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The Trials And Tribulations Of E-Sign
After nearly a year of partisan wrangling, Congress' passage last week of electronic signature legislation had all the suspense of a denouement.
Satisfied that long anticipated legislation had finally been carved into a form acceptable to all parties, the technology and financial service industries momentarily basked in joy — or, at the very least, warily breathed a sigh of relief as they girded for their next Washington battle.
"We were overwhelmed with the (426-4) House vote, demonstrating our industry's efforts to craft a broad-based inclusive bill," said David Colton, the senior program manager following the issue for the Information Technology Association of America. On Friday, the Senate followed suit and approved the measure 87-0; President Clinton has pledged to sign it.
"As much as it seems like simple plumbing, this is a watershed event that is going to open up e-commerce to the average consumer," said Michael Hogan, senior vice president of the online brokerage DLJ Direct. That enterprise was one of the earliest and most eager backers of the bill, the Electronic Signatures in Global and National Commerce Act, S. 761.
As introduced last year by Sen. Spencer Abraham, R-MI, the bill initially was conceived merely as a vehicle to formalize acceptance of contracts using digital signatures or authorizations conveyed via computer-encrypted communications. But following its evolution on Capitol Hill, the bill that finally cleared Congress had been broadened, sweetening it for manufacturers and financial services firms as well as the technology industry. The end product also was toughened in its consumer protections to a point just short of what businesses would walk away from.
A Nod Toward Neutrality
One key goal of the technology industry was what they call "technology neutrality," or the recognition that Congress should not favor one technology over another. The "e-sign" bill introduced by House Commerce Committee Chairman Thomas Bliley, R-VA — along with subsequent versions of Abraham's legislation — accomplished this by leaving it up to businesses and individuals to contract for the form of communication they chose to accept as legally binding.
This permits encrypted digital signatures — which generally are recognized as the most secure form of electronic communication. It is also broad enough to include passwords or personal identification numbers, digitized copies of physical signatures, or biometric means of identification such as fingerprint or retinal scans.
Another essential priority for industry was clear pre-emption of state law, so that whatever electronic signatures were used would be recognized in all 50 states. At various times during the tortuous compromise process, technology industry lobbyists stepped in to fight for these points against defenders of states' rights; by and large, they won.
But for brokerages and other financial services firms, the bill really began to develop appeal when an electronic records component was added mid-way through 1999. This provision — section 101(d) of the final conference report — permits businesses to retain records electronically that they currently are required to keep in paper form. Not only does this apply to all internal records such as stored checks or "original" signed documents; it also permits companies to practically eliminate routine paper mailings to customers who consent.
"In our business, there are over 30 forms that people have to sign to get things done," said Hogan, pointing to such tasks such as changing a beneficiary on a retirement fund. He added, "We are going to offer the ability to do that electronically, and to make the changes, and have those decisions implemented on a real-time basis."
Paper Protections
But, even as the bill tantalized industry, groups including Consumers Union, the U.S. Public Interest Research Group and the American Association of Retired Persons began to be wary that businesses would attempt to cut costs by forcing customers into the receipt of electronic documents. The Clinton administration voiced these concerns through the Commerce Department's general counsel, Andrew Pincus. He drew the line by insisting not only that consumers consent to receiving electronic documents, but that there be repeated opportunities for consumers to confirm their intent — and to switch back to paper if they chose.
While careful not to gloat, the result was one that seemed to please Democrats more than Republicans. Among those who criticized the features of the compromise — while still voting for the agreement — were Rep. Billy Tauzin, R-LA, who heads the influential telecommunications subpanel of the House Commerce Committee; House Rules Committee Chairman David Dreier, R-CA, and Senate Banking Committee Chairman Phil Gramm, R-TX.
"This is a process that worked just as our system was supposed to," Pincus observed after the final votes were cast. "The product is something that everyone can support. It is something that will facilitate electronic commerce. Since the conference report and the votes, there is a greater recognition of the real significance of the bill, and that it will have a real impact across the economy."
Foreshadowing Privacy Debate
While not disputing that assessment, many in the financial services community were quite wary about how the politics of the e-sign deal would affect what they expect to be the next major legislative battle: financial privacy.
"The consent is a total set up for opt-in privacy," said one financial services industry lobbyist. "There are a number of steps in which the consumer has to consent; you are literally opting-in in a way you don't have to do in the pen and paper world."
But some critics say the bill's language isn't strong enough to protect consumers.
"There need to be more protections against identify theft," Carolyn Carter, attorney National Consumer Law Center. "This bill certainly doesn't do anything to prevent that and seems to make it easier," she said, referring to the fact that the bill's technology-neutrality provisions could permit the use of unencrypted "signatures."
"There are two problems in the bill," said James Lucier, an analyst with Prudential Securities, who has followed its progress and otherwise describes its merits in glowing terms. "It treats electronic transactions as something that need to be monitored and controlled more than paper transactions, and that irks a lot of folks."
"The second set of key issues is what type of model does this set for future legislation?" Lucier continued. "Would future legislation involving electronic transactions have to set up a system of 'opt-in'?"
Technology industry players recognized the dilemma, even as they soundly came down on the side of supporting the bill. "What the issue came down to is at what point did we feel we had a bill that was worth supporting?" said ITAA's Colton. "There were some in the financial sector that wanted to negotiate, and play the hold card. But for the technology industry, we said we had reached that point."
But some in the non-profit community are still wary about potential implications of the legislation. Although Center for Democracy and Technology spokesman Ari Schwartz could point to no particular flaws in the bill as passed by Congress, he expressed concern about future privacy losses.
"There could be situations where every American is given a single key, and that key is used with a lot of identifying information," said Schwartz. "If you have one key for everything you do in your life, you lose that key, you are in trouble. In the offline world, most people have a range of keys and they keep it on a key ring.
 | - by Drew Clark |
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