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#13887 - 03/25/02 01:08 PM ESIGN or UETA?
Richard Insley Online
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We've had 18 months to study the federal ESIGN Act, compare & contrast it with any state UETA law that may have been enacted in our state(s), and consider how and when ESIGN's preemption applies. Most online info about ESIGN vs. UETA focusses on basic, introductory coverage of these laws.

I'm still unsure if ESIGN is the final authority on the all-important matter of "consent." ESIGN's tricky system of disclosure and opt-in has stymied developers' efforts to automate the delivery of "written" disclosures--like periodic statements for credit cards, HELOCs, and deposit accounts.

One authority recommended in a Dec. 2001 seminar that we should "adopt the ESIGN Act as the baseline, and assume that all ESIGN restrictions and exclusions will apply, even in UETA jurisdictions."

What other opinions and recommendations are you hearing? Have you seen a detailed analysis online or in print? Have you discussed this issue with regulators or received anything in writing from them?

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#13888 - 03/25/02 04:56 PM Re: ESIGN or UETA?
Andy_Z Offline
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My limited discussions with regulators indicates that they are becoming familiar with e-sign but have limited knowledge of UETA. If a bank opts to adopt some of the less stringent UETA requirements, they need to be prepared to discuss it with their regulators before an exam.

I'm not sure if banks are slow to adopt this new delivery medium because it is difficult, untested, an unknown or just not a priority at this time.
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#13889 - 03/25/02 06:53 PM Re: ESIGN or UETA?
Richard Insley Online
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I don't see that ESIGN allows you to opt for "less stringent UETA requirements." In fact, UETA is preempted ENTIRELY if it is in any way inconsistent with ESIGN. When it comes to the all-important consent provision (Section 101(c)(1)(C)(ii) of ESIGN), does UETA even have a comparable provision? (It would have been much better if Congress had appointed a rulewriter.)
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#13890 - 03/25/02 07:29 PM Re: ESIGN or UETA?
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Versions of UETA that are defined as "conforming" and may therefore be used in place of E-sign's 101, have fewer control requirements.

One criticism I have read about UETA is that the proverbial traveling salesman can take a laptop into a consumer's home and have them agree to an e-contract, and walk out with the laptop. Obviously this would be an abusive practice if it would in fact "pass the test", and some attorneys thought it could.

What I have read on UETA is that it is much simpler to comply with from the business owners perspective.
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#13891 - 03/26/02 09:01 PM Re: ESIGN or UETA?
Terry Offline
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I read a good analysis of ESIGN requirements stating that UETA eliminates the need to comply with ESIGN 101(c) but only with respect to disclosures required by state regulation. If the disclosure is also required by federal regulation then ESIGN applies. Similar to Richard's comment, it referred to ESIGN as the "lowest common denominator" for such things and granting consumer credit online. The focus of the article was on credit, but presumably the same could be said of deposit activity.
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#13892 - 03/27/02 01:14 AM Re: ESIGN or UETA?
Richard Insley Online
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This is a critical question. If we mistakenly rely on UETA when Sec 101(c) of ESIGN applies, then we get the rug pulled out from under us. End result--disclosures you thought you gave don't count!!

It would be very helpful if the regulators studied this from a safety & soundness perspective and issued some guidance while the questions are still hypothetical. Imagine the penalties that could result if a court decided that all of a bank's e-disclosures didn't count because the consent was improper!!!
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#13893 - 03/27/02 03:06 AM Re: ESIGN or UETA?
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E-Sign specifically says a conforming version of UETA will prevail. I have never heard that there would be one standard for state and another for Federal requirements.

Why would there have been issues raised about UETA if E-Sign was the lowest common denominator?

I will verify my position again, but I did this once with a senior FDIC regulator. They had not studied these issues and he initially believed E-Sign was "it". When we talked about it again, he indicated that UETA could prevail and that it would be best to indicate this to your regulators when they come in.

