force
and effect with respect to transactions entered into primarily for personal,
family, or household purposes.
15) States
that enacted UETA before E-Sign should add a coordinating provision
Passage of UETA before E-Sign
may create confusion and litigation over 1) whether the federal consumer protections
apply in the state, and 2) whether the non-uniform provisions of the state’s
UETA apply after E-Sign.[105]
States that have already passed UETA should consider adding the following
provision to avoid future litigation over whether the state’s UETA remains
in effect if parts of it are preempted:
Recommended Language:
Section 15.
(a) No law of this state is intended
to limit, modify, or supersede the requirements of Sections 101 (c), (d),
or (e), or to authorize electronic delivery of any notice of the type described
in Section 103(b) of the Electronic Signatures in Global and National Commerce
Act.
(b) If any part of this Act is
held to be preempted by federal law, the provisions of the Uniform Electronic
Transactions Act shall be without further force and effect with respect to
transactions entered into primarily for personal, family, or household purposes.
[1]This
article is written by Gail Hillebrand and Margot Saunders.
[2]Pub.
L No. 106-229, 114 Stat. 464 (2000) (codified as 15 U.S.C. §§ 7001-7006,
7021, 7031) (enacted S. 761). For a full text of the final bill, see the Congressional web site:
http://thomas.loc.gov/home/thomas.html and search for S. 761.
[3]For
information on the status of UETA’s passage in the states, see http://www.uetaonline.com. This site, however, does not list or describe
the nonuniform amendments. For the
uniform text and comments, see http://www.law.upenn.edu/bll/ulc/fnact99/1990s/ueta99.htm.
For a discussion of the nonuniform variation by state, see http://www.bmck.com/ecommerce/uetacomp.htm.
[4]Some
states also have other laws affecting electronic signatures or electronic
records. These laws are preempted to the extent they violate E-Sign’s prohibitions
against “procedures or requirements that require or accord greater legal
status or effect to . . . a specific technology . . ..: E-Sign § 102(a)(2)(A)(ii).
[5][5]
UETA §5.
[6]E-Sign
§102(a)(2)(A).
[7]E-Sign
§102(a)(1). E-Sign also permits
other state law additions. E-Sign
§102(a)(2).
[8]About
the authors:
Gail
Hillebrand is Senior Attorney with the West Coast Regional Office of
Consumers Union of U.S., Inc., (www.consumersunion.org) the nonprofit publisher of Consumer
Reports, 1535 Mission St., San Francisco, CA 94103, (hillga@consumer.org). Ms. Hillebrand specializes in credit, finance,
e-commerce, the Uniform Commercial Code, and other consumer issues.
Consumers Union is a nonprofit membership organization chartered
in 1936 under the laws of the State of New York to provide consumers with
information, education and counsel about goods, services, health, and personal
finance; and to initiate and cooperate with individual and group efforts
to maintain and enhance the quality of life of consumers.
Consumers Union’s income is solely derived from the sale of Consumer
Reports, its other publications and from noncommercial contributions,
grants and fees. In addition to reports on Consumers Union’s
own product testing, Consumer Reports with approximately 4.5 million
paid circulation, regularly, carries articles on health, product safety,
marketplace economics and legislative, judicial and regulatory actions which
affect consumer welfare. Consumers
Union’s publications carry no advertising and receive no commercial support.
Margot
Saunders is Managing Attorney with National Consumer Law Center, 1629
K Street NW, Washington, D.C. 20006. (Margot@nclcdc.org) Ms.
Saunders specializes in consumer finance, electronic commerce and energy
issues. The National Consumer Law
Center (www.consumerlaw.org) is a nonprofit
organization specializing in consumer issues on behalf of low-income people.
NCLC works with thousands of legal services, government and private
attorneys, as well as community groups and organizations, from all states
that represent low-income and elderly individuals on consumer issues.
As a result of daily contact with these advocates, NCLC has seen
examples of predatory practices against low-income people in almost every
state in the union. NCLC publishes
and annually supplements twelve practice treatises which describe the law
currently applicable to all types of consumer transactions.
[9]
“Nothing in this title affects the content or timing of any disclosure or
other record required to be provided or made available to any consumer under
any statute, regulation or other rule of law.” E-Sign §101(c)(2).
