The Dynamics of Consumer Protection In Light of UETA and E-Sign

I.  Introduction

Congress passed the Federal Electronic Signatures in Global and National Commerce Act^[1] (“E-Sign”) in June 2000. This law provides that electronic signatures and electronic records generally satisfy legal requirements for signatures or writings.  E-Sign authorizes the substitution of electronic notices for paper notices including most, but not all, types of consumer notices.  E-Sign also includes a number of important protections to ensure that consumers can receive, keep and use electronic notices provided to them.

To date^[2] thirty states have enacted some version of the Uniform Electronic Transactions Act (“UETA”).  This is a Uniform Law on the same subject matter as E-Sign that is recommended by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”).  A few states have enacted the uniform version,^[3] while other states have added consumer protections not found in the uniform version.^[4]

E-Sign and UETA are similar in many respects, but they are not at all similar in the way they treat consumers.

• In consumer transactions, E-Sign requires a specific and electronic consent process before an electronic notice may replace a legally required written notice^[5].  UETA merely requires that the parties agree to conduct transactions by electronic means, but does not specify how that agreement is to be proven.  Instead, UETA states that agreement is determined from the context and circumstances.^[6]  This could allow, for example, a paper contract with the agreement to transmit notices and documents electronic included in the fine print. 
• E-Sign exempts certain important consumer notices from the possibility of electronic delivery.^[7] UETA does not exempt any categories of consumer notices.
• E-Sign prohibits oral records to be used for consumer records.^[8]  UETA does not.
• E-Sign has clearer and more protective language for record retention and the integrity of electronic records replacing written records (note these provisions are not limited to consumers).^[9]

UETA alone is worse for consumers than E-Sign on all major aspects except perhaps UETA’s recognition that state agencies can impose added requirements on retained records subject to the agency’s jurisdiction.  The passage of E-Sign removes the key reason for states to enact UETA—to facilitate nationwide acceptance of electronic notices and electronic signatures.  Thus, a state might wisely choose not to enact UETA in light of E-Sign.  However, the National Conference of Commissioners on Uniform State Laws, UETA’s author, has representatives in every state who are expected to continue to seek to enact UETA.  If UETA is enacted at all, it should be enacted in a way that does not “modify, limit, or supersede” the consumer protections of E-Sign. Ideally, in the same bill as UETA, it should be accompanied by a companion consumer protection act.^[10] 

II. Displacement of E-Sign  

In an unusual move, Congress permits the federal E-Sign law to be displaced by state action.^[11]  It is not clear that the displacement of E-Sign works also to displace the consumer protections in E-Sign, because the only legislative history on this issue dictates otherwise.^[12]  But, as there is a significant risk that if a state takes action which qualifies for the displacement language in E-Sign, the consumer protections would be avoided, it is essential for the consumer protections to be specifically included in a state’s law.

E-Sign contemplates two kinds of state legislation on electronic notices and electronic signatures which can displace the federal law.  These two kinds of state statutes are: 1) UETA, and 2) other provisions which "specif[y] the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures."^[13]  Nothing prohibits a state from enacting both UETA and companion consumer protection provisions, and indeed the legislative history suggests that this was contemplated.^[14]  The companion provisions must: 

• Be consistent with E-Sign
• Specify alternative procedures or requirements for the use or acceptance of electronics records and signatures
• Not favor one technology over another, and
• Make reference to the federal Act if it is adopted after E-Sign.

