[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
ESIGN: ENCOURAGING THE USE OF ELECTRONIC
SIGNATURES IN THE FINANCIAL SERVICES INDUSTRY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
DOMESTIC MONETARY POLICY, TECHNOLOGY,
AND ECONOMIC GROWTH
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 28, 2001
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-31
U.S. GOVERNMENT PRINTING OFFICE
73-743 WASHINGTON : 2001
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on Domestic Monetary Policy, Technology,
and Economic Growth
PETER T. KING, New York, Chairman
JAMES A. LEACH, Iowa, Vice Chairman CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California BARNEY FRANK, Massachusetts
FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York
RON PAUL, Texas BERNARD SANDERS, Vermont
STEPHEN C. LaTOURETTE, Ohio JAMES H. MALONEY, Connecticut
DOUG OSE, California DARLENE HOOLEY, Oregon
MARK GREEN, Wisconsin MAX SANDLIN, Texas
CHRISTOPHER SHAYS, Connecticut CHARLES A. GONZALEZ, Texas
JOHN B. SHADEGG, Arizona MICHAEL E. CAPUANO, Massachusetts
VITO FOSSELLA, New York RUBEN HINOJOSA, Texas
FELIX J. GRUCCI, Jr., New York WILLIAM LACY CLAY, Missouri
MELISSA A. HART, Pennsylvania MIKE ROSS, Arizona
SHELLEY MOORE CAPITO, West Virginia
C O N T E N T S
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Page
Hearing held on:
June 28, 2001................................................ 1
Appendix
June 28, 2001................................................ 33
WITNESSES
Thursday, June 28, 2001
Buckley, Jeremiah S., Partner, Goodwin Proctor; General Counsel,
Electronic Financial Services Council, on behalf of the
Electronic Financial Services Council.......................... 12
Crocker, Thomas E., Partner, Alston & Bird LLP................... 10
Harrington, Eileen, Associate Director for Marketing Practices,
Federal Trade Commission Bureau of Consumer Protection......... 5
Roe, Christopher, Vice President, Fireman's Fund Insurance
Companies, on behalf of the American Insurance Association..... 8
Rosenthal, Louis F., Executive Vice President, ABN AMRO, on
behalf of the Financial Services Roundtable and BITS........... 15
Saunders, Margot, Managing Attorney, National Consumer Law
Center, also on behalf of the Consumer Federation of America,
Consumers Union, and the U.S. Public Interest Research Group... 18
APPENDIX
Prepared statements:
King, Hon. Peter T........................................... 34
Oxley, Hon. Michael G........................................ 36
LaFalce, Hon. John J......................................... 40
Maloney, Hon. Carolyn........................................ 38
Buckley, Jeremiah S. (with attachments)...................... 174
Crocker, Thomas E............................................ 113
Harrington, Eileen (with attachment)......................... 41
Roe, Christopher............................................. 105
Rosenthal, Louis F........................................... 199
Saunders, Margot............................................. 206
Additional Material Submitted for the Record
Crocker, Thomas E.:
``The E-Sign Act: In Facilitation of E-Commerce,'' March 2001 120
Harrington, Eileen:
Federal Trade Commission, Department of Commerce, Joint
Report to Congress, June 2001.............................. 70
ESIGN: ENCOURAGING THE USE OF
ELECTRONIC SIGNATURES IN THE
FINANCIAL SERVICES INDUSTRY
----------
THURSDAY, JUNE 28, 2001
U.S. House of Representatives,
Subcommittee on Domestic Monetary Policy,
Technology, and Economic Growth,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 10:15 a.m., in
room 2128, Rayburn House Office Building, Hon. Peter T. King,
[chairman of the subcommittee], presiding.
Present: Chairman King; Representatives Oxley, Grucci,
Hart, Capito, C. Maloney of New York, J. Maloney of
Connecticut, Hooley, Hinojosa, and Inslee.
Chairman King. The hearing will come to order. Today, the
Subcommittee on Domestic Monetary Policy, Technology, and
Economic Growth begins its first hearing on the use and
application of technology in financial services. Innovations in
the electronic world clearly have had a profound impact on the
way consumers interact with financial professionals. I suspect
that technology will continue to drive our marketplace in ways
that we have never imagined.
The subcommittee is committed to facilitating such growth
and efficiency on behalf of financial consumers and the
institutions that serve them. For the purpose of today's
hearing, the subcommittee will examine the Electronic
Signatures in Global and National Commerce Act, or more
commonly, ESIGN. This legislation gave legal recognition and
effect to electronic signatures, contracts and records.
We are revisiting the legislation in an effort to determine
if its real-world implementation is providing the legal
certainty and protection envisioned by Congress. Specifically,
Section 105[b] of the legislation directs the Department of
Commerce and the FTC to submit a report to Congress evaluating
the benefits and burdens of a particular consumer consent
provision contained in the Act. This consent provision speaks
to the understanding a consumer demonstrates within the context
of a business-to-consumer transaction. This subcommittee looks
forward to the findings and opinions of the panelists
concerning this study.
At this time I would like to commend the FTC and the
Department of Commerce for their combined efforts to complete
the mandated study before its June 30th statutory deadline. This
subcommittee appreciates your expediting the process to allow
for this hearing and we look forward to your testimony.
In closing, let me just say that our examination of this
legislation is not a referendum on consumer protections and
financial services, electronic or otherwise. Congress carefully
crafted this legislation last year with the intent of providing
certainty, uniformity and efficiency for transactions conducted
electronically.
We have yet to see a wholesale embracing of ESIGN and the
benefits it affords. This raises the question whether the
legislation is overly restrictive to the point that consumers
and businesses do not recognize the benefit. Perhaps it's too
early to tell. Regardless, this is a dialogue that will begin
now.
I thank the witnesses for taking the time out of their busy
schedules today to share their expertise on the subject and I
know that ESIGN is of particular interest to our Chairman, Mr.
Oxley, who is also joining with us here this morning. And with
that, I now recognize the Ranking Member of the subcommittee,
the gentlelady from my State of New York, Mrs. Maloney.
[The prepared statement of Hon. Peter T. King can be found
on page 34 in the appendix.]
Mrs. Maloney. I thank the Chairman.
A year ago this Saturday, June 30th, 2000, President
Clinton signed the historic ESIGN legislation granting
electronic records and signatures legal enforceability on a par
with written documents. Enactment of ESIGN was driven by the
explosion in online commerce and the bipartisan desire of
Congress and the Clinton Administration to facilitate its
continued expansion.
While ESIGN modernizes our legal framework to reflect the
new economy, Congress made clear that individuals deserve the
same level of consumer protection in the online world as when
they engage in paper-based transactions. One of the most
important efforts to transfer these protections online is the
consumer consent section in ESIGN.
Today, the subcommittee meets to review the report of the
Federal Trade Commission and Department of Commerce on the
benefits and burdens of the consumer consent provisions. In
preparing its report, the Commission and Department of Commerce
reviewed extensive public comments from industry and consumer
groups and conducted a public workshop. While today we are only
1 year removed from an enactment, I am pleased that the FTC and
Commerce have concluded that thus far the ESIGN consent
provisions are proving effective.
The consumer consent provision in ESIGN required that
information that businesses are currently required to provide
to consumers in writing may only be provided in electronic form
if the consumer affirmatively consents to electronic delivery
in a manner that reasonably demonstrates the consumer's ability
to access the electronic record.
Information that businesses are currently required to make
in writing include contract terms and the gamut of consumer
protection disclosures which are intended to protect consumers
from fraud and to hold parties to the terms of agreements. The
ESIGN consumer protection provisions recognize that there is a
wide range in the level of public computer proficiency and
access to the internet. While customers of online banks or
brokerages are already accustomed to conducting complicated
transactions over the internet, ESIGN is intended to prevent
consumers who are less accustomed to the online world from
unwittingly consenting to receive information in a form that
they cannot access.
While I agree with FTC/Commerce Report's conclusion that
the benefits of the consent provisions outweigh their burden, I
am interested to hear the perspective of industry witnesses
today and their perspective on complying with the provisions. I
also look forward to the discussion of the interaction of ESIGN
and the electronic signature legislation being promoted at the
State level, the Uniform Electronic Transaction Act. Enactment
and enforcement of strong consumer protections are the best
tools Congress has to increase public confidence in the
internet and to contribute to the continued growth of e-
commerce. The ESIGN Act's consumer consent provisions are an
important part of this effort.
Thank you very much. I look forward to all the testimony.
[The prepared statement of Hon. Carolyn B. Maloney can be
found on page 38 in the appendix.]
Chairman King. I thank the Ranking Member. And now for an
opening statement, the Chairman of the full committee who has a
long and abiding interest in this legislation, Mr. Oxley.
Mr. Oxley. Thank you, Mr. Chairman, and thanks for holding
this hearing on ESIGN and encouraging the use of electronic
signatures in the financial services industry. This is the
first technology-related hearing for the subcommittee, and I
look forward to continuing our review of tech issues as they
affect financial services.
The Electronic Signatures in Global and National Commerce
Act enabled electronic signatures to satisfy the legal
requirements for paper signatures. I worked closely with
Chairman Bliley last session on the passage of ESIGN, and I was
a Member of the Conference Committee that wrote the current
law.
The goal of ESIGN was to simplify electronic business
transactions, enabling consumers to sign a mortgage, take out a
student loan, or open an IRA account from their own computer.
Exchanging records and agreements electronically instead of on
paper is good for the environment, less burdensome for
consumers, and more cost effective for businesses. Members of
the Conference Committee envisioned that ESIGN would open up
the floodgates to many new transactions that individuals and
businesses would be able to do online while at the same time
giving people greater confidence and convenience when shopping
online.