[10]
E-Sign § 102(a)(2)(A). See 146 Cong. Rec. S 5229-5230 (daily ed. June 15, 2000)
(statement of Sens. Hollings, Wyden and Sarbanes) ("State and federal
law requirements on delivering documents have not been addressed in this
Act. The underlying rules on these issues still
prevail. It is our view that records
provided electronically to consumers must be provided in a manner that has
the same expectation for the consumer's actual receipt as was contemplated
when the state law requirement for provided was passed.") It is important
to note the close involvement of these three Senators in the passage of
E-Sign. Senator Wyden was an original co-sponsor of S. 761, the bill that
became E-Sign. Senator Hollings is the ranking member (lead Democrat) on
the Senate Commerce Committee, through which the E-Sign bill passed before
it went to the Senate floor. Senator Sarbanes, the ranking member of the
Senate Banking Committee, was responsible for holding up the bill before
it could be considered by the full Senate because consumers were not adequately
protected. See also 146 Cong. Rec. H 4357-4358 (daily ed. June 14,
2000) (statement of Cong. Dingell) (“[P]rovided that the delivery methods
required are electronic and do not require that notices and records be delivered
in paper form, States retain their authority under Section 8(b)(2) of UETA
to establish delivery requirements.”)
[11]
"This title does not . . . require any person to agree to use or accept electronic records
or electronic signatures, other than a governmental agency with respect
to a record other than a contract to which it is a party." E-Sign §
101(b)(2). In fact, this provision
should be read to prohibit anyone from requiring another to use electronic
records or electronic signatures. However,
E-Sign leaves open the possibility of a business simply refusing to contract
with consumers who do not wish to contract electronically.
[12]
E-Sign contains no clear consent requirement for the use of electronic notices
when the notice is given pursuant to contract, rather than to law.
However, there are repeated statements in the legislative history
that E-Sign requires consent for all electronic consumer notices.
See 146 Cong. Rec. H4348 (daily ed. June 14, 2000) (statement
of Cong. Taupin) (“This is purely voluntary”); 146 Cong. Rec. 4349-4350
(daily ed. June 14, 2000) (statement of Cong. Bliley) ( “No one will be
forced into using or accepting an electronic signature or record.”); 146
Cong. Rec. H4757-4358 (daily ed. June 14, 2000) (statement of Cong. Dingell)
(“These provisions require that consumers affirmatively consent to receive
information in electronic form.”); 146 Cong. Rec. H4360 (daily ed. June
14, 2000) (statement of Cong. Taupin) (“Consumers must opt-in to electronic
transactions¼.”); 146 Cong Rec. H4363-4364 (daily ed. June 14, 2000) (statement
of Cong. Morella) (“For instance, businesses must receive the consumer’s
consent before they conduct their dealings electronically.”); 146 Cong.
Rec. H4364 (daily ed. June 14, 2000) (statement of Cong. Inslee) (“It will
make sure that only when consumers want to use electronic measures will
they be used.”).
[13]
This should mean that the consumer must initiate or respond to an email
to consent or confirm consent:
I
maintain that any standard for affirmative consent must require consumers
to consent electronically to the provision of electronic notices and disclosures
that verified the consumer’s capacity to access the information in the form
in which it would be sent. Such a mechanism provides a check against
coercion, and additional assurance that the consumer actually has an operating
email address and the other technical means for accessing the information.
[Emphasis added.]
146
Cong. Rec. S5219-5222 (daily ed. June 15, 2000) (statement of Sen. McCain).
See also 146 Cong. Rec. H4352-4353 (daily ed. June 14, 2000)
(statement of Cong. Bliley) (“The purpose of the reasonable demonstration
provision is to provide consumers with a simple and efficient mechanism
to substantiate their ability to access the electronic information that
will be provided to them.”)
[14]
UETA §5.
[15]“An
oral communication or a recording of an oral communication shall not qualify
as an electronic record for purposes of this subsection except as otherwise
provided by applicable law.” E-Sign § 101(b)(6).
[16]E-Sign
§101(d) and (e).
[17]Like
UETA, notices relating to wills, family law and the UCC (other than the
Statute of Frauds and Articles 2 and 2A) are excluded from the application
of E-Sign. E-Sign § 103(a).
[18]In
addition to the consumer notices, E-Sign also excludes court orders and
notices, as well as official court documents executed in connection with
court proceedings. E-Sign § 103(b)(1).