A. Status in States which Enacted UETA Prior to E-Sign’s Effective Date

The following twenty two states enacted some version of UETA prior to the effective date of E-Sign (October 1, 2000).^[15]

E-Sign should apply in all states that had previously passed UETA – both uniform and non-uniform – and as well as any other law legalizing electronic records and electronic signatures. This means that – at the least – on all issues that are addressed in E-Sign, E-Sign is the prevailing law. For the purposes of consumer protection, the provisions of E-Sign’s sections 7001(c), (d) and (e),  should apply in all those states. The question of whether any part of the pre-E-Sign state law is still in effect after E-Sign needs to be addressed separately;^[16] but will essentially turn on the extent to which the pre-E-Sign law was a completely uniform version of UETA, or otherwise consistent with E-Sign.^[17] 

E-Sign’s legislative history establishes that state statutes passed prior to E-Sign do not displace it.  Statements by the bill sponsors and other members closely involved with the passage of E-Sign bill indicate it was Congress’ intent that E-Sign could be displaced (in part) only by a post-E-Sign state statute: 

A state which passed UETA before the passage of this Act could not have intended to displace these federal law requirements.  These states would have to pass another law to supersede or displace the requirements of section 101.^[18] 

Congressman Bliley, the original sponsor of the E-Sign bill in the House,^[19] and the Chair of the Conference Committee on E-Sign, emphasized that prior passage of a state law does not eliminate the application of E-Sign in a state: 

[A] State could not argue that section 101 does not preempt its statutes, regulations, or other rules of law because they were enacted or adopted prior to the enactment of this Act. . . .^[20] 

Logic also supports the conclusion that prior statutes do not displace E-Sign.  E-Sign and prior state UETAs can coexist without either being displaced.  A merchant dealing with a consumer can comply with both the general rules of UETA and the more specific E-Sign consumer protections.  In addition, it would be extremely odd for a UETA enacted before E-Sign to displace the subsequent federal statute.  If Congress had wanted prior uniform UETAs to displace E-Sign, it could have made E-Sign applicable only in states lacking a uniform UETA.  It did not do so.  Thus, a state may only displace E-Sign with legislation enacted after E-Sign that meets either of the two tests set forth in E-Sign.^[21]

B. Post E-Sign Passage  

Since E-Sign was passed, two states have passed UETA specifically preserving the consumer protections in E-Sign:  

West Virginia^[22]           
Tennessee

Seven states have passed UETA after E-Sign without specifically addressing the federal consumer protections:

The following states are considering UETA with federal consumer protections (or local advocates are very optimistic)

The status is unknown in the following states, because it is not clear whether E-Sign's consumer protections will be applied as UETA moves through the state legislature:

UETA is not on the table in the following five states:

III.  Importance of Consumer Protections

A. Consumers Must Electronically Consent to Electronic Transactions.

E-Sign’s requirement that consumer consent be given or confirmed electronically is of crucial importance.  Paper consent to future electronic transactions creates a risk that consumers will be offered boilerplate paper agreements to receive future electronic notices that they may or may not be able to open and read.  The federal requirement that consent be given or confirmed electronically eliminates this risk, at least for notices legally required to be in writing.

In contrast, UETA merely requires agreement, but does not specify how that agreement is to be proven.  Instead, UETA states that agreement can be determined from the context and circumstances.^[23]  UETA undercuts its own basic premise of agreement by permitting the agreement to conduct transactions electronically to be found from the context, including conduct.   

The electronic consent requirement was included in the E-Sign legislation to protect consumers in a number of ways.  Clearly, one reason was to protect consumers from the use of electronic commerce to facilitate fraud on consumers.  It is clear from the Congressional record, that the electronic consent is also to create a type of electronic handshake between the parties – a means to ensure that the electronic communication will in fact be successful.  The three, distinct, but related protections afforded by E-Sign’s requirement for a consumer to electronically consent are: 

•  To ensure that the consumer has reasonable access to a computer and the Internet to be able to access information provided electronically.
• To ensure that the consumer’s means of access to electronically provided information includes the software to read the electronic records provided.
• To underscore to the consumer the fact that by electronically consenting, the consumer is agreeing to receive the described information electronically in the future.