Unfortunately, electronic transactions have not increased
significantly over the past year. Even in the financial
services industry, which should benefit from most from ESIGN,
people and businesses have been very slow to take advantage of
the new opportunities. When the Conference Committee was
debating ESIGN we struggled to create the right balance in the
consumer protection provisions.
It is always hard to look into the future and determine
what consent provisions will be necessary to protect consumers
from abuse that will not unduly burden the implementation of
the law. And while I believe our efforts were successful
overall, we need to go back and review the balance to see if we
tipped too far in one direction or another. In particular, we
need to consider the proper level of protection necessary in
the financial services industry where we have a separate layer
of oversight and regulatory supervision already.
We also need to ensure a sufficient level of uniformity in
the adoption and interpretation of ESIGN by the States and
Federal regulators. States can now choose to adopt either ESIGN
or a version of the Uniform Electronic Transactions Act, also
known as UETA, as long as it's not inconsistent with ESIGN.
Unfortunately, many States are adopting UETA, but with
different portions of the ESIGN consent provisions thrown into
the mixture. This patchwork of laws governing electronic
transactions is resulting in higher costs and more confusion.
If we don't end up with a minimum level of certainty and
consistency, businesses and consumers will not have the
confidence to make ESIGN a reality.
Service providers and consumers must be comfortable
interacting with each other online. If the procedures
surrounding a transaction are unduly burdensome for either
party, the deal will not get done. We must work to ensure that
our laws are evenly balanced to bring the greatest benefit to
all the participants in the marketplace. Recognizing that ESIGN
has been in effect for less than 8 months, I look forward to
the initial report by the Federal Trade Commission and the
Secretary of Commerce on the benefits and the burdens of
ESIGN's consumer consent provisions and to the testimony of our
other industry and consumer witnesses. And I yield back the
balance of my time.
[The prepared statement of Hon. Michael G. Oxley can be
found on page 36 in the appendix.]
Chairman King. Thank you, Mr. Chairman.
Mr. Maloney.
Mr. Maloney. Mr. Chairman, in the interest of time, I'd
just ask unanimous consent for Members who have opening
statements to be able to submit them for the record.
Chairman King. Without objection, so ordered.
Mrs. Capito.
[No response.]
Chairman King. Before we begin the testimony, certain
Members of the full committee not assigned to the subcommittee
are going to be allowed to participate and ask questions of the
witnesses during this hearing, and if there's no objection,
that will be so ordered.
We have a distinguished panel of witnesses this morning.
Again, I want to thank them for taking the time from their
schedules to be here. We look forward to their testimony. We
certainly appreciate the time and effort they put into their
preparation. I will introduce them individually and then ask
them to make their statements.
The first witness will be Ms. Eileen Harrington, the
Associate Director for Marketing Practices for the Federal
Trade Commission. Our next witness will be Mr. Christopher Roe,
the Vice President of Fireman's Fund Insurance Companies,
testifying on behalf of the American Insurance Association. Mr.
Thomas Crocker, Partner in Alston & Bird. Mr. Jeremiah Buckley,
General Counsel for the ELectronic Financial Services Council.
Also Mr. Louis Rosenthal, Executive Vice President of ABN AMRO
Information Technology Services Company on behalf of the
Financial Services Roundtable. And Ms. Margot Saunders,
Managing Attorney for the National Consumer Law Center.
And we would ask you to keep your testimony to 5 minutes.
If it goes a minute or two behind, we're not going to pull the
trap door.
Ms. Harrington.
STATEMENT OF EILEEN HARRINGTON, ASSOCIATE DIRECTOR FOR
MARKETING PRACTICES, FEDERAL TRADE COMMISSION BUREAU OF
CONSUMER PROTECTION
Ms. Harrington. Thank you, Mr. Chairman and distinguished
Members, Chairman Oxley. I am Eileen Harrington from the
Federal Trade Commission, and I am pleased to be here this
morning to present the Commission's testimony.
As you may know, the FTC is the Government's principal
consumer protection law enforcement agency. Its mission is to
promote the efficient functioning of the marketplace by taking
action against unfair or deceptive acts or practices and to
increase consumer choice by promoting competition. The
Commission has vigorously promoted e-commerce in a variety of
ways, in part by bringing enforcement actions to stop deceptive
and fraudulent practices on the internet. And this experience
particularly provided useful grounding for us as we examined
implementation of the reasonable demonstration requirement in
the consumer consent provision.
In Section 105(b) of ESIGN, the Congress directed the FTC
and the Department of Commerce to issue a report on the impact
on electronic commerce and consumers of the reasonable
demonstration requirement of the consumer consent provisions of
the Act. Specifically, the Congress asked us to report on the
benefits of that provision to consumers, the burdens that the
provision imposes on e-commerce, whether the benefits outweigh
the burdens, the effect of the provision in preventing fraud,
and whether any statutory changes would be appropriate.
Our testimony today will be limited to a discussion of
these issues which were the focus of our review and the report
from Commerce and the FTC. To fulfill our mandate, we conducted
outreach efforts, which included issuance of a notice in the
Federal Register inviting comment, a public workshop, and
extensive outreach to consumer, industry, and other Government
organizations.
Our outreach was extensive in an attempt to evaluate the
technology available to reasonably demonstrate compliance with
the consumer consent provisions and to learn how companies are
implementing the reasonable demonstration requirement. We met
with online businesses community members, technology
developers, consumer groups, law enforcement officials, and
academics.
Our industry contacts included high tech companies involved
infrastructure development for electronic contracting and
electronic payment systems as well as businesses entities that
use or plan to use electronic records in consumer transactions.
We also did our own research to identify the types of
businesses that are using the consumer consent provision of
ESIGN. And specifically, we just went on the internet and
looked and looked and looked for businesses that are now doing
that.
To comply with the mandate to solicit comment from the
general public and consumer representatives in e-commerce
businesses, as I mentioned we published a Federal Register
notice inviting comment. We sent that notice and the press
releases by both agencies to literally hundreds of businesses
and organizations that we know have an interest in the
development of electronic commerce. And in response to our
outreach efforts, we received 32 comments from consumer
organizations, software and computer companies, banks, members
of the financial services industry, and academics.
And in April, we hosted a public workshop to explore the
issues raised in the comments and in our outreach efforts and
to discuss new issues and develop a basis for analysis and
conclusion as requested by the Congress.
Although a number of e-commerce businesses, principally in
the financial services industry, have implemented the
procedures requiring reasonable demonstration of consumer
consent, there was consensus among the participants and
commentors that insufficient time has passed since the law took
effect to allow consumers or businesses to experience the full
effect of the provision, to develop sufficient empirical data
to evaluate quantitatively whether the benefits outweigh the
burdens, or to determine whether the absence of the procedures
that are required by the consumer consent provision would lead
to an increase in deception and fraud against consumers.
In general, consumer advocates and State law enforcement
agencies expressed strong support for the reasonable
demonstration requirement of the consumer consent provision as
an effective tool to promote e-commerce by increasing consumer
confidence in the electronic marketplace. They said that the
benefits of this requirement to consumers and e-commerce
businesses outweigh the burdens associated with adapting
business systems to comply with the provision.
Consumer advocates also suggested that the reasonable
demonstration requirement may prevent deception and fraud from
occurring by giving consumers more information about the
legitimacy of the business they are dealing with and alerting
them to the importance of receiving electronic documents.
Businesses that have implemented the consumer consent
procedures also report benefits, including increased protection
from liability, increased consumer confidence, and the
opportunity to engage in additional dialogue with consumers
about transactions. Some industry commentors indicated that the
reasonable demonstration requirement may be burdensome, because
it adds an extra step that could delay the consummation of the
transaction and may cause confusion that could lead consumers
to forego the use of electronic records.
Although some commentors identified burdens, there is
insufficient data to assess the likelihood or severity of these
burdens quantitatively or their impact on consumers and e-
commerce businesses. In addition, the record suggests that some
burdens such as the additional step entailed to satisfy the
reasonable demonstration requirement may be resolved or
minimized over time as businesses and consumers adjust to the
consent procedure and gain experience sending and receiving
documents in an electronic form. Similarly, instances of
consumer frustration or confusion and the potential for loss of
business may be reduced or eliminated by the refining of
consent procedures in the marketplace.
Although measuring the consequences of omitting the
consumer consent provisions or the reasonable demonstration
requirement therein is difficult, we believe that the inclusion
of this provision helps prevent deception and fraud. The
provision ensures that consumers who chose to enter the world
of electronic transactions will have no less access to
information and protection than those who engage in traditional
paper transactions. This provision reduces the risk that
consumers will accept electronic disclosures or other records
if they are not actually able to access those documents
electronically. As a result, it diminishes the threat that
electronic records will be used to circumvent State and Federal
laws that contain a writing requirement.
As enacted, ESIGN gives appropriate consideration to the
threat that fraud and deception on the internet pose to the
growth and public acceptance of electronic commerce. Most laws
protecting consumers against fraud and deception come into play
after fraud has been committed and documented. ESIGN attempts
to discourage fraud before it takes hold. It incorporates basic
consumer protection principles that will help maintain the
integrity and credibility of the electronic marketplace,
bolster confidence among consumers that electronic records and
signatures are safe and secure, and ensure that consumers
continue to receive comprehensible written disclosures.
Our report concludes that although the participants in our
study expressed a range of views, it is reasonable to conclude
that thus far, the benefits of the reasonable demonstration
requirement outweigh the burdens of its implementation on
electronic commerce, although we can't make that assessment in
any quantitative form. The provision facilitates e-commerce and
the use of electronic records and signatures while enhancing
consumer confidence. It preserves the right of consumers to
receive written information required by State and Federal law,
and discourages deception and fraud by those who might fail to
provide consumers with information that the law requires that
they receive.
