By ALEX JACKS
In a world where technology has become the number one component in running a business, the popularity of electronic signatures has continued to develop. Despite the ease an electronic signature can bring to any industry, business owners must be aware of the regulations and implications that come with the technology.
An electronic signature ranges from a variety of formats, including an electronic sound, a symbol or a process, said Craig Nazzaro, a Baker Donelson attorney who advises lenders and servicers on all regulatory and compliance issues that impact the consumer lending industry.
“The definition of an electronic signature is really broad,” he said. “Checking a box can be a signature — putting your initials or verbally agreeing if your electronic source has the ability to record. All of those methods can be defined as an electronic signature under E-SIGN.”
The Electronic Signatures in Global and National Commerce Act or E-SIGN is the federal regulation of electronic signatures. There are several other regulatory laws pertaining to electronic signatures businesses must be aware of prior to implementing the technology.
“The federal regulation basically lays out the structure of an electronic signature and what’s required to use one,” Nazzaro said. “E-SIGN provides the definition of an electronic signature. When E-SIGN was put into place on a federal level, you began to see state laws popping up that controlled how electronic signatures would be treated on a state-by-state basis.”
In order to create a more uniform definition and regulations of electronic signatures, the federal government passed the Uniform Electronic Transactions Act or UETA.
“This allowed states to adopt a uniform model and be in compliance with E-SIGN in order to work in harmony,” Nazzaro said. “There are three states that did not adopt the model, which presents a tricky issue depending on what type of signature a business is promoting. Mississippi did adopt UETA, making it uniform with the federal act.”
In addition to E-SIGN, UETA and certain state specifications, businesses using electronic signatures are governed by other regulations put in place by the IRS and Uniform Commercial Code, he said.
“It is not straightforward,” Nazzaro said. “There are multiple regulations out there that are enforced by multiple regulators. Electronic signature regulations can also be more industry specific.”
In Mississippi, unless a different regulation calls for a particular process to have a wet ink signature, an electronic signature will be enforceable per E-SIGN, he said.
When dealing with electronic signatures, there are three components businesses should be aware of — agreement, attribution and transferable records.
“To enforce an electronic signature, you have to look and see if there was an agreement between the parties to use an electronic signature and if there was a process in place that can give attribution to the person you said executed it,” Nazzaro said.
“You have to have procedures in place that define or reasonably showcase that the person was in fact using that computer or that the person had an idea of what they were entering into when they checked that box,” he continued. “You have different levels of how you can prove those two measures.”
When dealing with the agreement portion of an electronic signature in the financial services industry, Nazzaro said he likes to have measures in place that show a borrower agreed to use an electronic signature.
“Instead of having a box to click to proceed, I would want a dialogue box to pop up on the device that they’re using,” he said. “The dialogue box may say, ‘By moving forward, you are agreeing that this signature will be in full force and effect of a wet ink signature and you are agreeing to the transaction in a digital format.’ If you actually state that, it’s easier to argue that there was an agreement between two parties that the signature will have full force and effect.”
When considering the attribution side of an electronic signature in the financial services industry, Nazzaro likes to use dual controls such as sending an email or pin number to a separate source.
“Maybe a borrower is at the point of sale terminal and we have their phone number — I like to have a call set up where we give them a code and then they have to put the code into the device,” he said. “That serves as a dual verification that it was the person. You want to use something that can tie back to the person, like a Social Security number.”
Transferable records pertain to the regulations put in place that can trace the electronic signature back to the original transaction or document, Nazzaro said.
“When you are talking about an electronic signature, you’re going to have to have policies and procedures around what controls an original signature,” he said. “Is there enough security around your original document that it can’t be copied? You want it to marked in a way that show this is the original.”
In many instances across industries, businesses will use a third party vendor to implement the electronic signature process, Nazzaro said.
“This is a good source, but it still does not mean you can give up the responsibility of monitoring your businesses electronic signature process,” he said. “You have to do due diligence and put oversight over the vendor, where you have the ability to prove yourself if a borrower contests the signature.”
Electronic signatures can be seen across every industry, Nazzaro said. The feature has become popular in human resources, retail and financial services, just to name a few.
“Electronic signatures are pretty much utilized in any situation where a signature is necessary,” he said. “The have become more mainstream due to the ease. For example, you go to a department store and you want to fill out an application for a credit card. You don’t want the sales person to give you a mound of paperwork. It’s easier to sign and agree to the terms on the terminal. Electronic signatures are a lot more efficient, quicker for the borrower and easier for the business in the end, lending to their popularity.”
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