[19]
E-Sign § 103(b)(2).
[20]E-Sign
§ 103(c)(1).
[21]E-Sign
§ 103(c)(2).
[22]E-Sign
§ 105(b).
[23]Part
III of this Article discusses in more detail the scope of states’ power
to modify E-Sign, as well as the best methods for states to protect consumers.
[24]
For a more complete description of the problems and loopholes in UETA, see,
Gail Hillebrand, Uniform Electronic Transactions Act:
Consumer Nightmare or Opportunity? NCLC Reports, Summer 1999, posted
at http://www.consumersunion.org/finance/899nclcwc.htm.
[25]National
Telecommunications and Information Administration, U.S. Department of Commerce,
Falling Through the Net: Defining the Digital Divide (July 1999)
Chart II-1, page 62.
[26]E-Sign
also has a provision which explicitly states that no one can be required
to use electronic records. E-Sign § 101(b).
[27]146
Cong. Rec. S5219-5222 (daily ed. June 15, 2000) (statement of Sen. McCain).
[28]
Subsection (c)(1)(C)(ii) requires that the consumer’s consent be
electronic or that it be confirmed electronically, in a manner that reasonably
demonstrates that consumer will be able to access the various forms of electronic
records to which the consent applies. The requirement of a reasonable demonstration
is not intended to be burdensome on consumers or the person providing the
electronic record, and could be accomplished in many ways. For example,
the “reasonable demonstration” requirement is satisfied if the provider
of the electronic records sent the consumer an email with attachments in
the formats to be used in providing the records, asked the consumer to pen
the attachments in order to confirm that he could access the documents,
and request the consumer to indicate in an emailed response to the provider
of the electronic records that he or she can access information in the attachments.
. . . The purpose of the reasonable demonstration provision is to provide
consumers with a simple and efficient mechanism to substantiate their ability
to access the electronic information that will be provided to them.
106th
Congress, 146 Cong. Rec. H4352-4353 (daily ed., June 14, 2000) (statement
of Cong. Bliley).
[29]N.C.G.S.
§66‑308.16(d).
[30]Part
IV recommends a similar, but more clearly “media neutral” rule to achieve
the same result. See Recommendation # 11.
[31]These
include cancellation or termination of utility services, default, acceleration,
repossession, foreclosure, eviction, or right to cure agreements affecting
a primary residence, cancellation of health or life insurance, and recall
or material failure of a product. E-Sign §103(b)(2).
[32]UETA's
section 8(a) requires that a record be provided in an "electronic record
capable of retention by the recipient at the time of receipt."
There is no discussion addressing the recipient's ability to accurately
reproduce the document later in a form that allows proof of its terms in
court.
[33]E-Sign
§101(e).
[34]Id.
[35]146
Cong. Rec. H4352-4353 (daily ed. June 14, 2000) (statement of Cong. Bliley)
(“In addition, subsection (a)(2)(B) requires that a State that utilizes
subsection (a)(2) to escape federal preemption must make specific references
to this Act in any statute, regulation or other rule of law enacted or adopted
after the date of enactment of this Act.”)
[36]
This provision provides a potential enormous loophole for a State
to prevent the use or acceptance of electronic signatures or electronic
records in that State. To remedy this, subsection (a)(1) requires that any
exception utilized by a State under section 3(b)(4) of UETA shall be preempted
if it is inconsistent with title I or II, or would not be permitted under
subsection (a)(2)(ii) (technology neutrality).
146
Cong. Rec. H4352-4353 (daily ed. June 14, 2000) (statement of Cong. Bliley).
[37]It
is not clear whether the "inconsistent" test for exemptions limits
the consumer notices only to those explicitly described in E-Sign's section
103(b), or if notices similar to and consistent with these categories of
notices might be covered as well.