The requirement appears to be working satisfactorily at
this stage. Almost all participants recommended that for the
time being, implementation issues should be worked out in the
marketplace and through State and Federal regulations, and that
it is simply too soon to consider making changes to the
statutory scheme.
The Commission greatly appreciates the opportunity to
describe its efforts, and we would be happy to answer any
questions that you may have. Thank you.
[The prepared statement of Eileen Harrington can be found
on page 41 in the appendix.]
Chairman King. Thank you, Ms. Harrington.
Mr. Roe.
STATEMENT OF CHRISTOPHER ROE, VICE PRESIDENT, FIREMAN'S FUND
INSURANCE COMPANIES, ON BEHALF OF THE AMERICAN INSURANCE
ASSOCIATION
Mr. Roe. Thank you, Mr. Chairman and Members of the
Domestic Monetary Policy, Technology, and Economic Growth
Subcommittee, for providing me with an opportunity to testify
before you today regarding the Electronic Signatures in Global
and National Commerce Act, ESIGN.
My name is Christopher Roe. I am Vice President and Legal
Counsel for Firemen's Fund Insurance Company. Fireman's Fund,
established in 1863 in San Francisco, California, is among the
Nation's top writers of property casualty insurance, writing
over four billion in gross premiums and employing over 8,000
people.
Chairman King. Excuse me, Mr. Roe. Could you move the
microphone a little closer, please?
Mr. Roe. Certainly. Thank you.
Chairman King. Thank you.
Mr. Roe. I am pleased to appear before you today on behalf
of the American Insurance Association to discuss ESIGN. The AIA
is the principal trade association for property and casualty
insurance companies. The passage of ESIGN is an important
ingredient to the evolution of e-commerce within the insurance
industry. We believe that ESIGN, coupled with the State passage
of the Uniform Electronic Transaction Act, UETA, will
ultimately allow insurers to better deliver speed, efficiency,
and cost savings in future online insurance transactions.
In particular, some of the advantages of ESIGN are already
evident. ESIGN sets a higher degree of legal uniformity among
the States than currently existed, which is more conducive to
an online marketing strategy in the 50 States. ESIGN
establishes a higher degree of predictability and stability in
the States, which allows insurers to more confidently provide
their customers with the online services they are increasingly
seeking. And ESIGN now allows customers to execute an online
insurance transaction completely online.
Without ESIGN and UETA, customers and their insurers could
not close an insurance transaction online. Many customers
naturally became discouraged after completing information for
an insurance quote and then not being able to finalize the
transaction. Often the customer would receive an e-mail that an
agent would contact them in a few days or that they would have
to wait to receive a package in the mail to complete the
process. ESIGN will help smooth this transition and allow us to
meet customer expectations, including 24-hours-a-day service,
greater efficiency, convenience, and cost savings.
My company, Fireman's Fund, believes annual savings of
millions of dollars can be achieved if consumers signed policy
applications and receive coverage notices and renewals online.
Mailing expenditures alone cost Fireman's Fund $8 million
annually. By the end of the year, we expect to begin to use
electronic signatures and records in some of our commercial
divisions.
Because of its recent passage and more recent
implementation, the insurance industry has had limited
practical experience with ESIGN. As a result, we believe more
time is needed to test the workability of the ESIGN provisions
before advocating specific changes to the Act.
Even with the constraints of ESIGN, State laws still
deviate from Federal law. About 20 States have adopted an exact
version of UETA as recommended by the National Conference of
Commissioners on Uniform State Laws, and another 15 have
adopted a UETA-styled version, but with modifications. Some
non-uniform provisions were adopted before ESIGN. For example,
in California, homeowners and automobile insurance consumers
were required to complete their transactions offline. Few
insurers want to be the legal test case for Federal preemption
for these particular laws.
Recently, nine States have locked the ESIGN consent
provisions into their State UETAs. The scenario is ripe for
creating an unlevel playing field between the financial
sectors. Because these provisions are still untested, Federal
regulatory agencies were given the power to waive consumer
consent provisions for a category or type of record. However, a
similar regulatory waiver provision does not exist in these
nine States except for Texas. Regulatory parity among the
financial sectors may be further exacerbated if State
regulators do not have the same regulatory flexibility.
AIA and Fireman's Fund support a process whereby the
parties consent to an electronic transaction. Similarly, in
those States that adopt UETA, businesses and consumers must
agree to use electronic signatures. Whether the parties agree
to conduct a transaction by electronic means is determined from
the context and surrounding circumstances, including the
parties' conduct.
In conclusion, even though questions remain on such issues
as consumer consent, the legal environment has vastly improved.
We continue to support UETA in the States in order to maintain
uniformity and believe that UETA provides a simpler approach
with regard to consent. In the meantime, non-uniformity,
particularly for the business of insurance, still remains a
nagging and unfortunate reality.
As this subcommittee and all of Congress mulls over the
implementation of ESIGN provisions and other e-commerce issues,
we urge you to take the following action:
First, contact the National Association of Insurance
Commissioners and State insurance regulators to encourage the
States to strive for the highest level of uniformity possible
in implementing ESIGN or UETA so that the insurance companies
can have the highest level of confidence in delivering services
to its customers online in a way that utilizes the best
technology available.
And second, recognize that in many policy and regulatory
areas, but particularly in e-commerce, a strong Federal
preemption is vital in giving businesses greater certainty and
confidence in using technology and the internet to serve their
customers.
In the next year, we will learn valuable insights on
whether the ESIGN consent provisions are successful and whether
UETA provides an equally effective and simpler approach to
consent.
Again, I appreciate having the opportunity to testify
before you today and would be happy to answer any questions you
may have.
[The prepared statement of Christopher Roe can be found on
page 105 in the appendix.]
Chairman King. Thank you, Mr. Roe.
Mr. Crocker.
STATEMENT OF THOMAS E. CROCKER, PARTNER, ALSTON & BIRD, LLP
Mr. Crocker. Mr. Chairman, Chairman Oxley, and Members of
the subcommittee, my name is Thomas Crocker. I am partner in
the Washington office of the law firm of Alston & Bird.
My involvement with the ESIGN Act goes back to 1997. When
representing the then-CitiCorp, I helped draft a predecessor
version of the ESIGN Act in the 105th Congress. More recently,
we represented Charles Schwab & Company and the Securities
Industry Association in all phases of the development,
consideration, and eventual enactment of the ESIGN Act in the
106th Congress.
Today, however, I am testified solely on my own behalf as
an attorney in private practice who has assisted a number of
clients in implementing the ESIGN Act and who has had some
practical experience with the types of real-world concerns that
businesses have had in complying with the Act.
As has been noted, almost exactly 1 year ago, on June 30th,
2000, the President signed the ESIGN Act into law. At that time
it was hailed as the, quote, ``single most important piece of
e-commerce legislation enacted in the 106th Congress.'' Now, 1
year later, it is appropriate to ask whether the ESIGN Act has
lived up to its promise, and if not, why not?
The significance and the promise of ESIGN Act lay in its
central attribute of being a technology-neutral, uniform
Federal law designed to encourage the use of electronic records
and signatures. The 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, and legal certainty--are important measures by
which the success or failure of the ESIGN Act will
appropriately be judged.
As part of our representation of clients seeking to
implement the ESIGN Act, we recently conducted an informal
website survey to try to determine how widespread reliance in
the ESIGN Act has actually become. This survey was aimed
primarily at the financial services industry--banks, broker-
dealers, insurance companies--but it also touched on other
business sectors such as health care, technology, and online
sales.
Our findings confirmed what we had long suspected to be the
case--that use of the ESIGN Act has been slow to take off and
that compliance with it is limited at best. Its embraced by
U.S. industry at large has been spotty. Why is this so? Based
on our work with various clients seeking to understand and
implement the ESIGN Act, we believe that although well-
intended, the ESIGN Act in its present form fails to deliver on
the promises of uniformity, consistency, and legal certainty.
This failure is compounded by the unusual absence of a
statement of managers as part of the legislative history of the
Act, which would help in its interpretation, as well as by the
fact that the Act is studded with well over two dozen vague
terms in its critical provisions, which inject uncertainty into
its meaning. Against this background our clients' practical
concerns focus on three specific areas in the Act: Consumer
consents, preemption, and agency rulemaking.
Throughout the Congressional debate on the ESIGN 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.
Two elements of the consumer consent requirements continue
to cause concerns which contribute to reluctance to use the
Act. First, the ``reasonably demonstrates'' requirement at
Section 101(c)(1) is vague. It has, however, proven workable,
provided it is interpreted to allow firms flexibility in
meeting its requirements and it is used in its simplest form--
one company, one consumer, one electronic system. However, the
concern is that the ``reasonably demonstrates'' requirement is
in a sense a straitjacket, because it requires a company to
communicate with its customer only through the identified
single system that the customer has originally chosen to access
the information in electronic form. This rigid, narrow
procedure does not take account of the reality that consumers
might own multiple computers or of the increased market
presence of hand-held terminals. It creates issues when a
customer deals with a firm through a variety of access
channels.
The second major concern with the consumer consent
provisions is the requirement governing what happens if the
hardware or software requirements change after the consumer has
given affirmative consent. If that change, quote, ``creates a
material risk that the consumer will not be able to access or
retain a subsequent electronic record'', then the party
providing the electronic record must go through the entire
consumer notice, consent, and reasonable demonstration process
all over again. The very vagueness of the term ``material
risk'' creates uncertainty as to when it must be invoked. For
example, does a simple system upgrade require a company to go
through the costly process of notifying all of its customers
and obtaining consents de novo?
