Panel says too early to judge effectiveness of E-SIGN's consumer consent provisions

WASHINGTON-A panel of industry officials told the Financial Services Subcommittee on Domestic Monetary Policy, Technology, and Economic Growth that the jury is still out as to whether the consumer consent clauses in the Electronic Signatures in Global and National Commerce Act (E-SIGN) are overly burdensome to industry. Most of the panelists noted that because the act permitted a great deal of flexibility, many in financial services are going slowly in implementation to assure e-commerce is as efficient as possible under the law. “This flexibility, which will be very important to facilitating market innovation over the long run, has the short run disadvantage of not providing specific governmental guidance regarding appropriate electronic business procedures,” Attorney Jeremiah Buckley of Goodwin Proctor, on behalf of the Electronic Financial Services Council, explained. “[T]he fact that large scale implementation of E-SIGN has not yet occurred should not be read as a lack of enthusiasm for the statute or a waning of industry interest in electronic commerce,” he further clarified. “Rather, the deliberate pace reflects the determination of many responsible members of the financial services industry to act thoughtfully and to roll out e-commerce applications that are well designed and well implemented.” The Federal Trade Commission (FTC), in conjunction with the Department of Commerce, was charged by Congress in the law to study the situation. The FTC’s study reaffirmed Buckley’s and others remarks, according to Eileen Harrington, associate director for marketing practices in the FTC’s Bureau of Consumer Protection. “Although a number of e-commerce businesses, principally in the financial services industry, have implemented the procedures.there was consensus among participants and commenters that insufficient time has passed since the law took effect to: (a) allow consumers of businesses to experience the full effect of the provision; (b) develop sufficient empirical data to evaluate quantitatively whether the benefits outweigh the burdens; or (c) determine whether the absence of procedures required by the consumer consent provision would lead to an increase in deception and fraud against consumers,” she said. “Almost all participants in the study recommended that, for the foreseeable future, implementation issues should be worked out in the market place and through state and federal regulations and that it is simply too soon to make any changes to the legislative scheme,” the FTC found. Most panelists said that the effectiveness and usefulness of E-SIGN lies with the interpretation. Thomas Crocker, partner in Alston and Bird, LLP, which has represented many affected companies, said the law interpreted in its most broad form could be “workable.” If not, it will serve as a straightjacket because it would require a company to communicate with a customer through just one medium. However, he added, “Throughout the congressional debate on the E-SIGN Act there was wide support by industry for reasonable consumer protection provisions. However, as is well known, the act as signed into law contains consumer consent provisions that go beyond those that exist in the paper world.” All the panelists commended Congress for passing the E-SIGN bill, many specifically for the practicality of the law. “[B]y preempting inconsistent state laws, E-SIGN enables businesses to offer electronic services and products to their customers on a nationwide basis without having to worry whether their contracts and relationships will be legally recognized and enforced,” ABN AMRO North America, Inc. Executive Vice President Louis Rosenthal, representing the Financial Services Roundtable and BITS, said. “Uniformity and consistency were-and remain-the most important ingredients to providing industry with the legal certainty that it needs to conduct e-business on a national and global scale. These touchstones-uniformity, consistency, legal certainty-are important measures by which the success or failure of the E-SIGN ACT will appropriately be judged,” Crocker said. While uniformity is improving within the United States, the global situation needs to be further studied, Rosenthal indicated. The key problem panelists saw with E-SIGN is definitions they feel are overly restrictive, particularly in the consumer protection clauses. For instance, many said that the clause requiring consumers to “reasonably demonstrate” their ability to receive information and disclosures electronically by sending an e-mail, was a very narrow definition and would add another step to the transaction process if initiated on paper. Some said, if the customer provides an e-mail address to the company that should be sufficient proof of their ability to retrieve e-mails. Margot Saunders, managing attorney at the National Consumer Law Center, representing several consumers groups, said the electronic proof of a customer’s ability to receive electronic data is imperative so they will not be “tricked” into signing up for e-disclosures when they can not access them. She said electronic consent ensures the consumer has reasonable access to a computer and the Internet and that they can access the necessary information and ensures the consumer has the necessary software to read the electronic mail. Additionally, Crocker said the “material risk” provision regarding software updates and the consumers’ ability to read the new format was overly vague. But, outweighing the costs discovered thus far with E-SIGN are the dollar signs in the eyes of the financial services industry. “My company.believes annual savings of millions of dollars can be achieved if consumers sign policy applications and receive coverage notices online,” Fireman’s Fund Insurance Companies Vice President Christopher Roe said on behalf of the American Insurance Association. Use of e-commerce jumped to $7 billion for the first quarter of 2001, according to the U.S. Census Bureau, quoted in the FTC report, up 33.5%. Still, this accounts for less than 1% of all retail sales. [email protected]