Law Offices of David J. Bartone
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Electronic Signatures

The Electronic Signatures Act and its Impact on Electronic Payment Processing


On June 30, 2000, President Clinton signed the  Electronic Signatures in Global and National Commerce Act (the “Electronic Signatures Act” or the “Act”).  The Electronic Signatures Act took effect on October 1, 2000.  The Act is designed to facilitate the use of electronic records and signatures in interstate or foreign commerce.  The Act affords electronic signatures and electronic documents legal status equivalent to that of traditional handwritten signatures and paper documents. 


The Act does not require that a person agree to use or accept electronic records or electronic signatures. Instead, it grants the freedom to individuals and businesses to choose whether they want to receive and execute documents electronically.  Among other things, the Act provides that if a statute or regulation requires that information relating to a transaction in interstate commerce be provided to a consumer in writing, the use of an electronic record to provide the information satisfies the "writing" requirement if the consumer consent requirements of the Electronic Signatures Act are met.


The Electronic Signatures Act has had, and will continue to have, a substantial impact on the credit card processing industry given the explosion of e-commerce and the use of credit cards in e-commerce.


Most businesses can take advantage of the law since the Act applies to "any transaction in or affecting interstate or foreign commerce."  It should be noted, however, that ink and paper are still required:  for the creation and execution of wills, codicils and testamentary trusts; to adopt, divorce or resolve other matters of family law; to provide notice of cancellation or termination of utility services or the default, acceleration, repossession, foreclosure or eviction under a credit agreement secured by the primary residence of an individual; the cancellation or termination of health or life insurance benefits; the recall of a product or notification of a failure of a product; and any document required to accompany the transportation of handling of hazardous or other dangerous materials.


The Act contains complex provisions which govern its application to consumer transactions.  Perhaps the most significant benefit of the Act is in connection with document retention.  According to the new legislation, a business can comply with statutory and regulatory retention requirements by storing the record or contract electronically. With respect to this latter point, businesses are still required to retain their records for the period required by statute.  The Act does permit federal and state regulatory agencies to still require the retention of paper documents.


Since the Electronic Signatures Act was signed into law, numerous states have adopted the Uniform Electronics Transactions Act (“UETA”).  Like the Electronic Signatures Act, the UETA provides that a record or signature may not be denied legal effect or enforceability solely because it is in an electronic form.  However, the Electronic Signatures Act contains more restrictions on the use of electronic signatures and electronic documents.  While the two statutes both regulate the same area, the Electronic Signatures Act generally will control to the extent there is a conflict between the federal and state laws.


The Electronic Signature Act seems to make good sense.  A legal signature is the mark of a specific individual against a specific document at a specific time given with specific intent.  The act of providing a signature is a ceremonial process. It has been part of our culture for hundreds of years.  The ceremony is important in demonstrating the signatory’s legal undertaking of a particular action.


In general terms, where the law requires a signature, an e-signature satisfies the requirement, with the exception of execution of the various documents identified above.  A computer record can be considered “hearsay” by some courts, including federal courts.  If the record is considered hearsay, then the party seeking to introduce the record must make the record fall within an exception to the hearsay rule.  Computer records are usually admitted into evidence under the business records exception to the hearsay rule.

An authenticity foundation must also be laid by the party producing the record as evidence.  The key step to laying a foundation is authenticating the record. Authenticating an electronic computer record is no different than authenticating other records. Authenticating a record means evidence sufficient to support a finding that the matter in question is what its proponent claims.  The other party in court would challenge the authenticity of computer records on one of three general grounds by challenging: (1) the storing and retention of the stored records, and whether they were changed, manipulated, or damaged after they were created; (2) the reliability of the computer program that stores and generates the computer records with particular regard to whether the system is reliable and whether it has flaws, programming errors or bugs; and, (3) the identity of the author, which requires an indicia of proof that the computer records really are connected to a particular person. 


The benefits conferred upon the credit card processing industry and commercial and non-commercial entities engaged in e-commerce as a result of the implementation of electronic signatures is substantial.  Electronic signatures can offer greater security, reliability and transparency in credit card processing by minimizing the risk of dealing with fraud, or persons who attempt to escape responsibility by claiming to have been impersonated.  Electronic signatures can satisfy the need of message integrity by preventing unauthorized access to data, detecting any message tampering and diminishing the danger of false claims that data was changed after it was sent.  Therefore open network systems can be made more efficient with data interchanges among businesses and cost-effective and safe information gathering respecting a consumer’s right of online privacy.  In addition, when an “e-contract” in credit card processing is electronically signed, the formal legal requirements (writing, originality of signature and of document) are satisfied, since digital signatures are functionally equivalent to paper forms.