E-Commerce and Micro Lending

1. Chip Rainey Greenberg Traurig, L.L.P. 1000 Louisiana, Suite 1800 Houston, Texas 77002 (713) 374-3529 Austin Number: (512) 485-3143 raineyc@gtlaw.com Gil Rudolph Greenberg Traurig, L.L.P. 2375 East Camelback Road Suite 700 Phoenix, AZ 85016 (602) 445-8206 rudolphg@gtlaw.com E-Commerce and Micro Lending

2. Agenda • Contract Formation • Attribution and Authorization Issues • Strategies for Showing Assent • Making Required Disclosures to Consumers Electronically • Keep Records to prove Assent • Put Strategies to use – examples

3. Attribution – Who clicked that mouse?

4. Attribution • The effect of attribution or authentication of an electronic signature to a particular party is determined, just as in the physical world, from the context and surrounding circumstances (including agreed-upon security procedures) at the time of creation, execution or adoption of the signature.

5. Attribution – New Customers • Much harder since no shared secrets • New technologies are not widely used • PKI • Biometrics • How do you verify identity? • Good guidance provided by U.S. Dept. of Ed., Standards for Electronic Signatures in Electronic Student Loan Transactions.

6. AttributionNew Customers • Once a new borrower is authenticated, then subsequent communications may be attributed to that borrower by use of PIN or other credential, together with other secret information. • The issuance of PIN or other credential must be via secure online session, or USPS, and not be email sent in the open • Before issuing PIN or credential to a new borrower coming over the Internet, confirm identity by at least 2 data matching sources from the following resources: • National credit bureau • Commercially available databases • State motor vehicle agencies • Government databases • At a minimum, verify borrower’s name, social security number, driver’s license number and date of birth.

7. Attribution – New Customers • Verify information given by customer • Check public databases of phone numbers, addresses and credit reports • Authentication Service Bureau • Provides authentication services on an outsource basis • Drivers license can be verified

8. Attribution – Existing Customers • Much easier since you have existing customer information to verify customer • PIN/Password • Shared Secret • IRS e-file requires prior year Adjusted Gross Income, SS # and birthday • Amount of last month’s bill

9. What is Assent?

10. Strategies for Assent • Case law is still relatively sparse, but trends are emerging • Goal: Avoid disputes on validity of assent • The Strategies incorporate the requirements of Federal E-Sign Act and UETA

11. Determine the Law That Applies • ESIGN, passed in 2000, was designed to add uniformity and was based upon the Model Version of UETA • But ESIGN provides for a reverse preemption • ESIGN specifically does not apply to: • UCC, other than Art. 2 and 2A • Tape recordings of oral conversations

12. UETA, ESIGN and Notes • Does not apply, generally, to UCC Article 3 (negotiable instruments) -- but should apply to notes not subject to Article 3. • Does apply, under UETA, if the borrower expressly consents that the electronic note is a “Transferable Record.” • ESIGN only applies to loans that are covered by UCC if a “transferable record” and secured by real estate. • Also, should apply to a CSO contract, which is a separate agreement from the note.

13. What is a “Transferable Record” • This is an electronic record that purports to be a note (i.e. a promise by the borrower to pay a sum certain), and to which the borrower has specifically consented may be transferred to a new holder electronically. There must be only a single, verifiable copy of this record. UETA Sec. 16. • Note that a consumer’s consent to receive electronic records and notices is non-transferable, so the new holder must secure a separate consent.

14. FRB Requirements For Electronic Disclosures • Although similar language is found in most FRB regulations, Reg E provides a concise statement as to requirements before using electronic means to make disclosures

15. FRB Requirements For Electronic Disclosures “ (c) [Persons] that uses electronic communication …shall: “(1) Send the disclosure to the consumer's electronic address; or “(2) Make the disclosure available at … an Internet web site; and “(i) Alert the consumer of the disclosure's availability by sending a notice to the consumer's electronic address [or physical address]… The notice shall identify the account involved and the address of the Internet web site or other location where the disclosure is available; and “(ii) Make the disclosure available for at least 90 days … “(d) Redelivery. When a disclosure provided by electronic communication is returned … undelivered, the [person] shall take reasonable steps to attempt redelivery using information in its files.

16. Consent to Receive Electronic Disclosures • Both ESIGN and UETA are opt-in statutes • No party can be forced to conduct business electronically or to receive notices electronically • Unlike ESIGN, UETA permits implied consent. But UETA can not preempt ESIGN with respect to disclosures to consumers. ESIGN Sec. 101(c)(1).

17. Strategies To Create Assent

18. Opportunity to Review Terms • Viewing of Terms before Assent • No assent allowed before Viewer has opportunity to review terms • Means of assent at end of terms, with scroll-through required • Assent before Access to Website or other Services • No access before assent given • No “deep-linking” to bypass Terms and Assent process

19. Opportunity to Review Terms • Ease of Viewing Terms • No pop-up windows that disappear • Continued Ability to View Terms • Must be able to print or download • Terms accessible elsewhere on site • Viewer must be able to reread the agreement if they want

20. Display of Terms • Format and Content • Must comply with laws on notice, disclosure, conspicuousness, etc. • No fine print • Consistency with Information Elsewhere • FAQ, etc should not contradict

21. Acceptance or Rejection of Terms • Choice Between Assent or Rejection • Clear Words of Assent or Rejection • Clear: “I Agree” or “Yes” • Unclear: “Continue” or “Next Page” • Clear Method of Assent or Rejection

22. Acceptance or Rejection of Terms • Consequences of Assent or Rejection • No access to site w/o assent • Registration should stop • Notice of Consequences of Assent or Rejection • Example: “By clicking “Yes” below, you will be legally bound…”

23. Opportunity to Correct Errors • Correction Process • To detect and correct errors • Example: Provide summary of online application or registration information

24. Keep Records to Prove Assent • Accurate Records of Terms and Process • Maintain records of version of Terms • Maintain records of assent process • Need your webmaster to understand the need to reproduce earlier versions of the website

25. Keep Records to Prove Assent • Retention and Enforceability • User must be able to print or download • Accuracy and Accessibility after the Assent Process • If law requires records to be kept, then keep electronic records

26. Amendments to Terms • What is needed? • Need notice and assent again • Pop-up window upon log-in • E-mail notice with delayed effectiveness • “Negative” assent commonly used (i.e., if you do not object, then….”)

27. 1st Example

28. 2nd Example – top of page

29. 2nd Example – bottom of page

30. 3rd Example – top of page

31. 3rd Example – bottom of page