Uniform Electronic
Transactions Act: Challenges and Opportunities
Should a lender be
allowed to send a foreclosure notice only to an email address that is five
years old?
Should a salesperson be able to sign a consumer up to receive all
future notices by email when the consumer doesn't even own a computer?
Should utility shutoff warnings go only to an email address that might
be shared within a family and checked primarily by the children?
If a consumer needs a paper copy of a disclosure or contract notice
sent by email, should the consumer have to pay a fee to get a copy of that
notice?
If a law requires a certain type of contract to be in writing, should a
record of a phone call satisfy that requirement?
All of these things will be permitted by the new Uniform Electronic
Transactions Act (UETA).UETA is coming
soon to your state legislature.
What is UETA?
UETA is a uniform law approved July 1999 by the National Conference of
Commissioners on Uniform State Laws (NCCUSL).UETA is a uniform statute that, if adopted by state legislatures, will
give broad legal parity to electronic records with paper records, and parity to
electronic signatures with ordinary signatures.
UETA is built on
these three premises:
1) That most state law requirements for a writing can be satisfied by
an electronic record, including an email.
2) That most state law requirements for a signature can be satisfied by
an electronic signature.
3) In most cases, parties should be able to agree to any form of
electronic communication defined by the contract.
Each of these premises can be untrue in consumer contracts.
The first premise will be true in only some consumer situations.An electronic record may be just as good as
a written record for a transaction that is completed in 30 days, but a consumer
entering into a five‑year car loan or a 30‑year mortgage may need
the note and contract in a form in which he or she can keep.Home computers are replaced every few years,
and previously downloaded contracts are unlikely to be copied over to a new
system.Change of terms notices for an
Internet service provider probably should be delivered by email, but a notice
that your car is being recalled for a safety problem should arrive in the
mail.
The first premise also assumes that email arrives at least as reliably
as regular mail, which is contrary to the experience of many consumers.Consumers currently may change email
addresses more frequently than they move, and consumers with email addresses
seem to check them either far more frequently or far less frequently than their
daily check of the regular mail.In
addition, an Internet mail provider may go out of business, leaving a consumer
with no choice but to obtain a new email address.
As to the second premise, an electronic signature does not always fully
serve the purposes of a written signature.Where there is a risk of forgery, a written signature may provide
additional safeguards because it may be harder to forge than a purported
electronic signature.An electronic
click made at home may not serve the purpose of emphasizing the seriousness or
the particular risks of a transaction as well as a written signature.
The third premise of UETA is reflected in the broad deference it gives
to the autonomy of contracting parties.It defers to the agreement without distinguishing between negotiated
agreements and standard form contracts.This approach gives wide latitude to drafters of standard form contracts
to define and impose the conditions of electronic communication.
For example, UETA adopts the principle that each party should be able
to determine when it will receive information electronically, and when it
wishes to insist on receiving a paper communication.This sounds good in theory, but in practice it allows one‑sided
contracts.UETA will allow an on‑line
seller to insist on sending all information to the consumer electronically, but
then in turn require that the consumer must communicate any complaints, refund
requests, billing disputes or other communications to the same company only by
regular mail.
Here is another example of a perverse effect created by UETA's rule of
autonomy to contracting parties.UETA
contains definitions of both "sent" and "received."These definitions say that material is sent
when it enters a computer system or part of a server that is outside the
control of the sender, and that information is received when it enters the
recipient's computer.These definitions
have loopholes‑they define a message to have been received even when the
recipient can't open or read it; or when the message was automatically
discarded by a junk mail filter.The
definitions nevertheless do capture the basic idea that something is received
when it gets to you or to a place where you can retrieve it.However, UETA then permits the parties to
vary these definitions so that "sent" and "received" can be
redefined to be anything to which the parties agree.Under UETA, a web seller could define information to have been
received by the buyer at the moment that the seller posts that information to
its own web site‑even if the customer doesn't even know that the
information has been posted.
Here are some of the problems with UETA.
It:
* Permits using a paper contract followed by an electronic change or
restriction in the terms of that paper contract.
* Permits using email to substitute for legal requirements to provide a
paper notice even when the consumer has not been doing business with the
company by email.
* Permits an electronic signature to be made to a paper record.
* Exposes consumers to the risk that notices with a legal or
contractual effect will be sent only to a rarely checked email address.
* Exposes consumers to the risk that notices with a legal or
contractual effect will be considered received even if the consumer is unable
to open or read them, or if the notice is automatically discarded by a junk
mail filter.
* Permits a party to redefine sending and receipt so that both are
satisfied merely by posting a notice to a web site.
