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ELECTRONIC SIGNATURES:
A Review of the Exceptions to the Electronic Signatures in Global and National Commerce Act

BACKGROUND

Congress passed ESIGN in June 2000 to facilitate the use of electronic documents and signatures in domestic interstate and international commercial transactions. The Act was designed to promote the use of electronic signatures in commercial transactions involving both businesses and consumers and to ensure that the electronic documents and signatures resulting from these transactions are given the same legal validity and enforceability as written documents and signatures.(1) Congress included section 101(c) in the ESIGN Act as a consumer protection mechanism. Section 101(c) requires businesses to obtain from consumers electronic consent or confirmation before sending information electronically that a law requires to be in writing. As an additional protection for consumers, Congress included the nine (9) exceptions in section 103 to remove from the general rule of validity transactions that are not typical commercial transactions, and in which consumers and companies do not engage in direct interaction in commercial settings.

Section 103(c) of ESIGN requires the Secretary of Commerce, acting through the Assistant Secretary for Communications and Information, to conduct a three-year evaluation to determine whether the contracts and records that are exempt from section 101 of the Act should continue to be excluded from the application of the statute for the protection of consumers. Section 103 of ESIGN exempts contracts and records governed by laws and regulations regarding: court orders and documents; probate and domestic law matters; commercial law; consumer notices covering utility services, residential defaults and foreclosures, and insurance benefits; product recall notices; and hazardous materials papers. The Act requires the Assistant Secretary to file a report of the findings from the evaluation within three years of ESIGN's enactment, or by June 30, 2003.

The Assistant Secretary for Communications and Information is the head of the National Telecommunications and Information Administration (NTIA), an agency of the U.S. Department of Commerce (Department). NTIA is the principal executive branch agency responsible for telecommunications and information policy issues. The agency advises the President and the Secretary of Commerce on issues that affect the Nation's technological and economic advancement.(2) NTIA conducted this evaluation on behalf of the Secretary of Commerce. In June 2001, NTIA presented two reports to Congress concerning the ESIGN Act. The first report presented the results of an evaluation of the consumer consent provisions in Section 101(c)(1)(C)(ii) of the ESIGN Act.(3) The second report presented an analysis of the effectiveness of electronic versus traditional mail delivery systems under section 105(a) of the ESIGN Act.(4)

In conducting this evaluation to determine whether the exceptions to the ESIGN Act remain necessary to protect consumers, NTIA sought input from the general public, private industry, consumer groups, bar associations, and the federal and state agencies that have regulatory or policymaking authority over the substantive areas related to the exceptions.(5) In a series of nine (9) Federal Register Notices, NTIA requested comment on each exception and the issues surrounding the impact on consumers if the exception were removed from the Act.(6) Comments were made by various private and governmental institutions, commercial associations and entities, consumer advocacy groups, and financial institutions.(7) NTIA also collected information by: 1) convening meetings with Federal agencies; 2) reviewing websites and electronic transactions policies of government and business entities; 3) conducting conference calls with various industry associations; and 4) researching state electronic transactions laws and industry electronic transactions practices.

The evaluation was affected by three major factors:

• There are few identical or "uniform" state electronic transactions laws despite the sample Uniform Electronic Transactions Act (UETA) provided by the National Conference of Commissioners on Uniform State Laws (NCCUSL). Most state uniform electronic transactions laws contain lists of exceptions that differ from other states, thereby, making an analysis of the impact of removal of the exceptions more complex.

• Each exception is controlled by state law, either in part or entirely, and requires an understanding of the various state substantive laws relating to the exceptions in order to determine the impact on consumers of the elimination of the exception.

• During the initial phases of the evaluation, a common misinterpretation of the term "exceptions" in the context of ESIGN's purpose and the reverse preemption clause caused confusion for some participants regarding the operation of ESIGN and the exceptions.

In this evaluation, NTIA has examined the federal and state laws, and the business practices of the industries in each substantive area that has been excepted from the operation of ESIGN section 101. The following discussion provides: 1) an update of computer and Internet usage in commercial transactions in the United States; 2) an explanation of the operation of the exceptions to ESIGN; 3) a discussion of the relationship and impact of ESIGN on state uniform electronic transactions laws; 4) analyses and findings regarding each of the nine exceptions; and 5) conclusions of NTIA on behalf of the Department of Commerce on whether the exceptions remain necessary for the protection of consumers.

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ENDNOTES:

1. Electronic Signatures in Global and National Commerce Act (ESIGN), 15 U.S.C. §§ 7001-7006 (2000).

2. Telecommunications Authorization Act of 1992, Pub. L. No. 102-538, 106 Stat. 3533 (codified as amended in scattered sections of 47 U.S.C.).

3. Electronic Signatures in Global and National Commerce Act, The Consumer Consent Provision in Section 101(c)(1)(C)(ii), Department of Commerce and Federal Trade Commission, June 2001 (Section 101(c) Report) available at http://www.ntia.doc.gov/ntiahome/ntiageneral/esign/105b/esign7.pdf.

4. Electronic Signatures in Global and National Commerce Act, Section 105(a), Department of Commerce, June 2001 (Section 105 Report) available at http://www.ntia.doc.gov/ntiahome/ntiageneral/esign/105a/105areport.pdf.

5. See Appendices B through D.

6. Appendix B.

7. Appendix C.