ELECTRONIC SIGNATURES TODAY

The boundless potential of electronic signatures has caught the attention of businesses and governments around the world. Consequently, American Notaries have been barraged with information as lawmakers, technology firms and businesses scrambled to incorporate e-signatures into their activities.

Despite the enthusiasm, pioneering state and federal laws and a plethora of newly developed technologies, the public hesitates to fully accept electronic signatures. Only a handful of pilot programs and simple systems are currently in use. The framework for nationwide use of electronic signatures has been set up, but what’s missing is a leader to step forward and set a standard for everyone.

“I think there is an awful lot of room for leadership,” said Texas lawyer and electronic signature expert Benjamin Wright, founding author of the book “The Law of Electronic Signatures.” “A large portion of the leadership up to this date has not been good. Organizations with complex visions for this technology have been misguided. Absolute simplicity is a key to setting this standard.”

“It’s like credit cards,” said Tom Greco, general counsel for Digital Signature Trust, a certification authority based in Salt Lake City, Utah. “In the early days of credit cards, individual banks would issue cards. They had utility, but you couldn’t take a Nordstrom card to get gas at an Exxon station. That’s where we are now with electronic signatures. But when Visa came out with their card, you could use it with any participant in Visa’s network. So there were 20 to 30 kinds of credit cards at first, and now we only have a few that can be used in many places.”

 The States and Electronic Signatures

The last few years saw an explosion in legislative activities as numerous states rushed to enact laws authorizing the use of electronic signatures. But in many cases the laws had little effect other than to declare electronic signatures legal. Few lawmakers understand the different forms of technology available to affix and verify an electronic signature, and they have been reluctant to enact laws endorsing any one type of technology, fearing it would be rendered obsolete.

The state of Utah, a pioneer in promoting electronic signature usage, bucked this trend by passing detailed legislation in the late 1990s to set guidelines for their use. Utah endorsed the use of Public Key Infrastructure technology, or PKI, which uses complementary “keys” to affix, encrypt and read digital signatures on electronic documents. Nonetheless, public reaction to digital signatures has been lukewarm, said Utah Notary Administrator Fran Fish, the first individual in the state authorized to perform notarizations using a digital signature.

“What we’re finding is that John Q. Public is a little hesitant to use digital signatures,” she said. “The technology is there; there are a lot of pilot programs that have proven it works and is secure, but they haven’t made it happen. There have been some questions from Notaries, but no one is rushing into our office to see what they can do.”

Fish thinks ordinary citizens could be reluctant to use digital signatures because of the time and effort needed to obtain them. “Costs are a factor as well as the hassle of going to apply and get one,” she said. “They are not that expensive; they can be as cheap as $10 or as much as $100, but they are only good for a certain duration.”

Washington, another state that has encouraged the development of electronic signature technology, also reports slow progress. “As far as widespread use goes, we’ve yet to get there. I think it’s more a trust issue than anything else,” said Scott Bream, PKI program manager with the Department of Information Services in Olympia. “From a business manager’s standpoint, they are looking at the risk of having an electronic document called into question. Once we obtain a critical mass of people using electronic signatures, it would prove and validate the value of this technology.”

One reason signature technology adoption is moving slowly is realization by businesses that one type of signature technology may not be appropriate for signing all documents, said Marc Slager, an attorney with Florida’s State Technology Office in Tallahassee. Initially, many groups were looking for a “one-size fits all” technology for signing electronic documents, but today the focus is tailoring a system to fit individual needs, Slager said.

While a government agency or business might need a sophisticated security system for certain functions, simpler methods might be used for signing less important electronic documents. For example, signing an application for a driver’s license is very different from a library card, he said.

“It’s not always necessary to use something as complex as PKI to do a low-risk transaction,” Slager said. “When we get calls from agencies that are thinking of doing this, we try to steer them away from picking their signature technology first. Once you’ve taken a good hard look at what you’re doing, you can decide what technological assurances you need.”

More education is needed to promote understanding of electronic signatures and their applications, Slager added. “We do lots of e-signatures,” he said. “People who buy books on Amazon.com probably don’t think they are doing a transaction with an electronic signature, but they are. We need to make more people comfortable with doing things electronically.”

