E-Signatures Face Uncertain Future

Despite months of negotiations, Republicans and Democrats in the U.S. Congress remain split on a bill that would legalize digital signatures.

While lawmakers agree that passage of legislation approving digital signatures is critical to the future of electronic commerce, there is little agreement between political parties regarding the specifics of the bill.

Last week, House and Senate Republicans finally reached a compromise on the bills passed in each chamber, but Democrats are not satisfied with the consumer protection measures in the proposal.

The bill gives electronic agreements and signatures the same force of law as traditional paper agreements and handwritten signatures, if consumers agree, and overrides state laws requiring contracts to be in writing. Digital signature technology uses encryption to scramble information so that only the parties legitimately involved in a contract can read it.

Financial services companies are particularly enthusiastic about the prospect of electronic contracts, since they would be able to significantly reduce the tons of paper contracts they must currently maintain. Many companies have expressed interest in offering consumers the choice of receiving contracts and bills via e-mail or by postal mail.

Consumer Protection Issues

After rancorous debate on the issue last week, Democrats remain skeptical about the Republican proposal. At issue is whether the bill affords consumers enough notice and choice about changes from paper to digital records in transactions with banks, insurance companies and other institutions.

The Clinton administration is particularly concerned about whether the bill includes measures that would keep consumers from inadvertently forfeiting the option to obtain paper records or to have major documents, such as foreclosure notices, sent to them through regular mail.

Despite misgivings from the Democrats, the bill appeared to be poised for passage last week, until U.S. Treasury Secretary Lawrence Summers proclaimed it “disappointing” and asked Democrats and Republicans to work together to modify the language.

Following last week’s discordant debate, Representative John Dingell (D-Michigan), the ranking Democrat on the House Commerce Committee, said, “After two months of negotiations amongst themselves, they have succeeded in making an unacceptable House bill worse.”

Senator Patrick Leahy (D-Vermont) said, “I have been seriously concerned that the Democratic conferees are being shut out of the process.”

Areas of Dispute

Specifically, Democrats want some communications, such as eviction notices, sent only in writing. A major concern is that consumers who may be experiencing financial difficulties could have their Internet service cut off and never receive critical notices sent via e-mail from financial institutions.

Democrats also want a provision in the bill ensuring that consumers who agree to electronic signatures will not be penalized or charged if they later decide to revert to traditional methods.

Additionally, some Democrats have expressed a desire for the bill to more clearly define how records will be retained. Republicans insist that most of the Democrats’ concerns have already been addressed in the bill.

Consumer advocacy groups have also weighed in with their concerns. Margot Freeman Saunders, the managing attorney for the National Consumer Law Center said last month, “Congress is about to pass a bad electronic signatures law.”

Saunders and others from consumer watchdog groups are concerned about privacy issues and information leakage.