Another reason that businesses have shied away from using
the ESIGN Act is the mind-numbing complexity of its preemption
provisions and the uncertainty that they raise in connection
with the Act's interface with the Uniform Electronic
Transactions Act. Put yourself in the shoes of a company that
wants to rely on the ESIGN Act, trying to minimize risk. You
must first ask yourself whether the State whose law you want to
govern has enacted a clean version of UETA, as reported by the
NCCUSL.
If it has, then that State's enactment of UETA should
govern, at least in theory. But many States have not done that.
You must therefore ask whether the changes by the State to UETA
are pursuant to Section 3(b)(4) of UETA. If they are, well,
then, the ESIGN Act preempts that State's UETA only to the
extent those changes are inconsistent with Titles I or II of
the ESIGN Act. However, if the changes by the State are not
pursuant to Section 3(b)(4), and many are not, then you have to
go to the second prong of the two-pronged preemption test under
Section 102 of the ESIGN Act, which seemingly would preempt the
State's version of UETA unless further tests are satisfied.
Ultimately, in any given case, whether the ESIGN Act
preempts State law may have to be determined through
litigation. As one in-house counsel to a large insurance
company recently told me, ``I was very excited about the ESIGN
Act when it passed. But once I worked through what was in it,
well, just forget it.''
The third major concern is the agency rulemaking. This
section is designed to govern the interface of the Act with
Federal and State agency rulemaking at Section 104. However, it
is also confusingly and complexly drafted so that the goals of
uniformity, consistency, and legal certainty come up short.
I see that I am running out of time, so I will truncate
this and just cut to my conclusion, which is that there are
those who say that it is premature to consider amending the
ESIGN Act and that the best approach is to wait and see. That
is one view. However, based on my experience, the complexities
and ambiguities of the statute have already resulted in a
tangible level of discomfort in industry that procedures, once
adopted, might be held inadequate or out of compliance when the
law is eventually interpreted by courts or Federal or State
agencies.
It therefore is not clear what further wait-and-see will
achieve. If the Congress wishes to adjust the ESIGN Act to
accord it more closely with the three original goals of
uniformity, consistency, and legal certainty, the time to
commence that process may well be now.
Thank you.
[The prepared statement of Thomas E. Crocker can be found
on page 113 in the appendix.]
Chairman King. Thank you, Mr. Crocker. I appreciate your
facilitating your statement. And just so you know that all of
these statements will be considered as part of the record in
full.
Mr. Buckley.
STATEMENT OF JEREMIAH S. BUCKLEY, PARTNER, GOODWIN PROCTOR;
GENERAL COUNSEL, THE ELECTRONIC FINANCIAL SERVICES COUNCIL
Mr. Buckley. Thank you, Mr. Chairman. Good morning, Mr.
Chairman, and Members of the subcommittee. I am Jerry Buckley.
Chairman King. Mr. Buckley, if you could move the
microphone a little closer, please.
Mr. Buckley. I am partner in the law firm of Goodwin
Procter and act as General Counsel for the Electronic Financial
Services Council. Thank you for the opportunity to appear
today.
Members of the Electronic Financial Services Council
believe that the rules regarding electronic signatures and
records set for the ESIGN Act have tremendous potential to
promote the growth of electronic commerce, particularly in the
financial services sector.
Under the ESIGN Act, consumers may access products 24 hours
a day, 7 days a week. Consumers who are in currently
underserved areas will now have the opportunity, whether they
be urban areas or rural areas, to access a competitive menu of
services from a variety of financial services providers.
These online consumers will receive real-time disclosures
as opposed to packets of paper they receive several days after
they've made their decision on a financial product, and
businesses will be able to literally eliminate billions of
dollars of records management costs, savings which we believe
will ultimately be competed through to consumers.
Some have observed today that the financial services
industry has been slower than was expected in adopting the use
of electronic medium that ESIGN empowers. We believe that
several factors are responsible for this phenomenon.
First the Act is self-effectuating. That is, it does not
require a Federal agency to spell out rules of the road and
standard mandated forms as is often the case with Federal
legislation, rather leaving these decisions to private parties.
This flexibility, which will be very important in the long run
in facilitating market innovation, has the short-run
disadvantage of not providing specific governmental guidance
regarding appropriate electronic business procedures. We think
the tradeoff is worthwhile, though.
Private parties are now required to devise their own
standards and specifications for conducting business
electronically, and particularly in the financial services
business where financial instruments must often be capable of
being traded or pledged, it is not sufficient for the financial
instrument to be enforceable between the parties originating
the transaction.
These instruments must be originated to the satisfaction of
the secondary market purchasers of mortgages and chattel paper
and others who trade in or finance these instruments. In order
that this happen, each financial services industry will have to
develop a series of conventions or guidelines regarding what
electronic practices and procedures will be acceptable to
companies doing business in that particular industry.
We at the Electronic Financial Services Council are
participating in promoting the development of these guidelines
or conventions. Over the last 7 months, Freddie Mac, one of our
members, has developed specifications for the purchase of
electronically originated loans in the secondary market.
Freddie Mac and Fannie Mae are currently negotiating with
lenders to arrange forward commitments for the purchase of
electronically originated mortgages. And as a result, we expect
a gradual, but steady, growth in the paperless mortgage
transactions.
Similarly, drawing on the seminal thinking of Freddie Mac
in this area, the Department of Education has promulgated
guidelines for the electronic origination of student loans.
These loans will be available online next month for students
seeking financing for the upcoming academic year.
One of my colleagues here, Pete Simons, is going to going
to be attending UVA law school and intends to apply next month
electronically for his student loan.
As an attorney advising on the implementation of ESIGN, I
deal with clients who are wrestling with choices of vendors,
decisions regarding authentication, evidence of intent,
authority to sign. Again, ESIGN having become law, these
companies are now coming to grips with the legal decisions
involved in setting up an online contracting process.
In the absence of court decisions affirming the evidentiary
validity of electronic records, those seeking to do business
electronically are understandably proceeding with caution.
Now you have asked whether the consumer consent provisions
of ESIGN are hampering the speedy adoption of electronic
records. While we believe that some aspects of the consumer
consent provisions do place an unnecessary burden on the use of
electronic signatures and records, we are firmly committed to
the proposition that consumers are entitled to timely and
meaningful information. Electronic commerce cannot reach its
full potential without consumers' complete comfort with and
confidence in both the process and the medium. Effective
delivery of the ESIGN consent disclosures will materially
contribute to that comfort and confidence.
The Council strongly supported the original package of
consumer protection provisions to the ESIGN Act which were
offered in the House of Representatives, the so-called Inslee-
Roukema Amendments. Certain elements of ESIGN's rules
concerning effective consumer consent were not part of the
Inslee-Roukema Amendments. Instead, they were added at the very
end of the legislative process and were perhaps unavoidably
subject to less rigorous analysis than the rest of the statute.
In particular, I refer to the requirement that consent be in
electronic form and that there be a reasonable demonstration of
the consumer's ability to access information. These have proven
to be hurdles, although I would say we have concluded not yet
barriers to the use of ESIGN powers.
Others have covered the problems with these, and I won't
try to go through them in detail here. But suffice it to say
that these put the consumer through a test that is we believe
unnecessary and impair the ability to take what might be a
face-to-face transaction by sending the consumer back through a
series of tests to make sure they can contract electronically
in a way that is inconsistent with the way we otherwise do
business.
The second major concern we have is regarding the
implementation of regulatory requirements under Section 104 of
ESIGN. We believe that Federal and State agencies should adhere
to the standards set out in the ESIGN Act when interpreting it,
and we have noticed a tendency to stray from that which
concerns us greatly. We have addressed this in more detail in a
submission which is an attachment, a letter to the Federal
Reserve regarding the Federal Reserve's new interim final rule
on electronic communications.
To sum up, the fact that large-scale implementation of
ESIGN has not occurred should not be read as either a lack of
enthusiasm for the statute or a waning of industry interest in
e-commerce. Rather, the deliberate pace reflects the
determination by many responsible members of the financial
services industry to act thoughtfully and to roll out e-
commerce applications that are well designed and will be well
implemented.
While some may urge Congress to amend or revisit the ESIGN
Act, we believe the best course at this point is to allow
financial services industries and other firms time to acclimate
themselves to this new environment and to implement powers
already conferred by the ESIGN Act.
In our written submission, which is an attachment, we
submitted our comments to the FTC. And on page 8, we detail the
amendments which we believe would be desirable for the ESIGN
Act. But we don't think now is the time to do it. We think that
we should rely on this settled law now, see what happens over
the next 6 months to a year, let these processes of setting up
guidelines and conventions take place, and then make a decision
whether these consumer consent requirements, particularly the
reasonable demonstration test and the electronic confirmation
requirement, are really barriers as opposed to just hurdles.
And we'll have more experience to make that judgment over time.
Thank you, Mr. Chairman.
[The prepared statement of Jeremiah S. Buckley can be found
on page 174 in the appendix.]
Chairman King. Thank you, Mr. Buckley.
Mr. Rosenthal.
STATEMENT OF LOUIS F. ROSENTHAL, EXECUTIVE VICE PRESIDENT, ABN
AMRO NORTH AMERICA, INC., ON BEHALF OF THE FINANCIAL SERVICES
ROUNDTABLE AND BITS
Mr. Rosenthal. Good morning, Mr. Chairman, and Members of
the subcommittee. I am Louis Rosenthal, Executive Vice
President at ABN AMRO North America. I am pleased to appear
before you today on behalf of the Financial Services Roundtable
and BITS. The Roundtable represents 100 of the largest
integrated financial services companies providing banking,
insurance, and investment products and services to the American
consumer. BITS was established in 1996 as a not-for-profit
industry consortium and a sister organization to The
Roundtable. We share many of the same members.