The Federal Government’s Role: E-Sign and UETA

In June 2000, the U.S. government’s support of e-signature technology became official with the enactment of the Electronic Signatures in Global and National Commerce Act. Commonly known as E-Sign, the act provides nationwide authorization for the use of electronic signatures and notarizations. In fact, when President Clinton signed the law into effect last year, he did so twice, once with a traditional handwritten signature and once electronically using a special “smart card” containing information read with an electronic device.

However, like many of the state laws that preceded it, E-Sign is technology neutral, meaning it endorsed the use of electronic signatures in commerce but did not arrange specific guidelines regarding technologies needed to make them work. Instead, both parties involved in a transaction must agree upon the technology and security required to sign a document electronically.

A companion piece of legislation to E-Sign is the Uniform Electronic Transactions Act (UETA), a set of model laws designed to provide standards for each state regarding the use and acceptance of electronic signatures. Furthermore, both E-Sign and UETA authorize Notaries to electronically notarize signatures on paperless documents, although UETA is also technology neutral and, like E-Sign, does not provide specific details how Notaries proceed.

More than 20 states have adopted versions of the act with minor variations. E-Sign is designed to complement UETA, which has proven popular with legislators. States that have enacted versions of UETA are considered in compliance with the federal law. In effect, E-sign provides a standard for those states that have not adopted UETA.

However, E-Sign and UETA leave many unresolved questions about the use of electronic signatures in business transactions, said Winchel “Todd” Vincent III, an attorney and technology researcher at Georgia State University’s College of Law.

“If you dig down a bit, we’re worse off now than we were two years ago,” Vincent said. “You have to go through layers of legal analysis to figure out what laws apply. Does the federal statute apply? Is state law preempted by E-Sign or not? If the state has adopted UETA, does that state’s version of UETA apply?”

Vincent cited action taken by lawmakers in his own state. “Instead of adopting UETA, Georgia adopted an amendment saying ‘We deem our records and electronic signatures act is in conformity with federal law and should not be pre-empted.’ They didn’t change or adopt UETA—they just said they are compatible with it.”

Vincent thinks a legal dispute may be the next step in clarifying electronic signature law. “I think the next significant thing will be a court case,” he said. “But I don’t know when it will happen.”

However, Vincent said E-Sign has had a positive effect in reinforcing the legitimacy of electronic signatures in the public’s minds. Because the law gives electronically signed documents the same legal weight as traditional paper documents, more people are willing to experiment with e-signatures. “I don’t think we’re any better off legally, but since people feel better about using electronic signatures, maybe we are,” he said.

The new laws may have prompted more businesses to try out e-signatures, experts say.

“E-Sign has awakened greater interest in electronic signatures and encouraged activity,” Wright said. “I think it’s excellent. Some skeptics say it doesn’t answer all the questions, but I would say our old laws didn’t answer every question about paper and ink signatures.”

Electronic Signatures in the Business World

People may not realize it, but simple versions of electronic signatures are in use for many day-to-day business activities, Wright said. Purchasing a product over the Internet, running a credit card through a reader at the supermarket, or signing an electronic pad for a UPS delivery are all forms of electronic signatures. “It’s part of American culture, and no one thinks about it,” Wright said. “The public has not had a problem with that kind of simple technology.”

At the same time, businesses have been slow to incorporate electronic signatures for high-finance transactions such as mortgages and loans. Prior to the passage of E-Sign and UETA, many companies were interested in finding technology that would provide tamper-proof electronic signatures on documents. That focus has changed, Wright said.

“I would say that we are coming to understand better that the role of the signature is not security,” Wright said. Instead of trying to find a tamper-proof electronic signature technology, security can be provided through other methods other than the actual technology, such as signing and having the signature acknowledged in the presence of a Notary, he said.

“I think Notaries are a powerful form of authentication, and I think this is something that has been missed,” Wright said. “The initial emphasis with electronic signatures was to give signing and authentication power to signers and let them figure it out. The idea of eliminating Notaries from the process was a big shortcoming of this vision.”

Today, businesses are looking for simple, easy-to-understand systems, and evaluating security needs on a case-by-case basis, Wright said. “A signature is not a form of security. The main purpose is for the electronic signature to convey understanding and assent to a document.”