[38]
The limitations on interpretive authority in section 104(b)(2) are:
(2) Notwithstanding paragraph (1), . . . a state regulatory agency is preempted by section 101 from adopting any regulation order, or guidance described in paragraph (1) unless--
(A)
such regulation, order, or guidance is consistent with section 101;
(B)
such regulation, order, or guidance does not add to the requirements of
such section; and
(C)
such agency finds, in connection with the issuance of such regulation, order,
or guidance, that --
(i)
there is substantial justification for the regulation, order, or guidance;
(ii)
the methods selected to carry out that purpose --
(I)
are substantially equivalent to the requirements imposed on records that
are not electronic records; and
(II)
will not impose unreasonable costs on the acceptance and use of electronic
records; and
(iii)
the methods selected to carry out that purpose do not require, or accord
greater legal status or effect to, the implementation or application of
a specific technology specification for performing the functions of creating,
storing, generating, receiving, communicating, or authenticating electronic
records or electronic signatures.
Federal
and state agencies are also prohibited from reimposing any requirement that
a record be in a tangible printed form.
[39]See
discussion on this point in Part II C 2.
A state's ability to avoid the application of the strictures of section
104 on the state's rulemaking ability depends upon whether E-Sign's section
101 governs electronic transactions in the state or whether UETA displaces
E-Sign. As the limitations in section 104 are derivative of the application
of section 101, section 104 should not apply to a state if section 101 does
not apply.
[40]See
infra Part III C, Option 1.
[41]§102(a) The language authorizing the two approaches (UETA and companion statute) reads:
(a)
In General.‑‑A State statute, regulation, or other rule of law
may modify, limit, or supersede the provisions of section 101 with respect
to State law only if such statute, regulation, or rule of law‑‑
(1)
constitutes an enactment or adoption of the Uniform Electronic Transactions
Act as approved and recommended for enactment in all the States by the National
Conference of Commissioners on Uniform State Laws in 1999, except that any
exception to the scope such Act enacted by a State under section 3(b)(4)
of such Act shall be preempted to the extent such exception is inconsistent
with this title or title II, or would not be permitted under paragraph (2)(A)(ii)
of this subsection; or
(2)(A)
specifies the alternative procedures or requirements for the use or acceptance
(or both) of electronic records or electronic signatures to establish the
legal effect, validity, or enforceability of contracts or other records,
if‑‑
(i)
such alternative procedures or requirements are consistent with this title
and title II; and
(ii)
such alternative procedures or requirements do not require, or accord greater
legal status or effect to, the implementation or application of a specific
technology or technical specification for performing the functions of creating,
storing, generating, receiving, communicating, or authenticating electronic
records or electronic signatures; and
(B) if enacted or adopted after the date of the enactment of this Act, makes specific reference to this Act. E-Sign §102(a).
[42]See
146 Cong. Rec. S 5229 –5230 (daily ed., June 15, 2000) (statement of Sens.
Hollings, Wyden and Sarbanes) ("These choices for states are
not mutually exclusive.")
See
also 146 Cong. Rec. H4352-4353 (daily ed. June 14, 2000) (statement
of Cong. Bliley) ( “[S]ome states are enacting or adopting a strict, unamended
version of UETA as well as enacting of adopting a companion or separate
law that contains further provisions relating to the use or acceptance of
electronic signatures or electronic records. Under this Act, such action
by the State would prompt both subsection (a)(1) . . . and (a)(2).”)
[43]E-Sign’s
legislative history, however, is replete with statements about how E-Sign
provides consumer protections.
[44]146
Cong. Rec. S5229-5230 (daily ed. June 15, 2000) (statement of Sens. Hollings,
Wyden and Sarbanes).
[45]Patricia
Brumfield Fry, “A Preliminary Analysis of Federal and State Electronic
Commerce Laws UETA Online.” http://www.uetaonline.com/docs/pfry700.html Yet, it is hard to see how a state enactment of UETA which occurred
prior to E-Sign could displace E-Sign. See note 35, supra.
[46]Compare
E-Sign section 104 with UETA sections 12(f) and (g).
[47]
There may be other consumer protections that would be desirable in connection
with electronic signatures, including rules for loss allocation in the event
of theft or manipulation of the electronic signature.
These rules are beyond the scope of this article.
[48]See
Part IV, infra.
[49]The
one potential protection contained in UETA that would be lost under this
approach is UETA’s underlying requirement that all electronic notices—even
those not required by law to be in writing—be sent only after there is an
agreement to communicate electronically. However, UETA significantly undercuts this
protection by suggesting that the agreement can be inferred from circumstances
such as conduct. Unfortunately some
could argue that such conduct might be as simple as listing an email address
in a paper form contract. UETA §
5.