I want to begin by commending the Members of this
subcommittee and indeed all Members of the 106th Congress for
passing the ESIGN Act. ESIGN represents the kind of supportive
yet minimalist legislation that is needed to encourage and
facilitate the continued growth of electronic commerce in the
United States. It levels the playing field between electronic
and paper-based methods of doing business by granting legal
recognition to electronic signatures, contracts and records,
and creates a consistent and uniform legal environment for
electronic commerce by preempting State laws.
Perhaps the most important principles embodied in ESIGN are
those of party autonomy, technology neutrality, and uniformity.
For the most part, ESIGN allows the parties to electronic
commercial transactions to decide for themselves how they wish
to do business and to structure their business relationships in
the manner most appropriate to their needs. By not prescribing
standards or mandating the use of any particular technology,
ESIGN permits parties to select from a broad array of
electronic methods for doing business, thus helping to ensure
that technological innovation will continue to flourish.
Finally, by preempting inconsistent State laws, ESIGN
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 in fact be
legally recognized and enforced.
Shortly after ESIGN was passed, BITS created an ESIGN
working group to assist our members in addressing these issues
on a cross-industry basis. I am especially pleased to be here
as the chairman of that working group, which consists of
approximately 50 member companies. The ESIGN working group has
served as a valuable discussion forum and information
clearinghouse regarding the approaches and steps being taken by
the financial services companies, Government entities, and
technology providers to implement ESIGN. Through these meetings
we have identified a number of challenges to the successful
implementation of ESIGN.
Our members do not necessarily see these challenges as
roadblocks preventing them from going forward, but rather as
hurdles to address so that they do not threaten their ability
to provide the kind of streamlined and cost-effective services
their customers want and expect. To a large degree, whether
these hurdles prove to be major problems or simply minor
irritants depends on how ESIGN is interpreted and applied.
If it is broadly interpreted with common sense and in line
with its underlying purpose of facilitating electronic
commerce, we believe these hurdles can be overcome without
undue burden. If, however, it is interpreted narrowly and
restrictively, they could well be major impediments.
As the subcommittee is no doubt aware, ESIGN contains
fairly complex consumer consent requirements for the electronic
delivery of required written disclosures. Consumers must be
provided with a clear and conspicuous statement containing a
number of mandatory disclosures, after which they must
affirmatively consent to receiving information in electronic
form. In addition, consumers must either consent or confirm
their consent electronically in a manner that reasonably
demonstrates that they can receive the information in the form
in which it will be provided. For example, by e-mail on an HTML
format on a website.
Our members fully support the concept of informed consumer
consent to electronic delivery of information and all would
build meaningful consent processes into their electronic
offerings, regardless of whether it were required by ESIGN.
Unfortunately, the ESIGN consent requirements go beyond
ensuring that consumers are afforded the same level of
protection in the electronic world as in the paper world, and
instead impose requirements that have no equivalent in the
paper world.
This is particularly true with respect to the reasonable
demonstration requirement, which has emerged as posing the most
significant practical challenge to fully implementing ESIGN.
ESIGN does not define what is meant by a reasonable
demonstration, and firms have been working diligently to come
up with real-world solutions that meet both ESIGN's consumer
protection goals and its underlying purpose of facilitating
electronic commerce. In our view, if this requirement is
interpreted broadly and with common sense to permit consumers
to demonstrate their ability to receive electronic documents in
a variety of ways, the burden it imposes will likely be
manageable. If narrowly construed, the burden can well impede
the use of electronic delivery in the future.
Even if construed broadly, however, the reasonable
demonstration requirement poses particularly difficult
challenges when firms interact with consumers both through
electronic and non-electronic means, which most of our members
do. For example, if a consumer wishes to open an account at a
firm's office or by telephone and at the same time consents to
receive subsequent disclosures through electronic
communications, both the consumer and the business must go
through the added step of confirming electronically that the
consumer can receive the disclosures. This is true even if the
disclosures are to be made through e-mail and the consumer
gives the business an e-mail address as part of the paper-based
consent process.
It is also true even if the disclosures are to be made in
HTML format on a firm's website and the consumer assures the
firm that she or he has internet access, has previously visited
the firm's website, and is fully capable of viewing HTML
documents.
ESIGN creates a uniform national framework for the use of
electronic signatures, contracts and other records. ESIGN does,
however, authorize States to legislate in this area if they
meet certain requirements in Section 102(a). As a result, over
20 States have enacted uniform versions of UETA that are
consistent with ESIGN. For example, Illinois is amending its
electronic commerce law with language taken verbatim from
ESIGN, and Michigan has used virtually identical language in
adoption of UETA.
Other States, however, have adopted non-conforming versions
of UETA. At this point, these issues are somewhat theoretical,
and they may well end up being resolved in the courts.
Nevertheless, we urge Congress to pay close attention to how
States are reacting to ESIGN and to take appropriate action if
States pass laws that threaten to undermine it.
Our members are also greatly concerned by the need for
uniformity in the international marketplace. We have spent some
time reviewing the laws of our trading partners, and there are
inconsistencies in the laws of sovereign countries that could
impede implementation globally. However, as is the case in
areas mentioned previously, it is too early to tell what if any
disruption these inconsistencies may cause and what, if any,
recommendations we would have for lawmakers. In the interim, we
urge Congress to ensure that the Government takes all necessary
steps to implement the provisions of Title III of ESIGN, which
outlines the principles to guide the use of electronic
signatures in international commerce.
Finally, our members are concerned that some Federal
regulatory agencies are interpreting ESIGN in an overly
restrictive manner. We urge Congress to continue to review
agency interpretations, along with the OMB Guidance on which
many of them are based, to ensure regulations implementing
ESIGN are consistent with the goals of the Act.
Once again, Mr. Chairman, The Roundtable and BITS
congratulate Congress on passing ESIGN. While the Act has some
provisions that make its implementation cumbersome, we are not
proposing that Congress reopen ESIGN. Once our members and our
customers have a chance to operate under the Act for a while,
The Roundtable may have proposals to bring back to the
subcommittee. At the present time, however, The Roundtable
believes the marketplace should be allowed to come up with
practical methods for implementing the Act.
We would also urge Congress to remain watchful that its
provisions are not being restrictively interpreted and applied
so as to frustrate its underlying purpose of removing barriers
to electronic commerce.
On behalf of both BITS and The Roundtable, Mr. Chairman,
thank you for the opportunity to testify today, and I would be
happy to answer any questions later.
[The prepared statement of Louis F. Rosenthal can be found
on page 199 in the appendix.]
Chairman King. Thank you, Mr. Rosenthal.
Ms. Saunders.
STATEMENT OF MARGOT SAUNDERS, MANAGING ATTORNEY, NATIONAL
CONSUMER LAW CENTER; ON BEHALF OF THE CONSUMER FEDERATION OF
AMERICA, CONSUMERS UNION, AND THE U.S. PUBLIC INTEREST RESEARCH
GROUP
Ms. Saunders. Mr. Chairman, Mrs. Maloney, Members of the
subcommittee. I testify today on behalf of the low-income
clients of the National Consumer Law Center and also on behalf
of Consumers Union, Consumer Federation of America, and U.S.
PIRG.
Contrary to popular belief, we are not troglodytes. We
agree with all here that facilitating e-commerce will be good
for consumers, and we do not want to stand in the way of that
facilitation. But we believe that the electronic consent
requirement in ESIGN or some similar provision is necessary to
ensure that consumers are protected in this brand new world.
As Mr. Oxley in his opening statement specifically said,
ESIGN was designed to facilitate the communication between a
consumer operating from his home computer to a business also
operating from its computer. If this Act only applied between
parties operating computer-to-computer, we would not need the
same protections. Our concern, however is that it also applies
to the physical world. We need to keep in mind that the
majority of the Nation is different from most of the people in
this room. I am virtually certain that everyone in this room
has at least access to one computer, if not two.
The vast majority of Americans do not have computers or
internet access in their home. According to the Department of
Commerce's Digital Divide report, 59 percent of the households
do not have internet access in their home. The numbers of
people in rural areas who do not have internet access, and the
numbers of low-income and elderly households who do not have
internet access are much higher.
Given those dynamics, until those numbers change
significantly, we have to make sure that consumers transacting
business in the real world are not tricked into receiving
electronic disclosures that they have no reasonable ability to
access or retain. Those are the realities that drove the
electronic requirement in the consumer consent provision in
ESIGN.
In our view, and backed by the Congressional Record
statements of the Congressmen involved in the passage of this
bill, there are three distinct related protections afforded by
the electronic consent requirement:
One, it ensures that the consumer has reasonable access to
a computer and the internet to be able to access the
information provided electronically.
Two, it ensures that the consumer's means of access to
electronic information includes software necessary to read and
retain the electronic information.
And three, it is meant to underscore to the consumer the
fact that by electronically consenting, the consumer is
agreeing to receive information in the future electronically as
well.
Delivery of electronic records is significantly different
than delivery of physical world mail. It takes money to access
your electronic records. It takes money to maintain a computer.
It takes money to maintain access to an internet service
provider. It does not take money to receive physical world
mail. According to the Digital Divide report, even as more and
more households in America obtain internet access, there's a 10
percent or greater drop-off rate every year.
So we have to keep in mind that, even if a consumer on day
one agrees to receive electronic transactions, that consumer
may be the 1 in 10 consumers the following year who no longer
has access to electronic information. The electronic consent
provision in ESIGN does provide some protection against this.