Officials at Lockheed Martin Information Systems in Orlando, Florida recently adopted an electronic signature system for letters and other documents sent to their government clients. “Speed is the biggest benefit,” said Scott Cunningham, director of contracts for Lockheed Martin Information Systems. “To prepare a simple letter containing a business commitment of some sort, the manual process would take no less then 48 hours to draft, review and send to persons authorized to sign. We’ve cut that to three or four hours with electronic signatures.”

Though the system used to sign documents requires entering an ID number, Cunningham says simplicity and ease of use were a higher priority than security in developing the system. “We decided security was less important,” he said. “There are many checks and balances, and both sides in a transaction are careful. But it didn’t seem we were in an environment where fraud could occur that we couldn’t discover.”

However participants in Lockheed Martin’s e-signature process are all known to each other. The system probably is impractical between strangers, spokesperson Mike Mulleavey said.

“One difference for us was our relationship with our customers,” Mulleavey said. “We have knowledge of each of the players involved in this system, so there is less chance of fraud. The level of trust and ease of verification is not the same as a typical consumer transaction.”

Though security remains important, other companies may be following Lockheed Martin’s example in prioritizing ease of use.

“People are concentrating more now on the applications than the signature technology,” said Vincent. “When people were first talking about things like PKI, they were focusing on technology, not how it would be used. Now the application comes first, and then security becomes important afterwards. In an electronic court filing project I’m working on in Georgia, the court clerk is a soccer mom who’s not into technology. She’s not concerned about encryption or sophisticated security—she wants something she can place on her document that she’s comfortable with.”

The Future of Electronic Signatures

Although significant steps have been taken in the development of electronic signatures on both legal and technical fronts, handwritten signatures remain dominant in the business world. While the financial and real estate industries have been looking hard at adopting digital signatures for high-level transactions, use remains limited to a few pilot programs.

What can bring electronic signatures into the mainstream?

“You’re more likely to get access if you can use electronic signatures at a lot of places,” said Greco of Digital Signature Trust. “We’re trying to build that kind of common framework.”

“What’s missing is support,” Bream said. “If a large company or commercial organization starts using [electronic signatures], the tools will be put in the hands of people. Once there is more acceptance by the public, it would prove and validate the value of this technology.”

Other countries are already arranging infrastructures to accept electronic signatures, said Kenneth Bob, CEO of Safewww, Inc., an authentication technology firm in Uniondale, New York.

“China is very interested in reducing fraud and planning ahead,” Bob said. “They’ve set up regional authentication centers for provinces and cities. They’re not widely used yet, but because e-commerce is less developed there, they want to make sure fraud doesn’t increase.”

No one in the United States has taken the definitive lead in promoting electronic signatures, but Greco said there are a number of regions in the business world with potential to set standards. “The government, many Fortune 500 companies, and the financial services sector are moving quickly in the forefront,” he said. “It’s really hard to speculate when we’ll see mainstream acceptance, but I think within 12 to 16 months. I certainly don’t think it will take more than five years. In the end, this technology will be set by the folks who are willing to use it.”

Problematic State E-Signature Laws

In the past few years, nearly every state rushed to enact some type of statute authorizing the use of electronic signatures. But mainly because of state lawmakers’ poor grasp of the still-evolving electronic signature technologies, few laws provide clear guidelines to prevent misuse of such signatures.

Some states even added regulations that could encourage abuse. In recent years, at least four states removed traditional Notary Public safeguards from their electronic signature laws:

•            Arizona’s Notary laws were amended (Ariz. Rev. Stat. Ann. Section 41-356) to allow so-called notarization of an electronic document without a Notary’s presence as long as the signer uses a “Notary Service Electronic Certificate” issued by a Notary, which “include(s) the agreement of the signer to use the certificate for signing an electronic document with notarial intent.”

•            Minnesota enacted the “Electronic Authentication Act” (Minn. Stat. Ann. Section 325K.23), stating a valid digital signature affixed with a certificate issued by a licensed authority satisfies the requirements of an acknowledgment, even if no notarial wording is provided and the signer does not personally appear before a Notary.  Missouri law (RSMo 28.666) states a certificate issued by a licensed certification authority is considered an acknowledgment of a digital signature, “regardless of whether words of an express acknowledgment appear with the digital signature or whether the signer physically appeared before the certification authority when the digital signature was created” provided the signature is verifiable by that certificate and was affixed while the certificate was valid.