[50]
State laws on electronic records or signatures, not based on UETA should
be analyzed in the same manner as non-uniform UETAs.
[51]146
Cong. Rec. S5229-5230 (daily ed. June 15, 2000) (statement of Sens. Hollings,
Wyden and Sarbanes).
[52]H.R.
1714, 106th Cong., 1st Sess (1999).
[53]See
146 Cong. Rec. H4352-4353 (daily ed. June 14, 2000) (statement of Cong.
Bliley).
[54]
See supra parts III A and B.
[55]146
Cong. Rec. H4352-4353 (daily ed. June 14, 2000) (statement of Cong. Bliley).
[56]
In these states, since E-Sign is not subject to “reverse preemption” the
consumer protection provisions of section 101(c)(d) and (e) are fully applicable.
Also, unfortunately for the states, in those instances where there is a
conflict between E-Sign’s provisions and those in UETA, E-Sign’s preemption
should prevail. Thus, on the issue of whether the rule for record retention
is governed by UETA’s sections 12(f) and (g) or by E-Sign’s sections 101
and 104, E-Sign’s rules will apply.
[57]Barnett
Bank v. Nelson, 517 U.S. 25, 31 (1996).
[58]E-Sign
Section 102(a)(1) limits the states' authority if it passes the uniform
version of UETA: "except that any exception to the scope of such Act
enacted by a State under section 3(b)(4) of such Act shall be preempted
to the extent such exception is inconsistent with this title . . . ."
See supra Part III A.
[59]
See 146 Cong. Rec. H4352-4353 (daily ed. June 14, 2000) (statement
of Cong. Bliley) (“The conference report provides that if Federal or State
regulators possessed specific rulemaking authority under their organic statutes,
they could use that rulemaking authority to interpret section 101 subject
to strict conditions.”) (Emphasis added). See supra Part III A, in discussion regarding E-Sign § 104.
[60]Rice
v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).
[61]See,
e.g., California Fed. Sav. & Loan Ass’n v. Guerra, 479 U.S.
272, 281 (1987) (holding that the federal Pregnancy Discrimination Act did
not preempt California’s own, more protective, anti-discrimination statute
as employers could comply with both and Congress did not intend the federal
Act to be a ceiling on benefits).
[62]Id.
(quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
[63]Florida
Lime & Avocado Growers v. Paul, 373 U.S. 132 (1963) (holding that
the Federal Agricultural Marketing Agreement Act of 1937 did not preempt
California's stricter standards for avocados) (quoting Rice v. Santa
Fe Elevator Corp., 331 U.S. 218, 230 (1947)).
[64]See
146 Cong. Rec. S 5219-5222 (daily ed.. June 15, 2000) (statement of
Sen. McCain):
Thus,
a State enacting UETA may continue to prescribe specific delivery methods,
so long as there is an electronic alternative for any nonelectronic delivery
methods.
This leaves
the question of how the federal legislation will affect Federal delivery
requirements and State delivery requirements in non-UETA states. Because
our bill is silent on this question, and because repeal and preemption by
implication is disfavored, a court or agency interpreting the legislation
could reasonably conclude that these Federal and State delivery requirements
remain in full force and effect. Indeed, this interpretation is practically
compelled by the plain language of the legislative text. It does however,
have the potential to undermine one of our key legislative objectives –
that is, the elimination of unintended and unwarranted barriers to electronic
commerce. For this reason it will be tempting to discern in this legislation
some sort of plan to permit electronic delivery of information whenever
delivery is required by law, even when the law specifies a particular method
by which delivery must be made. Let me assure the courts and regulators
that have occasion to read these words that this legislator had no such
plan. (Emphasis added.)
[65]Patricia
Brumfield Fry, “A Preliminary Analysis of Federal and State Electronic
Commerce Laws UETA Online.” http://www.uetaonline.com/docs/pfry700.html Yet, it is hard to see how a state enactment of UETA which occurred
prior to E-Sign could displace E-Sign, (Id.), and the legislative
history of E-Sign also is to the contrary. See 146 Cong. Rec. H4352-4353 (daily
ed. June 14, 2000) (statement of Cong. Bliley).