Obviously this is new to all of us. Perhpas this helps to answer the original question of why banks are not adopting this.
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#13894 - 03/27/02 01:37 PM Re: ESIGN or UETA?
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Good points, Andy. Many bankers are still at the head-scratching stage, too. It's worse for the vendors who have to provide for states with (a) conforming UETAs, (b) non-conforming UETAs, or (c) no UETA. No one's likely to start investing development dollars until the necessary consent mechanism can be defined to the degree where the risks are understood and acceptable.

I've had conversations with regulators, too. They're a mixed bag of "don't get it", "don't see the big deal", "don't have time to worry about it", and "don't see it as part of my job--it's a technology issue." It could be years before we see the test case that makes some poor business the "ESIGN disaster poster child" who's disclosures and contracts are judged inadequate. Look at how long mortgage lenders merrily charged courier fees before the Rodash case hit the fan.
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#13895 - 03/27/02 03:54 PM Re: ESIGN or UETA?
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An attorney who does a lot of well respected work here in Texas replied to me. I didn't ask permission for a quote so I won't provide a name. But this is the response to my question of which prevails.

Actually, I served on the State Bar Committee that proposed UETA, so I have some familiarity with this!

You are right!

E-SIGN was thrown together in a hurry and mimics a lot of UETA--which was developed by the conference on uniform laws. E-SIGN and UETA both have sections of law (like wills) that are not preempted. But generally, as between the two, UETA prevails. And UETA does not have the same cumbersome requirements that are found in E-SIGN. This leaves us with an interesting dilemma if a party is doing business over the internet or in multiple jurisdictions. In that situation, I would prefer to comply with E-SIGN and get clear consumer consent before engaging in an electronic transaction. But under UETA, entering into the transaction can itself signify consent to engage in electronic transactions!
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#13896 - 03/27/02 05:28 PM Re: ESIGN or UETA?
Terry Offline
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This sure seems to conflict with what I read. I noted something earlier and never quite knew what to make of it, but Section 101(a) of ESIGN says that it is "with respect to any transaction in or affecting interstate or foreign commerce". Does this mean that it only applies to transactions that cross state lines? Or do all of our transactions become "interstate" because we must comply with federal regulatons? This would be a significant point for smaller banks that only have physical branches in one state and only plan to accept applications from within that state.
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#13897 - 03/27/02 07:37 PM Re: ESIGN or UETA?
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Has ABA counsel offered any guidance to banks that are trying to sort this out? Obviously, the major players will probably implement the ESIGN 101(c) consent mechanism because it will be required in at least some of their states. Smaller banks may have to decide which law applies to their Internet banking activities
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#13898 - 03/27/02 07:45 PM Re: ESIGN or UETA?
Terry Offline
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I haven't contacted the ABA, but I did contact the Fed Board. I asked about UETA vs ESIGN plus a whole load of questions relating to the ones we kicked around in the thread just before this one about opening a deposit account online. I hope to hear back this week.
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#13899 - 03/27/02 09:47 PM Re: ESIGN or UETA?
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Good luck with the Fed. Any guidance would be helpful & I hope you can share what you get.
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#13900 - 03/27/02 10:42 PM Re: ESIGN or UETA?
Terry Offline
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I'll be sure to let you know.

If we eventually are told that ESIGN prevails, what do you all think will be the risks for the banks that didn't live up to ESIGN consent requirements? It seems that a number of the banks currently opening accounts online still require a manual (pen and paper) signature, but they don't seem to meet the consent requirements of ESIGN. I have read that failure to obtain proper consent will not invalidate the contract, but in my view the bank could still be cited for a pattern & practice of violations for Reg DD, E, CC, etc.
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#13901 - 03/28/02 03:09 PM Re: ESIGN or UETA?
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Yes, I share that fear. The courts would be handing out very bitter punishment if whole portfolios were destroyed due to a technicality. On the other hand regulators may not hesitate to declare violations of disclosure rules, order corrective action, and possibly impose CMP in extreme cases--especially repeat offenders.
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#13902 - 03/28/02 03:28 PM Re: ESIGN or UETA?
Terry Offline
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Geez, did you have to say that? I was hoping for something just a little more reassuring.
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#13903 - 03/28/02 03:51 PM Re: ESIGN or UETA?
Richard Insley Online
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Sorry if I sound like a gloom & doomer. I'm always uneasy when dealing with a rule that's untested, isn't clear and could produce unpleasant consequences. Any misunderstanding about when and how ESIGN or UETA apply would result in a pattern of violations.
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#13904 - 03/29/02 02:28 PM Re: ESIGN or UETA?
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I believe a lot of banks are still gathering some information over the Web and then providing disclosures as though the request was via snail mail. They make paper disclosures and send a signature card for execution and Notary. They are slow to adopt the newer technology that could speed the process and automate it.