•            Nevada enacted a similar law to Minnesota’s (Nev. Admin. Code. Ch. 720 Section 770), which states a digital signature is verifiable with a valid public key issued by a certification authority satisfies the requirement for an acknowledgment without personal appearance before a Notary. However, the document must indicate that the digital signature is being used as an acknowledgment and the certification authority that issued the digital signature can be held liable in the same way as a Notary.

 In each of these cases, the states removed requirements that the signer personally appear before a Notary when having a digital signature acknowledged. Instead, the signer simply needs to have created a valid digital signature that can be verified by a certification authority.

However, there are a number of ways a digital certificate may be misused to create a fraudulent digital signature, such as access to the certificate by an unauthorized person, coercion of the certificate’s lawful owner, or issuance of a certificate to an impostor. An instance of this third type of exploitation occurred earlier this year when prominent certification authority VeriSign issued digital certificates to impostors posing as Microsoft employees.

The National Notary Association is strongly opposed to removing the requirement that signers personally appear before a Notary from the electronic notarization process.

“For each electronic signing that is called—or equated—to ‘notarization,’ the signer must appear in person before a Notary Public to affix or acknowledge the signature,” the NNA’s paper A Position on Digital Signature Laws and Notarization states. “Just as it would be improper to allow the signer of a paper document to visit a Notary once and then to regard each signature subsequently affixed . . . as ‘notarized,’ so it should be improper to let an applicant for a digital certificate visit a Notary a single time and then use a digital signature without limit on electronic instruments that are thereby regarded as notarized.” To read A Position on Digital Signature Laws and Notarization, visit the NNA’s Web site at www.nationalnotary.org and click on “NNA Presentations Database.”

Electronic Notarization and The Model Notary Act

Many Notaries saw last year’s enactment of the Electronic Signatures in Global and National Commerce Act (E-Sign) as a double-edged sword.

E-Sign opened up boundless opportunities for commerce, but the question of how Notaries would carry out their duties—or even if they would have a role—needed answering.

Lawmakers and Notaries may be enlightened by Article III of the new Model Notary Act, a revision of the 1984 model now being finalized. The MNA is model legislation for use by state lawmakers. It encompasses all important facets of regulating Notaries and executing notarial acts, addressing issues not often covered in existing notarial statutes.

Adopting basic definitions from the Uniform Electronic Transactions Act, the MNA’s Article III sets parameters for electronic notarizations that are technology neutral and adaptable to any mechanism for creating electronic signatures.

State legislatures should establish standards for electronic notarization before the issue becomes an emergency, and Article III should be used as a starting point, said Nevada Attorney General Frankie Sue Del Papa, a member of the Model Notary Act Revision Committee.

“This model act addresses most, if not all, the issues that need to be addressed in determining how to accomplish notarizations in the computer age,” Del Papa said. “It will be critical in electronic commerce that notarization be uniform throughout the country. Legislation is needed to guarantee that uniformity.”

According to Article III, certain notarial principles transcend the pen-and-paper medium and still apply in the electronic world. An electronic notarization still requires the presence of the signer, and the signer must be personally known to the Notary or identified through satisfactory evidence. Also, the signer must be aware of the significance of the signing, and in the Notary’s judgment not being threatened, intimidated or otherwise pressured into acting against his or her will.

Under the new Model Notary Act, electronic Notaries are not commissioned because as regular Notaries, they have already been given power to notarize electronically by the new federal E-sign law.

Rather, the electronic Notary must register with a state official his or her particular capability to perform electronic notarial acts.

The electronic Notary is required to take an eight-hour course of instruction on electronic notarial duties and pass an exam based on the course.

Under the new act, both traditional and electronic Notaries may keep an electronic journal.

The electronic journal, defined as an electronic device for creating and preserving a chronological record of notarizations, remains under the direct and exclusive control of the Notary. The journal must have the capability of capturing and storing signatures and fingerprints, just like a paper journal.