We agree with everyone on this panel that there are
significant problems with the lack of uniformity and the
application of the consumer consent provisions to State law.
Our reading of the law is that every State that passed UETA
prior to ESIGN automatically has the consumer consent
provisions applicable in that State. This is because the State
is required to take a deliberate action before it can be seen
to have displaced ESIGN. Not everyone agrees with us.
If that reading is correct, then at least half the States
will have a consumer consent provision applicable and another
half may or may not, depending on what happens in the future in
those States. There are significant questions. We would argue
that the simplest way to resolve this is simply to make the
consumer consent provisions applicable nationally. Obviously,
not everyone would agree to that.
We have spelled out a number of examples of what could
happen without the electronic consent provision in our
testimony. Given the time restraints, I won't go into them now.
But I would request that you look at them and consider them
strongly before you consider changing the law.
We also have several suggestions that if you do decide to
change the law, we see other ways that it can be improved.
Thank you.
[The prepared statement of Margot Saunders can be found on
page 206 in the appendix.]
Chairman King. Thank you, Ms. Saunders. We have been joined
by Mr. Inslee. Do you have an opening statement?
Mr. Inslee. Mr. Chairman, I just want to thank you for the
opportunity to be involved in this review, and I really
appreciate you conducting this. And I need to leave. I just
wanted to tell you, I really appreciated all of the testimony.
The one thing I would ask perhaps all of you is I have a
particular interest in this ``reasonable demonstration'' issue
of the ability to obtain access to the information.
I would be interested if all the panelists if they can give
us any thoughts on how we could at some point--this may not be
the moment--help folks obtain a little more certainty of what
that may be. I think that is one area that listening to all of
you, that we might be able to help at some point. So Ms.
Saunders and others, if any of you could favor me with your
thoughts over time and I will share with other members of the
panel when we receive them, that would be helpful.
Rulemaking, orders, further colloquies, anything that you
think might be of assistance, I would be happy to try to
facilitate that.
Thank you very much. And I am sorry, but I must leave at
this moment, and will look forward to further discussion.
Chairman King. Thank you, Mr. Inslee.
Mrs. Maloney. If I could, Mr. Chairman, I would just like
to publicly thank Mr. Inslee, who is a Member of the full
Financial Services Committee. He fought incredibly hard last
year for these consumer provisions, and I wanted to acknowledge
his hard work and welcome him to the subcommittee.
Chairman King. Thank you, Mrs. Maloney.
I had just a few questions. One, I don't want to start a
debate among the panel. But Ms. Harrington, in your statement,
you say that the FTC report concludes that the benefits
outweigh the burdens when it comes to the reasonable
demonstration requirement.
Mr. Rosenthal seems to be saying that the reasonable
demonstration requirement is probably the most significant
practical challenge to the full implementation of ESIGN. Is
there any way you can reconcile that difference? Or do we just
have a difference of opinion here?
Ms. Harrington. I don't think we do have a difference of
opinion. I think that we have been very careful to say that
there is very little information available right now that is
based on the implementation of the reasonable demonstration
requirement because, as you have heard from all of the
panelists, there aren't many businesses that are doing business
with consumers who have a lot of experience to date with ESIGN
generally and implementation of this provision specifically.
The participants in our study identified both burdens and
benefits. And looking at what was identified, without there
being enough data to do any kind of quantitative analysis of
benefits and burdens, Mr. Chairman, we see that there is
agreement on what the benefits are across the board. That is,
both business commentors and consumer advocates and State
authorities agree about what the benefits are from that
specific provision. And also some of the business commentors
identify challenges.
What we learned and heard is very similar to what you've
heard this morning. That is, that the reasonable demonstration
requirement in the minds of some businesses may be a hurdle,
but in terms of providing evidence of burden, the record there
is very thin. There is a concern, but not a body of information
that we can look at that lets us say aha, here's how we measure
that burden. It's very early.
Chairman King. Any of you wish to comment on that?
Mr. Rosenthal.
Mr. Rosenthal. Yes, Mr. Chairman. I would just say that I
would agree with Ms. Harrington. The jury is still out. It's
still early. There aren't lots of examples of application of
ESIGN within the industry. We have spent the better part of the
past year trying to work together in The Roundtable identifying
what some of these issues are. Our concern is that in fact this
becomes interpreted in such a way that it does become a burden.
We would not be viable businesses if we created mechanisms
that alienated customers and if they weren't able to conduct
their transactions the way they wish, I would tell you that
we've spent the past year implementing the privacy provisions
of Gramm-Leach-Bliley, so we're now focusing our efforts on
what some of the ESIGN provisions are.
Chairman King. Anybody else wish to comment?
Mr. Roe. I would like to add that that issue of burden and
interpretations and questions around consent feeds into State
regulation and how this will play out in the States. And you've
got questions here, you'll end up having different
interpretations, different conclusions in the 50 States. And
the more differences that exists in the States, the more you
break down the efficiencies of having the internet in a 50-
State marketing strategy.
Mr. Buckley. I would just, Mr. Chairman, like to add that
the ``reasonably demonstrates'' requirement in my experience is
not a deal breaker. It has not caused people not to use the
ESIGN Act. What is of more concern in the consumer consent
provisions is the material risk that you have to go through the
whole procedure again at some unspecified point, and there is a
vagueness and lack of specificity as to when that point might
be.
And as to the need for the standard, I think it's important
to keep in mind that in financial transactions, there is going
to be an ongoing need for both parties to communicate. There is
something of an assumption that we have to put everybody
through this process, which is not absolutely clear. If it were
clear it would be fine, but it's not absolutely clear what they
have to go through. I don't know that it would be fine if it
were clear either, but the idea that businesses would want to,
having spent the time and money to attract a customer, do
business with a customer who wasn't able to communicate with
them electronically and set up an electronic procedure is
contrary to the way businesses operate. Businesses are going to
be just as interested in making sure that their notices get to
consumers, because there's an ongoing transaction here.
So I think both parties have an interest in making sure
that this is going to work, and imposing this legislative
requirement, which is vague and uncertain just standards in the
way of letting the market forces move forward.
I understand Ms. Saunders' concerns about well there might
be people out there who would dupe people into agreeing to
receive things electronically, that this is happening already
in the paper world, and we don't want to see it happen in the
electronic world. But I don't think that these provisions are
going to stand in the way of people who want to commit fraud,
any more than current law does. So why put people through this
test? Why put people through these hurdles?
We don't say to someone before they get a mortgage, now
we're going to test you to see whether you understand what an
amortization table is. We let them make their own decisions.
And we shouldn't in the electronic medium say, well, we aren't
going to trust you to operate in this medium. We're going to
put you through a test to make sure you can do it, and you'd
better go back and confirm electronically that you can do
business with us electronically. It reflects a lack of faith in
this medium which we think is not justified.
Chairman King. Ms. Saunders, you seem very anxious to
reply.
Ms. Saunders. I think the first question that perhaps
should be resolved is what does that reasonable demonstration
test mean? Many here seem to think that it means a test of the
consumer's mental ability to access documents. In my opinion,
it doesn't mean that at all. It means the consumer's
accessibility to electronic documents via software and
hardware. So it's not testing the consumer's acumen. It's
testing the consumer's--what do they have? Do they have a
computer or do they have regular access to a computer?
My other point that I want to make is I think that the
substantial risk, the material risk issue I agree is an issue,
but I think it is probably a temporary issue. Eventually all
the electronic records should be readable or accessible by all
types of computers and software. So if technology continues to
move forward as it has been in the past, access to different
software techniques will not be an issue. Eventually, the
seamless movement from one electronic record to another won't
create any material risk so that you won't need to go through
the consumer consent.
But there is very much a risk today. I would bet that
everybody in this room has received an e-mail which had an
attachment that they couldn't open. And given that reality,
until all technology has reached the point that everyone can
access everything sent to them, we have to recognize that
consumers need to be sure to be able to read what is sent to
them. Thank you.
Chairman King. We've been joined by Mr. Grucci from New
York. Felix, do you have any opening statement you would like
to make?
Mr. Grucci. No, Mr. Chairman. I'm just learning a lot,
though, by listening to this panel and the discussions today. I
have no opening statements, thank you.
Chairman King. OK. We have also been joined by Mr.
Hinojosa. Ruben, do you have any statement?
Mr. Hinojosa. Thank you, Mr. Chairman. I would like to ask
Margot Saunders what--let me restate my question. Are the
consumer protection provisions in ESIGN superior to those in
the Uniform Electronic Transfer Act which many States have
adopted?
Ms. Saunders. Undoubtedly. Yes they are. The ESIGN includes
the consumer consent provisions. UETA has no similar provision.
UETA allows a consumer's agreement to receive records
electronically to be determined from the circumstances so that
a consumer could be deemed to have agreed to receive electronic
records by signing a piece of paper which includes that
agreement in fine print on the back. And that is a serious
problem to us for the reasons that I have already articulated.
Also, ESIGN includes superior record retention and
integrity requirements in Section 101(d) and 101(e) over UETA.
And ESIGN specifically has exemptions from electronic records
in Section 103(b) for certain essential records such as utility
disconnect and eviction notices and foreclosure notices that is
not in the Uniform version of UETA, although UETA leaves room
for those to be added.
Mr. Hinojosa. Well, tell me as a consumer, what are the
benefits of receiving the electronic versions of information
previously required by law to be provided in written form?