* May permit a record of a telephone call to substitute for a written
record.UETA defines an electronic
record to include information that is either inscribed on a tangible medium or
that is stored in an electronic or other medium and is retrievable in
perceivable form.A telephone call that
is tape‑recorded or digitally retrievable is an electronic record under
this definition.
* Fails to include a right to a free, written copy of a contract or
notice delivered electronically.
* Lacks a rule stating that an electronic record is not considered
delivered if it is delivered in a form in which it cannot be opened and read by
the recipient.
* Offers no unfettered right on the part of the consumer to revoke an
authorization to communicate electronically and revert to paper communication.(The consumer may revoke with respect to
future transactions, but not for this transaction).
* Lacks a statutory restriction on use of old email addresses.Even in a five‑year car loan or a 30‑year
mortgage, UETA would allow the creditor to keep using the same email address
whether or not there is any reason to believe that address is still good.UETA does contain a limited restriction on
the use of bad addresses if the email bounces back to the sender.
What should be
done with UETA?
UETA presents challenges for consumer advocates.Electronic commerce has pluses and minuses
for consumers.For those consumers who
have access to the Internet, on‑line shopping holds out the promise of
increased price competition and selection.At the same time, electronic commerce also offers some new opportunities
for sellers to hide contract terms, posting them in ways that make the consumer
unlikely to find or read them, or even sending the terms only after
payment.UETA also creates some new
opportunities for scam artists by allowing a seller to switch to electronic
communication after a paper contract has been signed.
Because this new law was introduced early in California, some important
improvements for consumers appear in the California version.These improvements are absent from the
uniform version which will be offered in other state legislatures.Legislators, consumer law enforcement
officials, consumer advocates, and legislative staff should consider insisting
upon both the California changes and other improvements to UETA before it moves
forward in their states.
Action needed
Two kinds of changes should be made to UETA in each state
legislature.First, legislators,
consumer law enforcement officials, consumer advocates, or legislative staff in
each state will have to develop a list of state statutes which should be exempt
from the general UETA rule permitting electronic records and electronic
signatures to replace written records and signatures.Second, both the California amendments and certain other consumer
protections should be added.
Statutes that
should be exempt from UETA
Section 3 of UETA contains a placeholder for insertion of a list of
state statutes to be exempted.That
list will have to be developed and sought in each state legislature.At least these four types of statutes
identified below should be exempted from UETA by each state legislature.All four types were exempted in the
California version of UETA.
* All statutes that require that specifically identifiable text or
disclosures in a record or a portion of a record be separately signed or
initialed.Separate signature and
separate initialing requirements are often used in state consumer law to draw
attention to contractual provisions with a special impact on the customer.These statutes should be exempted as a
category, without having to list each one.If these statutes are left under UETA, some of their requirements may be
weakened by UETA's broad substitution of electronic signatures for ordinary
signatures.
* Statutes with special notice requirements or for notices which
trigger legal rights such as the running of a time period to appeal.Special notice statutes include a notice
before infringing upon a medical patient's privacy.Notices affecting legal rights include health‑care denial
notices.
* Statutes affecting post‑contract rights or activities.Examples of these statutes include
foreclosure statutes, auto conditional sale and loan repossession‑related
notices, and eviction notices.
* Statutes which were passed to restrain particular types of
activities.Statutes falling into this
category include statutes requiring notices before life, health and Medigap
insurance policies may be replaced; credit repair statutes, and statutes
addressing the rent‑to‑own business, payday loans, and foreclosure
consultants.
Substantive
amendments needed for UETA
Consumer protection law enforcement officers and consumer advocates
should consider asking that certain basic consumer protections be added as a
precondition to UETA's braod substitution of electronic records for writings
and of electronic signatures for written signatures.The needed improvements to UETA include:
* Restrict UETA only to agreements to communicate electronically which
are made electronically.[This change
was made in the California UETA bill.]A seller should not be able to use a preprinted paper contract to sign a
consumer up to receive all future communications by email.Requiring that the initial agreement be made
electronically at least ensures that the consumer had the capacity to process
email at the time the agreement was first made.
* Add a right to revoke an authorization to receive communications
electronically.[This change was made
in the California UETA bill.]
* Restrict the use of stale email addresses.
* Add a requirement of good faith and fair dealing in the
implementation of an agreement to communicate electronically.
* Delete transactions resulting from telephone calls for personal,
family, or household purposes from coverage of the Act, and narrow the
definition of electronic record so it doesn't include phone calls.
* Add a right to get a paper copy of any document delivered
electronically at any time and without charge.Consumers are unlikely to request a paper copy unless they need
one.When they need a paper copy, they
should be able to get it promptly and without a fee.