Notaries have expressed concern about the security of electronic data. One of the most important provisions of the new Model Notary Act requires the electronic Notary to retain an electronic copy of any notarized electronic document if it was not signed using a technology, such as PKI, that allows the document to be “locked up” and immune from tampering during its transmission to an intended recipient.

 This article was originally published in the November 2001 issue of The National Notary, a publication of the National Notary Association, 9350 De Soto Avenue, Chatsworth, CAm 91311-4926 and reprinted with permission. Contact the NNA at (800)876-6827 or online at www.nationalnotary.org.

PROBLEMATIC STATE E-SIGNATURE LAWS

In the past few years, nearly every state rushed to enact some type of statute authorizing the use of electronic signatures. But mainly because of state lawmakers’ poor grasp of the still-evolving electronic signature technologies, few laws provide clear guidelines to prevent misuse of such signatures.

Some states even added regulations that cold encourage abuse. In recent years, at least four states removed traditional Notary Public safeguards from their electronic signature laws.

Arizona’s Notary laws were amended (Ariz. Rev. Stat. Ann. Section 41-356) to allow so-called notarization of an electronic document without a Notary’s presence as long as the signer uses a “Notary Service Electronic Certificate” issued by a Notary, which “include[s] the agreement of the signer to use the certificate for signing an electronic document with notarial intent.”

Minnesota enacted the “Electronic Authentication Act” (Minn. Stat. Ann. Section 325H.23), stating a valid digital signature affixed with a certificate issued by a licensed authority satisfies the requirements of an acknowledgment, even if no notarial wording is provided and the signer does not personally appear before a Notary.

Missouri law (ASMo 28.666) states a certificate issued by a licensed certification authority is considered an acknowledgment of a digital signature, “regardless of whether words of an express acknowledgment appear with the digital signature or whether the signer physically appeared before the certification authority when the digital signature was created” provided the signature is verifiable by that certificate and was affixed while the certificate was valid.

Nevada enacted a similar law to Minnesota’s (Nev. Admin. Code Ch. 720 Section 770), which states a digital signature is verifiable with a valid public key issued by a certification authority satisfies the requirement for an acknowledgment without personal appearance before a Notary. However, the document must indicate that the digital signature is being used as an acknowledgment and the certification authority that issued the digital signature can be held liable in the same ways as a Notary.

In each of these cases, the states removed requirements that the signer personally appear before a Notary when having a digital signature acknowledged. Instead, the signer simply needs to have created a valid digital signature that can be verified by a certification authority.

However, there are a number of ways a digital certificate may be misused to create a fraudulent digital signature, such as access to the certificate by an unauthorized person, coercion of the certificate’s lawful owner, or issuance of a certificate to an imposter. An instance of this third type of exploitation occurred earlier this year when a prominent certification authority VeriSign issued digital certificates to imposters posing as Microsoft employees.

The National Notary Association is strongly opposed to removing the requirement that signers personally appear before a Notary from the electronic notarization process.

“For each electronic signing that is called – or equated – to ‘notarization,’ the signer must appear in person before a Notary Public to affix or acknowledge the signature,”  the NNA’s paper A Position on Digital Signature Laws and Notarization states. “Just as it would be improper to allow the signer of a paper document to visit a Notary once and then to regard each signature subsequently affixed . . . as ‘notarized,’ so it should be improper to allow the signer of a paper document to visit a Notary once and then use a digital signature without limit on electronic instruments that are thereby regarded as notarized.”  To read A Position on Digital Signature Laws and Notarization, visit the NNA’s web site at www.nationalnotary.org and click on “NNA Presentations Database.”

ELECTRONIC NOTARIZATION AND THE MODEL NOTARY ACT

Many Notaries saw last year’s enactment of the Electronic Signatures in Global and National Commerce Act [E-Sign] as a double-edged sword.

E-Sign opened up boundless opportunities for commerce, but the question of how Notaries would carry out their duties – or even if they would have a role – needed answering.

Lawmakers and Notaries may be enlightened by Article III of the new Model Notary Act, a revision of the 1984 model now being finalized. The MNA is  model legislation for use by state lawmakers. It encompasses all important facets of regulating Notaries and executing notarial acts, addressing issues not often covered in existing notarial statutes.