B. E-Sign Prohibits Substituting Oral Communications for Written Notices 

UETA would allow a tape recording of a voice conversation to qualify as an electronic record that can replace a notice required by law to be in writing. E-Sign explicitly prohibits this for consumer notices.^[24]  

C.  E-Sign’s Document Integrity and Retention Requirements  

Record “integrity” standards are important because both UETA and E-Sign generally allow electronic records to replace documents required by law to be in writing. Yet the law traditionally has made certain inherent assumptions that about the characteristics of paper “writings” that are not necessarily applicable to electronic records:  

• A paper writing is by its nature tangible. Once handed to a person a paper writing will not disappear unless lost or destroyed by the recipient.
• The printed matter on the paper writing will not change each time someone views it.  The writing can be used at a later time to prove its contents.
•  While the information on the paper can be deliberately changed by forgery, that takes an effort and some skill.

None of those assumptions necessarily applies to an electronic record.  Congress recognized these distinctions when it passed E-Sign, and E-Sign’s provisions are stronger on these points than UETA.^[25]  UETA does not require that the format used for electronic records be change-proof or tamper-proof.  Under UETA, a record can be sent to a person in a format that allows the record to be inadvertently changed every time it is opened.  Imagine the problems that might result if the homeowner's copy of a mortgage note was provided in an automatically-updating word processing format, such that every time the homeowner reviewed the document electronically, the record was saved with a new date on it.  The mortgage company will have kept its own electronic copy in a more secure fashion, and will have the technical capacity to prove in a court of law that the electronic document it has in its possession is the same one electronically signed by the homeowner.  Yet, if the homeowner had been provided only with a version that can be inadvertently changed, the homeowner will face a much tougher battle using his or her copy to prove the terms of the contract. 

UETA’s requirements for the integrity of electronic records required to be in writing (in section 8(a)) only require that the electronic record be capable of retention. In contrast, E-Sign’s integrity requirements (in section 7001(e)) require that the record be provided in a format that can be accurately reproduced for later reference by all parties.^[26] This should mean that the format of the electronic record provided to the consumer should be the same as what is used by the business. So a business should not be able to supply a contract electronically to a consumer in a word processing format, which the consumer might alter might mistake, and then present to the court an electronic record of the same document in a locked format. It is important to note that, unlike the consent provisions, the retention and integrity requirements of E-Sign are not limited to consumers, they apply to all users of electronic records. 

D.  E-Sign Has Specific Exceptions for Certain Consumer Notices 

Congress was convinced that some notices to consumers are so important that state law requiring paper notices should not be preempted to allow electronic records to replace paper writings for these types of notices.^[27]  E-Sign specifically excludes the following consumer notices from the federal rule allowing electronic records to replace writing requirements:^[28] 

• Utility termination and shut offs
• Default, acceleration, repossession, foreclosure or eviction, or a right to cure, under a rental agreement or a mortgage on a principal residence
• Cancellation or termination of health insurance or benefits, and of life insurance benefits (except annuities)
• Product recall or material failure of a product that risks endangering health and safety.^[29]

UETA has no exceptions for any consumer notices. 

IV. Minimalist Amendment to UETAs to Preserve Federal Consumer Protections  

Congress recognized the dangers to consumers and included protections which the uniform version of  UETA may displace.  The following amendment simply preserves the Congressional protections in E-Sign, without interfering with a state’s governance of electronic commerce in the state in any way. 

No provision of the Electronic Transactions Act is intended to limit, modify, or supersede the requirements of 15 U.S.C. §§ 7001 (c), (d), or (e), or to authorize electronic delivery of any notice of the type described in 15 U.S.C. § 7003(b) of the Electronic Signatures in Global and National Commerce Act. 

This amendment preserves three important consumer protections which are in the federal Electronic Signatures law: Only permitting electronic records to be provided to consumers when they have electronically consented to receive them; 2) Ensuring that the electronic records can be used by the consumer to prove the terms of the contract; and 3) Exempting certain crucial consumer notices from electronic delivery.  

Some states have adopted these provisions specifically in the body of UETA, rather than by reference.  Other states have added additional consumer protections. 

V. Additional Consumer Protections 

A.  Assuring Electronic Delivery 

Both UETA and E-Sign fail to fully address the significant differences between the ease and lack of cost involved in receiving mail through the U.S. Postal Service, and the complexities, ongoing expense, and uncertainties involved with receiving email.  The expense includes access to a working computer and access to the Internet.  The uncertainties include Internet service provider failure, use of a stale email address and junk mail filtering programs that may incorrectly filter out the message.

