The wild and wooly world of e signatures
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The Wild and Wooly World of E-Signatures. Dino Tsibouris [email protected] (614) 360-1160 www.tsibouris.com. Why use them?. Allows online applications Electronic disclosure delivery Paperless and easy. FFELP Loans Already Use “ESIGN” Isn’t it the Same for Alternative Loans?. NO!

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The wild and wooly world of e signatures l.jpg

The Wild and Wooly World of E-Signatures

Dino Tsibouris [email protected]tsibouris.com

(614) 360-1160 www.tsibouris.com


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Why use them?

  • Allows online applications

  • Electronic disclosure delivery

  • Paperless and easy


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FFELP Loans Already Use “ESIGN”

Isn’t it the Same for Alternative Loans?

  • NO!

  • FFELP Loans: Agreement wording, format and pricing prescribed by a unique federal program

  • Alternative Loans: Agreement wording, format and pricing regulated by differing state laws and federal consumer protection statutes


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FFELP Loans Already Use ESIGN

Isn’t it the Same for Alternative Loans?

  • Title I, Section 107(b)(3) of ESIGN gave ED one year to create electronic promissory notes under Section 432(m) of the HEA

  • A promissory note must be in writing… BUT…


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FFELP Loans Already Use ESIGN

Isn’t it the Same for Alternative Loans?

ED still pays benefits if collection defense arises from the use of an electronic signature!

  • Avoids state law contract requirements

  • Insures against any “questions”


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FFELP Loans Already Use ESIGN

Isn’t it the Same for Alternative Loans?

  • Alternative loans are state-law based consumer loans

  • A “promissory note” must be in writing

  • Not guaranteed by ED if problems arise


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ESIGN Loans: A Long Term Liability

  • Lender is responsible

  • Outsourced vendors limit their liability

  • Portfolio purchasers hold you responsible

  • Long loan maturity plus statute of limitations



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Three Forms of Legal E-Signatures

  • “Click-wrap” agreements

  • E-SIGN Act (federal law)

  • Uniform Electronic Transactions Act (state law)


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Click-Wrap Agreements

  • Must display terms on the screen

  • Consumer must agree, submit or apply

  • Agreement is formed!

  • Suited for credit applications


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Click-Wrap Agreements

  • Acceptance or rejection must occur before access is given

  • Viewer must be forced to expressly and unambiguously manifest either assent or rejection prior to being given access to the product

  • Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d. Cir., 2004)


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Loans Must Be in Writing, Though

  • Promissory Note is a contract detailing the terms of a promise by one party to pay a sum of money to the other

  • The terms must include the principal amount, the interest rate if any, and the maturity date

  • Payee's rights in the event of a default


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Loans Must Be in Writing, Though

  • The term "negotiable instrument" is limited to a signed writing that … promises payment of money

  • http://law.justia.com/ohio/codes/orc/jd_130303-5481.html



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The ESIGN Act

  • State that a signature, contract, or other record cannot be denied legal effect solely because it is in electronic form

  • A contract … may not be denied legal effect … solely because an electronic signature … or record was used in its formation

  • BUT does not apply to the law of promissory notes


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The ESIGN Act

  • Deliver consumer disclosures electronically

  • Use of electronic records

  • Other forms of agreements

    (Non-negotiable)

  • Authorizes “transferable records” but only if secured by real property


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The ESIGN Act

  • Conspicuous ESIGN disclosure FIRST

  • Consumer consent NEXT

  • THEN disclose terms…


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The ESIGN Act Disclosure Must Include

  • Scope of electronic communications

  • Method of providing electronic communications

  • How to withdraw consent

  • How to update records

  • Hardware and software requirements

  • How to request paper copies

  • Termination/Changes


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The ESIGN Act Then Permits

Delivery of Disclosures

  • Initial Truth-in-Lending Act disclosures

  • FCRA disclosures

  • State law disclosures governing extension of credit


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Internet Lending

The Other Disclosures

  • FCRA requires “clear and conspicuous” disclosure

  • But small type on back of mailer in a paragraph of type about other matters inadequate; Use different type, color - Cole v. U.S. Capital)


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The ESIGN Act Does Not Preempt

State Law Consumer Disclosures

  • Examples:

    • Credit grantor disclosures

    • Cosigner notices

    • Notices near the signature line

    • Font size and proximity requirements

    • Record retention requirements


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The ESIGN Act Disclosure Required

Errors in ESIGN compliance result in failure of delivery of consumer disclosures


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The ESIGN Act Disclosure Required

  • Delivery fails even if proper text of the disclosure is given

  • Complete compliance with ESIGN is required to subsequently provide E-disclosures

  • Otherwise must give disclosure in paper form


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Uniform Electronic Transactions Act

  • Creates electronic “transferable records” similar to paper promissory notes

  • Doesn’t provide for disclosure delivery

  • The parties merely have to agree to do business electronically to benefit from UETA

  • Determined by the circumstances (email?)


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Uniform Electronic Transactions Act

  • “Transferable records” only exist if the authoritative copy can be identified

  • Independent registry best way to determine who controls the authoritative copy


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Uniform Electronic Transactions Act

  • Control environment must be independent of lender and secure or the system fails and the loan status becomes legally uncertain


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Uniform Electronic Transactions Act

  • May have to specifically opt out to avoid being drawn into UETA online

  • Very complicated practical application to lending

  • Legal certainty of loan proportionate to integrity of system where loan originates and independent company acting as registry


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E-Signatures

Vendor Management – Key Issues

  • Compliance with law and regulations

  • Limits on use of data, FCRA

  • Audit rights

  • Notice if breached

  • Indemnity for claims and losses

  • No limit on liability



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