Adopting basic definitions from the Uniform Electronic Transactions Act, the MNA’s Article III sets parameters for electronic notarizations that are technology neutral and adaptable to any mechanism for creating electronic signatures.

State legislatures should establish standards for electronic notarization before the issue becomes an emergency, and Article III should be used as a starting point, said Nevada Attorney General Frankie Sue Del Papa, a member of the Model Notary Act Revision Committee.

“This model act addresses most, if not all, the issues that need to be addressed in determining how to accomplish notarizations in the computer age,” Del Papa said. “It will be critical in electronic commerce that notarization be uniform throughout the country. Legislation is needed to guarantee that uniformity.”

According to Article III, certain notarial principles transcend the pen-and-paper medium and still apply in the electronic world. An electronic notarization still requires the presence of the signer, and the signer must be personally known to the Notary or identified through satisfactory evidence. Also, the signer must be aware of the significance of the signing, and in the Notary’s judgment not being threatened, intimidated or otherwise pressured into acting against his or her will.

Under the new Model Notary Act, electronic Notaries are not commissioned because as regular Notaries, they have already been given power to notarize electronically by the new federal E-sign law.

Rather, the electronic Notary must register with a state official his or her particular capability to perform electronic notarial acts.

The electronic Notary is required to take an eight-hour course of instruction on electronic notarial duties and pass and exam based on the course.

Under the new act, both traditional and electronic Notaries may keep an electronic journal.

The electronic journal, defined as an electronic device for creating and preserving a chronological record of notarizations, remains under the direct and exclusive control of the Notary. The journal must have the capability of capturing and storing signatures and fingerprints, just like a paper journal.

Notaries have expressed concern about the security of electronic data. One of the most important provisions of the new Model Notary Act requires the electronic Notary to retain an electronic copy of any notarized electronic document if it was not signed using a technology, such as PHI, that allows the document to be “locked up” and immune from tampering during its transmission to an intended recipient.

A Glossary of Electronic Signature Terms

Authentication: The process of identifying an individual or data. In security systems, authentication is distinct from authorization. Authentication merely confirms that the identification of the individual or data is accurate.

Biometrics: A system to electronically measure a person’s unique physical features (fingerprints) or actions (writing a signature, speaking) in order to verify identity.

Certification Authority: A certification authority, or CA, is the person, company or agency that issues or registers digital certificates for subscribers. The CA acts as a trusted “third party,” certifying the identity of the subscriber to anyone who receives a digitally signed message.

Digital Certificate: An electronic file that enables the use of a private and public key in creating and validating a digital signature.

Digital Signature: A process used to attach a digital code that is unique to both the “signer” and the electronic message to which it is attached. A digital signature uses a “private key” to “sign” a message. The recipient of the electronic message can use a complementary “public key” to verify whether or not the digital signature is valid, and whether the message has been altered since it was signed.

Electronic Commerce: Any commercial activity that takes place, at least in part, between connected computers is part of electronic commerce. It is often referred to as e-commerce.

Electronic Document: Words or images, such as a letter, contract or blueprint, that are generated or stored on a computer.

Electronic Signature: A general term for a signature or mark that has been affixed to a document by electronic means. Depending on the definition in different state laws, the term may apply to typing one’s name in an electronic message, handwriting captured with a scanner, or typed text that has been cut and pasted using a word processor.

Encryption: The process of encoding data in a way that prevents unauthorized viewing, especially while the data is being transmitted. This process makes the data content unreadable to everyone except those who have the correct key to “decrypt” the data.

E-Sign Act: The Electronic Signatures in Global and National Commerce Act is a federal law enacted in 2000 giving electronic signatures the same legal weight as handwritten signatures and thus recognizing e-commerce as legally binding transactions.

Key: A mathematical algorithm used to encrypt or decrypt data. The key can “lock” data  and make it unreadable, and a corresponding key can “unlock” that data and allow use of that data. In most digital signature programs, keys are very long prime numbers.

PIN: An acronym for “personal identification number,” it’s a numerical code similar to a secret password that gives access to personal records stored in any system. PINs are used widely in commerce and education.

PKI: An acronym for “public key infrastructure,” a system for affixing, encrypting, and reading digital signatures on electronic documents using complementary “keys” issued by a certification authority.

