[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

____________________________________________________________________________
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                 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

                              ----------                              
                                                                   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



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