* Tighten the definitions of "send" and "receive"
so that they cannot be unreasonably varied by agreement.[This change was made in the California UETA
bill.]
* Restrict redefinition by agreement of "sent" and
"received."A contract should
not be able to promise to send something and then redefine sending to equal
"come and get it from our web site."There are situations where it makes sense to tell the consumer to come
and retrieve information, but many other situations where it does not.However, a seller shouldn't be able to
promise to send information and then redefine sending to be "come and look
for it."[The California version
of UETA contains a reasonableness restriction on redefinitions of sent and
received.]
* Require that if notices of the right to cancel are delivered
electronically, then the right to cancel must also be permitted to be exercised
electronically. [This change was made in the California UETA bill.]The current rule of UETA could lead to confusion:
it would allow a seller to email the notice of right to cancel but insist that
the notice be mailed back to exercise that right.
* Define the on‑line consumer transaction to have been made at
the consumer's home.
* Remove the loophole in the section creating an error defense for
orders placed using electronic agents, so that the defense does not become
unavailable merely because there was a confirmation screen in the process.
* Tighten the definition of an electronic signature so that it must
occur in connection with an electronic record, not a paper one.[We are waiting to see if this change will
be made in the California UETA bill.]
* Eliminate the broad authorization for electronic acknowledgement,
verification, and sworn statements. .[We are waiting to see if this change will be made in the California
UETA bill.]
* Add many consumer statutes to the list of exempt statutes.[This change was made in the California UETA
bill.]Wide consultation with
regulators, law enforcement, and consumer groups will be needed to develop that
list in each state.As discussed above,
the list of exempt statutes should include statutes requiring separate
signature or initialing, as well as mortgage foreclosure notices, repossession
related notices, change‑of‑terms notices, (especially for any
contract entered into other than electronically), utility shutoff warnings and
notices, service of court papers in the absence of a stipulation, and other
notices affecting legal rights.
Consumer protection law enforcement officials and consumer advocates in
otherstates should be able to seek and
win the changes in UETA that the sponsors have already agreed to in
California.This should make it easier
for to pursue the additional needed improvements.
Why didn't the
drafters of this uniform law include consumer protections?
Unfortunately, the drafters of this law did not see consumer protection
as their job. The UETA drafters have argued that it merely facilitates
electronic commerce without changing underlying substantive laws. They see it
as merely procedural.Consumer
advocates and consumer law enforcers know, however, that procedural rules often
affect substantive rights.Permitting
electronic delivery of consumer notices, contracts, and disclosures may
undermine the effectiveness of the some existing consumer protection
statutes.
If it isn't good
for consumers, why fix it?Why not just
stop it?
Electronic commerce is here, and consumer laws need to be evaluated for
how well they address it.In some
cases, consumer laws need to catch up with electronic commerce so that new
practices don't undermine existing protections.UETA is a reasonable place to start that process.
Despite its problems, UETA is more balanced than many of the electronic
record and electronic signature proposals that have been made in Congress.Some of those proposals would simply
substitute electronic records and signatures for written records and signatures
without any exceptions.Unlike those proposals,
UETA contemplates that some statutes will be exempt, and it expressly preserves
state law requirements for the formatting of records when those records are
delivered electronically.UETA also
avoids formalistic definitions of assent and mechanical attribution rules that
attribute messages to consumers who didn't send them‑weaknesses found in
some other electronic commerce proposals.
With the addition of the pro‑consumer changes made in California
and other strengthening amendments, UETA could become a statute that
facilitates electronic commerce without harm to consumers.
Conclusion
Many key issues must be resolved before UETA can serve the purpose its
sponsor has laid out for it‑to facilitate electronic commerce when both
parties desire to deal electronically without creating new avenues for
abuse of consumers.Much work by is
needed by law enforcement agencies, public and private consumer advocates, and
state legislatures to meet that challenge.
A copy of the pro‑consumer amendments made in theCalifornia UETA bill, plus proposed
legislative language to implement the additional consumer protections described
here can be found at www.consumersunion.org*******ADD when posted****.For more information, please contact:
The above address
will take you to the NCCUSL Drafts of Uniform and Model Acts Official Site
page.Click on the Final Acts link,
which will take you to the NCCUSL Final Acts page.Scroll through the Index on this page and choose the Uniform
Electronic Transactions Act link, which will take you to the UETA Final Draft
link at the bottom of the page.
The full text of the
California's UETA bill, SB 820, can be found at:
http://www.sen.ca.gov/htbin/testbin/ca.html?GOPHER_ROOT2:[BILL.CURRENT.SB.FROM0800.SB0820]CURRVER.TXT;1/bill/SB820