Prime Number: A number that cannot be divided evenly by any number except itself and one.

Registration Authority: A local agent of a certification authority who screens applicants for digital certificates.

Signature Capture: Translating a handwritten signature to an electronic format.

Smart Card: Identical in size and feel to credit cards, smart cards store information on an integrated microprocessor chip located within the body of the card. These chips hold a variety of information, from stored (monetary) value used for retail and vending machines, to medical records.

UETA: The Uniform Electronic Transactions Act, a set of model rules for electronic signatures and transactions, adopted by more than 30 states to date.

Caveat Emptor Should Rule Electronic Signature
by Rob Schneider

If necessity is the mother of invention, then federal and state e-signature laws are a necessary by-product of modern times. But with the convenience and promise of electronic commerce comes a dark side, one fraught with confusion and potential for abuse.

Last year, Congress passed the federal Electronic Signatures in Global and National Commerce Act—known as E-Sign. According to this law, electronic signatures and records generally satisfy legal requirements for signatures or writings. The law authorizes the substitution of electronic notices for paper notices including most, but not all, types of consumer notices.

Additionally, E-Sign includes important consumer consent requirements and other safeguards to ensure individuals can receive, keep and use electronic notices provided to them.

E-Sign authorizes electronic notarization, which makes the in-person appearance requirement in many state Notary laws particularly important.

Earlier this summer, the Federal Trade Commission and the U.S. Department of Commerce recommended that no changes be made to the federal E-Sign Act at this time. They noted that the provision in the law that preserves the right of consumers to receive written information upon request “appears to be working satisfactorily at this stage.”

The joint report by the federal agencies notes the consumer consent provision “also discourages deception and fraud by those who might fail to provide consumers with information the law requires that they receive.”

But can the potential for fraud and problems in a largely untested system be so easily dismissed?

Electronic signatures present special problems that current laws cannot satisfactorily address. First, according to a 2000 U.S. Department of Commerce study, more than one-half of households in all but six states are not yet online. The percentages of low-income and elderly citizens who do not own computers are much higher.

For those consumers with access, the obstacles are significant. Many do not check their e-mail regularly. The fear of viruses also poses a problem for e-mail messages with attachments from unfamiliar sources.

It is paramount for as many states as possible to adopt consumer protections that meet or exceed the ones found in E-Sign. However, we know that individuals and businesses that use fraud and deception to prey on unsuspecting consumers won’t be deterred in finding new ways to operate outside the law.

Vigilance, consumer education and fine-tuning of existing laws will remain necessary facts of life in the months and years ahead.

 Rob Schneider is senior staff attorney in Austin, Texas, with the Southwest Regional Office of Consumers Union, publisher of Consumer Reports.

Who Will Break from the Pack?

With reports on e-commerce and e-signatures gaining prominence in the news, increasingly the NNA is hearing the following question:  “When will Notaries like me be able to notarize electronic signatures?”

The surprising answer:  “You can notarize electronically right now in your home state, from Maine to Hawaii!”

Even if a Notary doesn’t live or work in one of the more than 30 states that have adopted the Uniform Electronic Transactions Act since 1999, according to most authorities, the federal E-Sign Act enacted by Congress last fall gives all Notaries in the United States legal power right now to use an electronic signature to notarize another electronic signature.

However, there’s one small hitch. To date, no state has laws in place defining in workable terms exactly what an electronic notarization is and how it is to be performed. Certainly, in a handful of states (e.g., Utah, Florida, Washington) e-notarizations have actually been performed, but only by experts in strictly controlled pilot programs.

There is one state with statutes in place setting detailed rules for electronic authentication:  Arizona. Unfortunately, these rules allow a so-called “notarization” without the presence of a screening Notary, relying on technology to identify the electronic signer, while forfeiting any role in screening that signer for awareness and volition.

At present, the states appear to be waiting for someone to “break from the pack” and enact a law that is accessible to the average Notary owning a personal computer, while adhering to traditional basic principles of notarization. The most important of these principles requires a document signer to appear in person before a Notary in any process labeled as notarization, regardless of whether the signature is made by a pen or by a computer.

The first bold state to enact such a law will no doubt be copied by many other states and earn the mantle of electronic trailblazer.