Ms. Saunders. Well, for a consumer who is transacting
business electronically who wants to receive electronic notices
rather than mail notices, there is substantial benefits. Many
of us are beginning to organize all of our affairs on our hard
drives and rather than in file drawers, and those consumers
want to receive their notices and records electronically and be
allowed to store them electronically. And we don't want to
hamper that in any way.
Our concern is that the consumer actually be able to read
it and retain it if they want to.
Mr. Hinojosa. Would the accounting trail information be
readily available to a consumer to maybe in a dispute to be
able to show what happened?
Ms. Saunders. I'm not sure I understand the question.
Mr. Hinojosa. Well, the way we do it today, there is a lot
of written material, checks and statements and correspondence,
and if there is a dispute, you can always go to the files, pull
up that what we call the accounting trail, and be able to say
that someone in their organization made the mistake or the bank
made the mistake. Somebody made a mistake and I have proof of
what I'm talking about.
Ms. Saunders. I see. That issue goes to record retention
ability, which is a very important issue to us. Let me walk you
through a transaction, for example. If you go to a local large
hardware store and apply for an open-end account to buy some
carpet, for example, you will given, if you're operating this
is in the physical world, a piece of paper describing the terms
of your open-end credit agreement. Then you'll sign another
piece of paper, and then you will go home with copies of both
of those pieces of paper. And if 3 months down the line, there
is a dispute between you and the creditor regarding what the
amount that you owe or the interest rate that's being applied,
you will always have those pieces of paper to refer to, as you
have already noted.
Our concern is that if you are, again, in the exact same
transaction, but if that transaction becomes electronic rather
than paper, you might not have that. For example, if you are
allowed to consent to receiving all of those disclosures
electronically when you're standing in the store by signing a
piece of paper and then the store posts the disclosures to a
website, which you then have to go home or to a library to
download and retain, you may not, a, be able to do that because
you don't have a computer; or b, your computer may not have the
capability to access that particular website; or c, you may not
know to do it because many of us actually don't look at our
disclosures until the dispute has arisen. So one important
question would be how long those disclosures have to stay up on
the website for you to be able to look at.
So there are substantial differences in the electronic and
paper world in that situation. And we would hope that while the
electronic transaction should be facilitated, the consumer
should always be able to access that electronic record
electronically and download it, even at some point long in the
future so that they would be able to resolve the dispute with
access to the information in the same way that we know the
creditor will have access to that information.
Mr. Hinojosa. Well, that last statement you made----
Chairman King. Excuse me, Ruben.
Mr. Hinojosa. I'll end it right quick, Mr. Chairman.
That last statement you made, ``the consumer should be able
to access,'' is the key, and I just hope that as we move along
that our subcommittee will ensure that that will occur for the
protection of the consumer.
Thank you, Mr. Chairman.
Chairman King. The time of the gentleman has expired.
Mrs. Maloney.
Mrs. Maloney. I would like to thank all of the panelists
for their very informative testimony. And many of you raised
the challenge of a Federal standard and a State standard and
some of the complications that it is causing. And Ms. Saunders
raised the idea of a national consent provision, and I wonder
how the other panelists feel about that.
And I would like to go back to a theme that Christopher Roe
raised and Louis Rosenthal likewise raised, and the confusion
sometimes between a State and a Federal standard. And I would
like to know whether you think we should have a Federal
standard in all respects. And I would like to open that up. If
we are having different standards in the States--Mr. Roe raised
the insurance industry. If you are a national insurance
company, that is going to cause more headaches than benefits.
So I would like comments on Ms. Saunders' idea of a
national consent provision and really the theme raised by Mr.
Rosenthal and Mr. Roe about conflicting standards from the
State and the Federal. Would we be better off with a Federal
standard? What are your feelings on this? Anyone?
Mr. Rosenthal. OK. The way we see the confusion or the
conflicting issues between State application of the law and the
Federal preemption is that e-commerce bridges borders, it
bridges the boundaries. And, in fact, that is what is very
interesting to businesses, to be able to do business across all
borders.
The burdens that we would have to bear to maintain
electronic compliance if you will with individual State laws is
enormously burdensome and in fact confusing. For fear of making
an error, we would wind up not offering the kind of access we
think we can offer to consumers just for fear of making a
mistake. So uniformity I think would be beneficial, provided
that uniformity is not overly burdensome or in fact confusing
to the consumer.
Mrs. Maloney. And about the consent provision. A uniform
consent provision on privacy?
Mr. Rosenthal. Related to E-Sign, I think it's early right
now. We think that anything that is a standard would be
beneficial for both the consumer as well as our industry.
Mrs. Maloney. And, Mr. Roe.
Mr. Roe. Yes. I'd like to add that a universal standard
would be greatly appreciated as long as it's a standard that
doesn't overregulate the internet, that's not set too high or
doesn't have unintended consequences. For example, in the
Federal consent provision, it allows for the consumer to
withdraw consent at any time.
When you couple that with insurance laws, which put very
severe restrictions on insurance companies on terminating
coverage or canceling a risk or non-renewing, what you may be
doing unintentionally is interfering with a virtual insurer
business model where that specific insurance company would only
handle online transactions.
Or let's say you wanted to encourage traffic to your
website and provide a discount or a price break for your
insurance product. That individual, once they withdraw consent,
would automatically jump back into the paper world and you may
end up having to carry forward that price break.
So there are some consequences that the ESIGN consent
provision puts forward that we may not fully comprehend yet.
Mrs. Maloney. I agree. I think there are a lot of
challenges, particularly in insurance. Because, as you say, the
product changes. There are all types of agreements. Some are
different from State to State. I think there are a lot of
challenges there.
A national consent provision for privacy, would you support
that?
Mr. Roe. A national consent provision for privacy or for
electronic signatures?
Mrs. Maloney. For electronic signatures. Would you support
that?
Mr. Roe. We would support it as long as the consent
provision really preempted State law, was a universal consent
provision, and it was something that was not set too high that
would overregulate the internet.
Mrs. Maloney. Mr. Crocker, would you support it? Or not?
Mr. Crocker. I think that the interplay between the Federal
law and the State law is one of the most problematic aspects of
this legislation. There are a lot of complicated reasons why we
had that. It was part of the political price of getting the
Federal legislation.
If you go back to the original goal of uniformity, legal
certainty and consistency, that a Federal standard, not just in
the consumer consent area, but in other areas covered by the
ESIGN Act would be beneficial.
Mrs. Maloney. OK. Great.
And what do you think, Mr. Buckley?
Mr. Buckley. I would agree. But I'd like to point out that
most financial services firms are going to have to comply with
the ESIGN requirements and obtain the consumer consents in
order to deliver the federally mandated disclosures that have
to be in writing.
States enacting UETA are fine, but that does not authorize
the delivery of Federal disclosures electronically. So for all
practical purposes with respect to a mortgage where you have to
give truth in lending and RESPA disclosures, with respect to
other transactions that are going to be conducted by banks and
mortgage companies and others, as a practical matter, you're
going to have to go through the Federal consent process right
now for most financial services that this subcommittee has
jurisdiction over. That's just a reality. So it's not hard for
me to say it's not a bad idea to have a national standard and
not worry about variations at the State level.
Mr. Crocker. If I could just respond to that, I would agree
with what Jerry just said, but I would also like to stress that
this is a different issue in case there's any question about it
from privacy. And we're talking about electronic signatures,
and it should not----
Mr. Buckley. I hope I didn't imply that.
Mr. Crocker. No, you did not.
Mrs. Maloney. OK. Now Mr. Rosenthal, you raised really the
challenge--and this is a particularly important one I think for
financial services--the uniformity in the international
marketplace. I could see, you know, just internationally ESIGN
taking off probably faster than domestically, because of the
need to communicate. How would we go about setting a uniformity
in the international marketplace? What are your ideas? I think
that you're right. We need uniformity or you're going to have
more problems than answers.
Mr. Rosenthal. Yes. It's true that ESIGN covers some of the
international issues. We've obviously been focused since last
year on the domestic issues. But the Basel Committee on Banking
Supervision published guidelines for e-commerce and it
addresses some of the issues there. And I would suggest that to
echo the theme of standards uniformly applied that a closer
look by this subcommittee at some of the provisions in the
Basel guidelines might be beneficial. We would certainly like
to be on an equal playing field with our counterparts overseas.
Mrs. Maloney. OK. Anybody else want to comment on the
international challenge? Anybody?
Mr. Crocker. If I could just briefly say a word on that. I
think there are very significant differences between the
approach in the United States and the approach in the EU. If
you look at the EU Digital Signature Directive, it basically
boils down to being not technology neutral. It probably
endorses PKI, Public Key Infrastructure. And in order for U.S.
electronic signatures to be recognized in the EU, they have to
be approved by a regulatory body there.
And the whole question of interface between what is being
developed in the United States and elsewhere is a vast and
complicated and vexing subject that needs attention.
Mrs. Maloney. OK. Great. Thank you. You raised in your
testimony, Mr. Crocker, you know, what does ``reasonably
demonstrate'' mean? And the difficulties of not having it more
spelled out and as being just too vague. But you say it's
workable. Would you like to comment further? Do you think we
need to change that language? ``Reasonably demonstrates.'' I
mean, what does it mean?
Mr. Crocker. I think the key is that industry has to have
some flexibility to devise solutions that meet that term. It is
a vague term. But I think concomitant with that is the idea of
some flexibility. And I think industry has been groping to do
that, and in most cases they've come up with solutions that
seemed to pass a reasonableness test of reasonably
demonstrating, through a pingback or an e-mail response.
And again, I think it's important that the regulatory
agencies and the Congress just keep a view to keeping some
flexibility and reasonableness in allowing how people meet that
test.