One question is, even if we clear up some of these issues how many are ready to adopt the technology, or is it still not a priority?

This thread is dominated by the posts of 3 people. Is no one else interested? If not, that will be one reason rulings and guidance will be slow to come. We don't know if this is the chicken or the egg.
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#13905 - 03/29/02 03:07 PM Re: ESIGN or UETA?
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Excellent point, Andy. We've been going at this topic all week, so thousands of BOLers have seen the discussion & appear to have no interest. I'd be interested in hearing from those of you who are sitting on the sidelines--
Don't your banks want to save postage costs by offering e-statements?
Are your service bureaus & other support vendors supporting e-delivery of required disclosures?
Do you have e-delivery on your long range plans?
Have you heard anything on this topic from your regulators, trade assns, others?
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#13906 - 03/29/02 03:54 PM Re: ESIGN or UETA?
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It's not that I'm not interested. I've been reading this with GREAT INTEREST. We are starting the due diligence process to get on-line banking started. So my interest is great but I don't feel I have the know-how that you three have to make a knowledgeable contribution. I've gained a lot since signing on to bankers threads. It's always nice to get info from people in the trenches(those that actually have to apply the regulations).

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#13907 - 03/29/02 05:50 PM Re: ESIGN or UETA?
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Richard, I agree with Colleen. It's not that we're not interested, just that we don't have anything more profound to add to the conversation. To answer your questions:

Yes, we want to save postage costs.
Our support vendors are starting to come online with support for e-delivery, but nobody's all the way there yet.
We do have e-delivery on our long range plans
We haven't heard much from regulators and trade associations. Probably heard more in this thread than from all of them combined.
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#13908 - 03/29/02 06:28 PM Re: ESIGN or UETA?
Richard Insley Online
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Someone mentioned the "chicken vs. egg" problem earlier in this thread & that's the frustrating part of this. We're not going to get to the answers until a good number of banks start implementing e-delivery and coming up with the tough questions. Meanwhile, banks seem to be sitting on the bench waiting for the answers before comitting implementation resources.

The least risky approach is to assume you must implement whichever is the more demanding standard. Since UETA has no consent mechanism like ESIGN's Section 101(c), then you'd simply implement this part of ESIGN as an abundance of caution. Of course this approach will also cost the most in the short run.
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#13909 - 03/29/02 08:27 PM Re: ESIGN or UETA?
John Burnett Offline
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Both of my good friends Andy and Richard have mentioned the "chicken and egg" problem. I'd like to suggest that many of us fellow bankers might be seeing the "chicken and egg" from a different perspective.

Perhaps some of us are chicken, because we don't want egg on our faces when the regulators finally figure this thing out!

Speaking of eggs, where is that Cadbury bunny when you need him?
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#13910 - 03/29/02 09:31 PM Re: ESIGN or UETA?
Anonymous
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Maybe more like sitting ducks. And by-the-way, the Cadbury Bunny has been sighted in Birmingham today! (Just kidding)

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#13911 - 03/29/02 09:39 PM Re: ESIGN or UETA?
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I like that bunny, and bunny wannabes.

Another issue is that the compliance officer should have input and assist in providing direction. But we don't make the final decisions or create the priority list for IT or product development.

What we need to do is educate ourselves as much as possible and waive this flag, citing the savings and improvements possible which Richard cited above, plus others applicable. That would have the additional benefit of compliance contributing to the net instead of being a cost center.
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