The Electronic Signatures in Global and National Commerce Act (The
E-Sign Act) went into effect November 2000. The ESign Act makes an
electronic signature (esignature) as legally binding as ink-andpaper
signatures, and can be used in legal proceedings. An e-signature
is generally defined as a form of technology, including fingerprint
readers, stylus pads and encrypted 'smart cards', used to verify
a party's identity so as to certify contracts that are agreed to
over the Internet.
The Federal Trade Commission is the federal agency responsible for regulating
the E-Sign Act. At the direction of Congress, the FTC has issued a report finding
that the E-Sign Act is working for both business and consumers, after receiving
input from 32 interested groups, ranging from computer companies and financial
institutions to consumer groups and academics. The FTC recommends that no action
should be taken by Congress to amend the E-Sign Act.
Given that the E-Sign Act is here and there are no plans to amend the law,
what does it mean to the credit professional and the electronic credit department?
Does documenting your electronic credit sale allow an e-signature to have the
same legal effect as a handwritten signature from your customer on your credit
application or P.O.? What is the legal status of e-signatures documenting your
personal and corporate guarantees over the Internet? Do credit files stored
electronically by have the same legal force as paper credit files in the event
of a dispute with you customer? Has legislation caught-up with Internet technology?
The E-Signature Law
The effect of the E-Sign Act is a uniform and nationwide legal recognition
that a vendor may engage in e-credit transactions across state lines and the
e-contract is valid with all states.
Some of the relevant provisions of The ESign Act for the credit professional
- Parties to the contract decide on the form of digital signature
technology to validate the contract;
- Businesses may use e-signatures on checks;
- Businesses must require parties to the contract to make at least
two clicks of a computer must to complete a deal;
- The consumer decides whether to use an e-signature or handwritten
- Records of e-contracts may be stored electronically.
Verifying the E-Signature
A key question for the credit professional considering using e-signatures on
contracts and checks, however, is having a reliable way to certify an e-contract,
or authenticate an e-signature, to reduce the risk of fraud, or claims of unauthorized
use of an esignature. Technology to verify a person's identity, so-called digital
identification devices, is solving these concerns.
The E-Sign Act And The Electronic Credit Department
The credit department is going "electronic" for a variety of reasons, including
faster payments, reducing discrepancies with the customer, lower administrative
costs, and the competition and customer requires.
An increasing number of credit departments are posting on their web pages various
credit forms, including credit applications, guarantees, invoices and proofs
of delivery, for retrieval by their customers.
How may the E-Sign Act affect the credit professional? Article 2 of the Uniform
Commercial Code provides that with the sale of goods over $500, there must
be a signed writing. A signature is to certify the writing for the sale of
goods. With the traditional sale of goods over $500, the credit professional
memorializes the sale agreement with a signed credit application and signed
With the E-Sign Act, a credit professional may accept a completed credit application
electronically, with e-signature, to form a binding contract, as opposed to
the customer downloading the application from the vendor's web page, filling
it out and signing it and faxing or mailing the completed credit application
with handwritten signature. The credit professional may also receive completed
guarantees in the same manner and form a binding contract.
Likewise, the E-Sign Act aids e-checks and e-payments as businesses may sign
checks electronically. The FTC's recent report underscores that e-signatures
are legally enforceable and e-signatures will continue their growing acceptance
to document an ecredit sale. The electronic credit department continues to
Reprinted by permission from Trade Vendor Quarterly Blakeley & Blakeley