Imagine you’ve found your seat on the airplane ready to leave on vacation. Everyone gets settled and is awaiting takeoff, when suddenly the pilot announces that the flight crew found some issue with the plane and your flight is now delayed. Your initial reaction would probably be annoyance. However, if you think about what could have happened had the flight crew been lax in their preflight preparations, the delay wouldn’t seem like such a big deal. A small delay is much better than engine failure at 30,000 feet. Just like with airplanes, compliance with the Electronic Signatures in Global and National Commerce Act (E-SIGN) goes much more smoothly if you check for issues before takeoff. We’ve reviewed many institutions for E-SIGN compliance and have put together four common issues you’ll want to watch out for.
Issue #1: Believing you are exempt from E-SIGN requirements, because you do not require electronic signatures online.
Even if you don’t require electronic signatures online, it’s highly likely that you provide disclosures or other forms in an electronic format. If this is the case, you’re subject to the provisions of the E-SIGN Act.
Every institution has consumers who are pushing for faster processes and a reduction of transactions or disclosures in physical paper, and almost all institutions comply with this request in some manner. So if you think E-SIGN is old news or isn’t applicable to your institution, think again.
To solve this issue, your compliance officer should review all disclosures, forms, applications, and documents. If any are provided electronically (such as via email), you need to enforce E-SIGN compliance, specifically the section about disclosures.
Issue #2: Providing incorrect consent disclosures.
Providing accurate consent disclosures is not complicated, but strict adherence to the rules is important for ensuring your consumers’ consent is legally valid. The regulation states that institutions must provide a “clear and conspicuous statement informing the consumer:
- Of any right or option to have the record provided or made available on paper or in a non-electronic form… and whether any fee will be charged for that copy.
- Whether the consent applies only to the particular transaction…or to…categories of records that may be provided during the course of the parties’ relationship;
- Of the right to withdraw consent and the procedures the consumer must use to do so;
- Of the procedures consumer must use to update the information needed to contact the consumer electronically;
- Of the procedure for updating information needed to contact the consumer electronically;
- Of how the consumer may obtain a paper copy of the record upon request and whether a fee will be charged after consent; and
- Of the hardware and software requirements for access to and retention of the electronic information.
Issue #3: Charging high fees for paper copies.
We live in an era when everything is going digital. Electronic storage is more efficient than paper storage, which is expensive, easily misplaced, poses disposal difficulties, and takes up so much physical space. Nor do we need to mention (but we will) that fax machines are getting phased out and sending documents through the mail is costly and slow.
Just because you see paper storage as an archaic method of documentation, that doesn’t mean your consumers do. Many customers or members still want paper copies for their records. Although you can certainly encourage your consumers to receive statements and other documents electronically, it is not a best practice to charge high fees for consumers who do request paper versions in order to discourage them from this practice.
Issue #4: Applying E-SIGN requirements where they shouldn’t be applied.
Just because a document is in electronic format, doesn’t mean it automatically falls under E-SIGN requirements. E-SIGN does NOT apply to the following:
- Wills, codicils, or testamentary trusts
- Laws governing adoption, divorce, or other matters of family law
- All articles of the Uniform Commercial Code (except Section 1-107, Section 1-206 and Articles 2 and 2A)
- Court orders or notices, or official court documents required to be executed in connection with court proceedings
- Any notice of:
- Cancellation or termination of utility services
- 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
- Cancellation or termination of health insurance or benefits or life insurance benefits (excluding annuities)
- Recall of a product, or material failure of a product, that risks endangering health or safety
- Any document required to accompany any transportation or handling of hazardous materials, pesticides, or other toxic or dangerous materials
As you can see, resolving issues with E-SIGN compliance requirements is fairly straightforward, yet it still manages to trip up more than its fair share of institutions. But keep these common mistakes in mind, and you’ll avoid any in-flight E-SIGN compliance turbulence.