It does not take money to receive mail sent in the physical world. As the Department of Commerce's recent report on the Digital Divide indicates, the majority of households are still not connected electronically.^[30]   

• The majority of Americans have no access to the Internet in their homes or elsewhere – over 55%.
• Only 41.5% of all households can access the Internet from their home.
• Over 8% of Americans rely on public access, their employer’s, or another person’s computer.
• The percentages of elderly and the poor who do not have access to the Internet are much higher.

Only access at home can be considered a reliable method to receive personal information. Use of a computer at work is frowned upon or considered grounds for disciplinary action by many employers. Public access computers have extensive waiting times and limitations on use. Moreover, even as Internet access continues to expand, people continue dropping their Internet service as well. The latest report on the Digital Divide indicates that there is an annual drop off rate of over 10%.^[31] The message here, unfortunately, is that even as more households rush to obtain Internet access, a significant number are dropping off that access.  

Until email reaches at least the degree of reliability of the U.S. Postal Service, care must be taken to assure that consumers actually receive important information that is sent electronically. E-Sign's requirement for electronic consent provides only an imperfect protection against this danger. Requiring the consumer to go through the exercise to test his computer's capacity to access the information that will be provided henceforth electronically, at least alerts the consumer to the significance of the agreement to receive all records in the future via an electronic mechanism. A better protection against this particular danger would be statutory language as follows:

Notices required to be provided, sent or delivered to a consumer shall be considered received only when the notice itself is opened, acknowledged, or automatically acknowledged by a flag that tells the sender it has been opened.^[32] 

The recommended language gives three ways to trigger effectiveness of a notice:  1) actual opening; 2) manual acknowledgment; or 3) a technological automatic acknowledgment received by the sender. 

B.  Permit Consumers to Respond Electronically to Electronic Notices.

Because UETA requires that each party “agree” to receive an electronic notice, a merchant could put in its contract a clause that says, in essence, “Company many communicate with consumer electronically, but consumer must communicate with company on paper.”  Such a clause, if enforced, could  – for example – render a consumer’s electronic reply to an electronic notice of right to cancel ineffective.  The following language closes that loophole.   

When a consumer is required to provide notice to exercise or preserve the consumer's rights under any law, the consumer may exercise or preserve that right in the same manner in which the consumer was provided with notice of that right.  

This language should not be preempted under E-Sign, because it addresses an issue not addressed in E-Sign.  This simply facilitates electronic communication from consumers to merchants, and it is technology-neutral. 

VI. Conclusion 

There are extensive benefits of electronic communication -- many of which provide more convenience, more flexibility, and less cost to all parties. However, these marvelous attributes do not mean that electronic communication provides the same degree of reliability and equal access that is provided by physical world delivery. As the states continue considering laws to facilitate electronic commerce, the significant differences between real world communications and electronic commerce must be recognized and appropriately addressed.  Access to essential information must not be determined by one's wealth.  

For further information, please contact: 

Margot Saunders
Managing Attorney
National Consumer Law Center
1629 K Street, N.W.
Washington, D.C.  20006
(202) 986-6060 ext 104
margot@nclcdc.org  

Also, for relevant documents, please see:

• Comments to the FTC and the U.S. Department of Commerce on The Benefits of the Electronic Consumer Consent Requirement in E-Sign (April, 2001)
• Comments to the U.S. Department of Commerce Study Regarding the Effectiveness of Delivery of Electronic Records to Consumers Using Electronic Mail as Compared with the Delivery of Written Records (April, 2001)
• Supplementary Comments to the Federal Trade Commission and the Department of Commerce regarding the Importance of Consumer Electronic Consent to Electronic Transactions (April, 2001)
• Comments on the Federal Reserve Board's Proposed Regulations Allowing Electronic Disclosures under Truth in Lending (11/15/1999)

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