The Electronic Credit Department Signatures
on the Web's dotted
By Scott Blakeley
Electronic Signatures on Credit Applications and Guarantees
soon Valid in All States (Check with your attorney, this could be fact
The Internet is revolutionizing how the credit professional
handles credit transactions. Credit professionals are using the Internet
for a myriad of credit and financial functions, from credit research
and scoring, to automatic invoicing customers through their Web site,
to automatic payment posting. Credit departments are loading their
web pages with a variety of credit forms including credit applications
and guarantees for the customer to retrieve. The electronic credit
department has arrived. But does documenting your electronic credit
sale allow an electronic or digital signature (e-signature) to have
the same legal effect as a handwritten signature from your customer
on your credit application? What is the legal status of e-signatures
documenting your personal and corporate guarantees over the Internet?
Do credit files stored electronically by the credit professional
have the same legal force as paper credit files? Has legislation
caught-up with Internet technology?
On June 30, 2000, President Clinton signed into law
the The Electronic Signatures in Global and National Commerce Act
(The E-Sign Act), after much negotiations and addressing concerns
raised by consumer groups. The E-Sign Act makes e-signatures as legally
binding as ink-and-paper signatures. The E-Sign Act also eliminates
legal barriers to storing documents and sending notices electronically.
A credit professional may now engage in e-credit transactions across
state lines and the credit sale contract is valid in all states.
What Is An Electronic, Or Digital, Signature?
An e-signature is a form of technology, including
fingerprint readers, stylus pads and encrypted Asmart cards@, used
to verify a party=s identity so as to certify contracts that are
agreed to over the Internet. This means that a credit professional
documenting a commercial e-sale has many technological methods to
verify a customer=s representative¯s signature.
The E-Signature Act
The E-Sign Act makes digital, or online, signatures
as legally binding as ink-and-paper signatures, and can be used as
evidence in legal proceeding. The E-Sign Act is effective October
1, 2000. The E-Sign Act provides:
"a signature, contract or other record relating to [any transaction
in interstate commerce] may not be denied legal effect, validity
or enforcement solely because it is in electronic form."
The purpose of the federal legislation is to boost
Internet credit transactions, both as to commercial and retail transactions
and B2B markets, by eliminating paperwork arising out of these contracts.
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 E-Sign Act
for the credit professional are:
1. Technology neutral:
Parties to the contract decide on the form of digital signature technology
to validate the contract. Technologies from a scanned handwritten signature,
to "smart cards" to biometrics may be agreed to by the parties.
2. E-signatures on checks:
Businesses may use e-signatures on checks.
3. Two clicks to close a contract:
Businesses using digital signatures must require parties to the contract to
make at least two clicks of a computer must to complete a deal: (1) the first
mouse click tests the electronic link between the businesses to ensure that
the digital signature technology works; and (2) at least one other mouse
click to close the deal.
4. Special issues with consumer internet transactions:
The legislation will not allow companies to sidestep longstanding consumer
notification laws. The E-Signature Act provides (1) the consumer decides
whether to use an e-signature or handwritten signature; the consumer has
to give consent before receiving bills and other documents only in electronic
form; (2) cancellation and foreclosure notices must be sent on paper; (3)
the vendor must conduct test e-mailings before sending out subsequent e-mail
notifications; (4) does not allow e-signatures on adoptions, wills, and product
safety recalls. The speed in which e-credit transactions proceed may result
in the elimination of buyer¯s remorse with consumer transactions as the consumer
no longer waits for paperwork to close the transaction.
5. Electronic record keeping:
Records of e-contracts may be stored electronically, effective March 1, 2001.
6. Government enforcement:
Government agencies have the authority to enforce The E-Sign Act and protect
the public interest.
Over the past several months, most states passed laws
recognizing e-signatures as legally binding to certify Internet contracts.
The problem with the state laws is that no two sets of laws are the
same. The federal E-Sign Act supersedes these state laws.
The E-Sign Act And The Electronic Credit Department:
What It May Mean To The Credit Professional
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
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
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 invoices.
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 long-standing debtor¯s
excuse for late payment that the "check is in the mail" may soon
1. 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
e-signature. In other words, suppose the credit professional receives
a purchase order from a buyer electronically, with an e-signature,
how does the credit professional know the e-signature is still valid
and the person has the authority to purchase? Technology to verify
a person¯s identity, so-called digital identification devices, may
solve these concerns.
An e-signature may be verified through a variety of
technologies. The most common is a "smart card" which looks like
a credit card and stores digital information about the signer. The
smart card allows the person to take the card and use it on other
computers. Biometrics is another verification technology that uses
digital fingerprint scans or retina scans. A number of security companies
now offer services to verify an e-signature, such as VeriSign Inc.,
Entrust Technologies, Inc., and Ilumin, Inc. By using the digital
verification, the credit professional may confirm the e-signature
prior to authorizing release of goods.
For credit professionals considering complying with
The Equal Credit Opportunity Act by giving electronic notification
denying commercial credit, the credit professional should consider
obtaining the customer¯s express consent to give notice electronically.
The European Union (EU), which comprises 15 European
countries, recently passed the Electronic Signature Directive.The
European law provides that an electronic signature is presumed valid
as a handwritten one in EU countries.
Reprinted by permission from Trade Vendor Quarterly
Blakeley & Blakeley