[66]See
id.:
As stated
above, subsection (a)(2) is designed to cover any attempt except a strict
enactment or adoption of UETA (which would be covered by subsection (a)(1)),
by a State to escape Federal preemption by enacting or adopting specific
alternative procedures or requirements for the use or acceptance of electronic
signatures or records. . . Thus a regulation or other rule issued to implement
a State’s enactment or adoption of a clean UETA would fall under and be
tested against the standards contained in (a)(2) if it strays in any
manner from the strict, specific text of UETA, as reported and recommended
for enactment by NCCUSL. (Emphasis added.)
[67]
See supra Part III A.
[68]See
146 Cong. Rec. 4349-4350 (daily ed. June 14, 2000) (statement of Cong.
Markey):
In addition
this legislation also safeguards the consumer protection policies that have
historically served to adequately inform consumers of potentially life-changing
events or safety issues. The conference report wisely requires written notices
for any notice dealing with court orders and official court documents –
including legal briefs and court pleadings, any notice concerning the cancellation
of utility services such as water, heat or power service, for foreclosure
or eviction notices. It also would require the continuation of written notices
for the cancellation or termination of health insurance or benefits or life
insurance benefits.
[69]Uniform
Computer Information Transactions Act. For information about the difficulties UCITA
presents for consumers, see Jean Braucher, The Uniform Computer Information
Transactions Act (UCITA): Objections From The Consumer Perspective, slated
for publication in Vol 5. No. 6,
Cyberspace Lawyer (Sept. 2000), and posted at:
http://www.ftc.gov/bcp/workshops/warranty/comments/braucherjean.pdf
[70]At
one time, UETA and UCITA were parallel with respect to some issues other
than agreement, but UETA was improved somewhat for consumers before it was
adopted by NCCUSL, while those same improvements were not added to UCITA.
[71]UETA
§ 5.
[72]UCITA
§§ 105(d)(1) and (2).
[73]UETA
§ 15(g).
[74]UETA
§ 8(b).
[75]UETA
§ 8 (b)(1).
[76]E-Sign
§ 102(a)(2)(A)(i).
[77]E-Sign
§ 101(c)(1).
[78]E-Sign
§ 101(c)(1)(B).
[79]E-Sign
§ 101(c)(1)(C)(i).
[80]
A broad range of groups and industries oppose UCITA for other reasons, and
a state's consumers will be better off if it rejects UCITA in full.
See www.4cite.org/101docs/UCTA101.html, and http://www.nclc.org .
[81]Many
laws implicitly require notice to be provided in writing, but do not explicitly
require a writing. (See e.g. N.C.G.S. § 24-10.1) When these laws
were originally enacted there was no other viable way to provide the information
required in the notice. It is logical to assume that E-Sign’s requirements
will apply to all legally required notices. However, the question of whether
E-Sign's provisions will apply to state laws which implicitly, but not explicitly,
require that a notice be provided in writing will be left for the courts.
[82]An
even broader approach was used in the recently passed North Carolina legislation,
see: http://www.ncga.state.nc.us/html1999/bills/AllVersions/Senate/s1266v4.html.
Under
the new North Carolina statute, the consent requirement applies to all agreements
to conduct a transaction electronically whether or not written notices would
otherwise be required.
[83]
Although the consent rules of section 101(c) of E-Sign do not apply to contract
notices not required by law, use of a consent process less effective
than the one laid out in section 101(c) might be attached under other state
law as an unfair and deceptive practice if that practice significantly disadvantages
the consumer.
[84]E-Sign
§101(d) and (e).
[85]UETA
requires that the electronic record be “capable of retention” and disallows
the sender to “inhibit...the ability of the recipient to print or store
the electronic record.” UETA §8(a). UETA is silent
on the integrity of the electronic record after creation and during storage.
[86]UETA
requires that the electronic record be “capable of retention” and disallows
the sender to “inhibit...the ability of the recipient to print or store
the electronic record.” UETA §8(a). UETA is silent
on the integrity of the electronic record after creation and during storage.
[87]
E-Sign §103(b)(2).
[88]Due
to heavy pressure from industry, Congress also included a provision which
requires the Secretary of Commerce to review the operation of these exceptions
and “evaluate over a period of 3 years, whether such exceptions continue
to be necessary for the protection of consumers.” E-Sign
§ 103(c). Adding the exemptions to the state’s companion
act will protect a state’s consumers from future changes in the federal
exemptions. See supra Part I E.