Mrs. Maloney. I think that in our Federal system one of the
strengths is that we provide for flexibility and innovation. We
look to see what States are doing. We allow them to experiment
and come forward with their own formulas. But in something as
important as e-commerce and communication, you need to have
standards. Otherwise, it's going to really cause a lot more
problems.
I'd like to ask Mrs. Saunders, could you provide examples
of specific consumer protection provisions in existing law that
ESIGN transfers to the online and how effective is that doing
that, if at all?
Ms. Saunders. What ESIGN's consumer consent provision does
is ensure that a consumer actually gets electronically what
they would have received by paper in the real world. At least
that's the intent of the provision.
So let me detail just a few types of papers that a consumer
would receive in real-world transactions. As Mr. Buckley
described, when you are signing a mortgage on your house,
there's a number of important documents that you receive that
are required by Federal law that you want to be able to hold
onto. If you are refinancing the mortgage you will get an early
disclosure required under truth in lending describing your
rates and points and fees. You will get a good faith estimate
required under the Real Estate Settlement Procedures Act which
describes your closing cost.
When you close the loan, assuming you do that
electronically as well, you get the contract itself, which in
all States is required to be in writing, and you get truth in
lending disclosures that describes when your payments are due
and what your interest rate is, and you get a very important
document, again required under RESPA called the HUD One, which
describes the exchange of monies at the table. And you also get
a notice of your right to cancel the transaction, which you may
want to do if you find that the transaction is not as you
thought it was, and that's why you've got 3 days to cancel.
All of those papers, which we all currently get and stick
in a drawer and then look at if and when we have questions, you
would get electronically by virtue of ESIGN.
Mrs. Maloney. Thank you. And my time has expired.
Chairman King. Thank you, Mrs. Maloney.
We have been joined by Ms. Hart of Pennsylvania who is
going back and forth between committees and subcommittees and
she has asked to make a statement. Ms. Hart.
Ms. Hart. Thank you very much for your indulgence, Mr.
Chairman. I also very much appreciate you having this hearing.
I apologize to the presenters. I'm going to bring all the
testimony with me and make sure I get a chance to really review
it over our break.
I simply wanted to make a statement up front, and I may
have questions that I'll address later to the witnesses. But
I'm a freshman here and was the sponsor of our ESIGN
legislation in Pennsylvania. We passed it in December of 1999.
We basically followed the Uniform Electronic Transactions Act.
However, we were very careful to try to make ours more
technology neutral than the Uniform Act was.
I think it's important that we do all we can to make sure
that this is a user-friendly law and that it is something that
both businesses and individuals alike will look at as something
that they will use and that is practical. I think the input of
the witnesses today is going to help us I think move in that
direction.
The advantage I think to this is far beyond our borders in
the United States. And in fact, as we dealt with the issue in
Pennsylvania, the input I got was mostly from multinational
corporations or fledgling internet corporations that were
basically starting their work by trying to use ESIGN and using
ESIGN without the benefit of our law to begin with, which I
didn't think was very smart, but they wanted to try to do.
Because I'm a lawyer, I thought that was ill-advised.
Obviously, we're all concerned about the enforceability of the
contracts made over the internet. But I do know that now we've
gotten up to 34 States I think that have adopted their own
versions of either the Uniform Electronic Transactions Act or
ESIGN to govern their electronic transactions, and I think 13
additional States obviously have bills pending.
I think it's important for us on the Federal level to try
to make them as uniform as possible. As I said, it's really not
going to be that effective if we have 50 different laws that
don't obviously comport with each other. But we're still--if we
try to make sure that somehow we can control what goes on
throughout the world, because we're not going to be able to do
that. I think our goal here is to have an acceptable standard,
an acceptable, especially from the things that I've gotten
through in some of the testimony, a standard dealing with
consent.
I believe that it should be less regulated rather than more
regulated. That is, I think whatever is agreed to between the
parties should be effective. Now when it comes from a large
corporation to a bunch of customers, I think that's where we
start to get into a sticky situation, and obviously customer
error or misunderstandings and things like that have to be I
think provided for by our law.
But I certainly don't want to take the responsibility of
the consumer off the consumer. I think we have to make sure
that our requirements for consent are clear, especially in
those levels where we have a large company and consumer.
As I said, I will take the time to review the testimony. I
just want to share that. I've talked with several groups who
are struggling to fully implement their own e-commerce into
their business practice, both small corporations and very large
multinationals. Some of them have been successful with it.
Their problems still do stem from I think the things that I'm
hearing, at least that I've seen so far in the testimony
regarding consent. So I'll be looking forward to what we do
further.
I also obviously agree with the Chairman that we certainly
don't want to jump into doing anything that might make it
worse, since this is a very new law and we're still trying to
shake out exactly what we need to do, if anything.
So again, I want to thank the Chairman for this hearing. I
want to thank the witnesses for appearing today and for my
colleagues who I know have also been in and out of the hearing.
So thank you, Mr. Chairman, for your indulgence. I yield back.
Chairman King. Thank you very much, Ms. Hart.
Mr. Hinojosa.
Mr. Hinojosa. I just have one last question, Mr. Chairman,
and I'll be brief.
Margot, in your presentation--am I pronouncing it correct?
Margot?
Ms. Saunders. Actually, it's Margot.
Mr. Hinojosa. Margot.
Chairman King. I would just say for the record, if anybody
has a difficult name to pronounce, it's Mr. Hinojosa.
[Laughter.]
Mr. Hinojosa. You're very kind, Mr. Chairman.
Ms. Saunders. My mother decided to make life difficult for
me.
Mr. Hinojosa. In the testimony on page 7, I was reading
with great interest the portion about the danger. And you give
an example of a person going in to buy an automobile and the
salesman saying that it would be cheaper and better if they
could just do this electronically. The lady didn't have a
computer, as 50 percent of Americans do not have computers. And
you go on through this.
And the concern that really is like a red flag to me is
that if in this example the lady were to sign the contract and
they would say that they would send it electronically and let
her go to a public library and get the documents, there would
be opportunities to change the electronic record after the
signature was affixed to the contract. And you say that there
is nothing in ESIGN which requires that the process of
electronically signing a record would prevent alteration of the
record. How can we in this subcommittee help consumers so that
that will not happen?
Ms. Saunders. Well, I have a lot of ideas. We presented
during the debate of ESIGN that language be added to the
electronic signature statement very similar to what was in Mr.
Bliley's original bill, which was that once an electronic
signature was applied to a document it would prevent
alterations to that document afterward. That was seen to be not
technology neutral, I believe, because an electronic signature
under ESIGN can be anything from a digital signature, which in
fact does lock a document once it's supplied, to a click or
just typing your name at the bottom. It's anything.
So there is language that we could certainly add to the
definition of electronic signature that would say something
like once an electronic signature is applied to an electronic
record, it should be essentially locked or not alterable. That
seems to me to be technology neutral, but obviously not
everyone agreed.
But there are a number of State laws around the country
that have similar standards. The status of those State laws
given ESIGN I think is in some disarray. There is a question as
to the extent to which ESIGN preempts them if they are not
considered technology neutral.
So there are things you can do. As to whether this Congress
will do them, that's another question.
Mr. Hinojosa. Well, that's our responsibility and we thank
you, Ms. Saunders. Thank you. Thank you, Mr. Chairman.
Chairman King. Thank you, Mr. Hinojosa.
Mr. Rosenthal, I just have one question. At the end of your
testimony, and it sort of reaffirms what you said earlier, you
talk about some of the provisions making implementation
cumbersome. But you seem somewhat sanguine about it, suggesting
that the marketplace can work out these difficulties. In the
course of the marketplace resolving the difficulties, are you
concerned about any potential litigation, massive litigation?
And would any of your members be willing to be the one on the
spot as far as that litigation?
Mr. Rosenthal. Well, first let me tell you that I'm not a
lawyer so I am always concerned about litigation.
[Laughter.]
Mr. Rosenthal. This is an evolving field right now. And the
fear that I have as I am charged with implementing these kinds
of technologies is that we become overly prescriptive up front
and it limits the ability of our organizations to do business
with consumers. And I don't think that that was the intent of
ESIGN. In fact, I'm not sure it's the intent of most of the
legislation coming out of Congress to do that.
So I would tell you that I would guess there is most likely
going to be litigation on certain issues, and the industry is
going to have to work itself out or work through some of these
issues. But to be prescriptive about the solution in fact may
work against what I think ESIGN was intended to deliver to
businesses and consumers.
Chairman King. Anybody want to comment on that? Especially
any of the lawyers?
Mr. Crocker. Well, I think that the fear of litigation is
certainly affecting people's use of ESIGN. I do know instances
where financial institutions have decided to not rely on it
because of that concern.
Chairman King. We just had a bell here for a vote on the
House floor. I have concluded my questions. Does anybody else
have any comment they want to make on that question?
[No response.]
Chairman King. If not, I want to thank the Ranking Member,
Mrs. Maloney, for her assistance, cooperation today. I want to
thank the staff. And most of all, I want to thank the witnesses
for coming here, for your testimony. It was very enlightening.
You were very patient. You endured a lot. You have given us
certainly a considerable amount of information which we're
going to have to digest and analyze, and this really is an
evolving area. So you really have contributed immeasurably, and
I thank you very much for your cooperation and your testimony.
The meeting stands adjourned. And without objection, the
record of today's hearing will remain open for 30 days to
receive additional material and supplementary written responses
from the witnesses to any question posed by a Member of the
panel. This hearing of the Subcommittee on Domestic Monetary
Policy, Technology, and Economic Growth is adjourned.
[Whereupon, at 11:51 a.m., the hearing was adjourned.]
A P P E N D I X
June 28, 2001
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