[89]See
E-Sign § 106(1). "The term
"consumer" means an individual who obtains, through a transaction,
products or services which are used primarily for personal, family or household
purposes, . . .."
[90]
Some state courts have interpreted language identical to the federal language
on "goods and services" in state unfair and deceptive trade practice
statutes to exclude credit transactions from coverage.
The proposed language assures that this problem does not affect the
consumer protections in electronic transactions relating to credit.
See, e.g. Boubelik v. Liberty State Bank, 553 N.W.2d 393 (Minn.
1996); Barber v. National Bank of Alaska, 815 P.2d 857 (Alaska 1991);
Murphy v. Charlestown Savings Bank, 405 N.E.2d 954 (Mass. 1980),
Haeger v. Johnson, 548 P.2d 532 (Ore. App. 1976).
[91]UETA’s
proponents argue such a clause could be unconscionable if used to defeat
the exercise of a statutory right to cancel.
[92]E-Sign
§101(d)(3).
[93]146
Cong. Rec. S5229-5230 (daily ed. June 15, 2000) (statement of Sens. Hollings,
Wyden and Sarbanes).
[94]E-Sign
§101(d)(3).
[95]Comment
1 to UETA §15.
[96]Senate
Bill 1266, General Assembly of North Carolina, Session 1999, § 66-308.16(d),
http://www.ncga.state.nc.us/html/1999/bills/AllVersions/Senate/s1266v.html.
[97]Senate
Bill 1266, General Assembly of North Carolina, Session 1999, section 66-308.16(d),
[98]UETA
§16; E-Sign §201.
[99]If
read with extreme care, the definitions in E-Sign and UETA deprive a note
of the status of a transferable record if the technology by which the note
was transferred permits more than one apparently authoritative copy.
This is small consolation, however, to the consumer who has in good
faith paid the wrong party.
The
comments to the Uniform Electronic Transactions Act recognize that the purpose
of its transferable records section is to create a legal authorization to
permit electronic loan notes to earn holder in due course statues when the
technology surrounding the loan notes becomes sufficiently secure and sufficiently
resistant for tampering and copying to justify that status.
This proposed amendment tries to address that same goal without exposing
consumer borrowers to undue risk of multiple or erroneous claims from copied
or altered electronic loan notes.
The
comments to section 16 of the Uniform Electronic Transactions Act recognize
" the extreme difficulty of creating a unique electronic token which
embodies the singular attributes of a paper document or instrument ¼"
Academics and lawyers studying electronic loan notes reported to
the UETA drafters: "When information is stored in a digital
format, it becomes possible to make a virtually unlimited number of copies
that are virtually indistinguishable from the original electronic record
in every respect." Joint
Report to the UETA Drafting Committee on the UETA Provisions governing Transferable
Records. This report was prepared
by the American Bar Association Science and Technology Section, Electronic
Commerce Division, Committee on Electronic Commercial Payments, Working
Group on Negotiability and Electronic Commerce ABA Business Law Section,
Cyberspace Law Committee, Task Force on Transferability of Electronic Assets.
[100]Already
there is disagreement over whether a state’s non-uniform version of UETA
is entirely preempted by federal law – leaving E-Sign as the only law governing
electronic transactions in the state, or whether only the non-uniform provisions
of a state’s UETA are preempted, effectively converting a non-uniform UETA
into the very uniform UETA that legislature declined to enact.
[101]E-Sign
§101(b)(6).
[102]E-Sign
§101(3)(b)(2).
[103]E-Sign
§102(a)(1).
[104]See
146 Cong. Rec. S 5229 –5230 (daily ed. June 15, 2000) (statement of Sens.
Hollings, Wyden and Sarbanes):
State
and federal law requirements on delivering documents have not been addressed
in this Act. The underlying rules
on these issues still prevail. It
is our view that records provided electronically to consumers must be provided
in a manner that has the same expectation for the consumer's actual receipt
as was contemplated when the state law requirement for “provided” was passed.
[105]Already
there is disagreement over whether a state’s non-uniform version of UETA
is entirely preempted by federal law – leaving E-Sign as the only law governing
electronic transactions in the state, or whether only the non-uniform provisions
of a state’s UETA are preempted, effectively converting a non-uniform UETA
into the very uniform UETA that legislature declined to enact.