Apologies for the length.

Currently our E-sign process provides the documents through a portal where the consumer has to set up an “account” to open the documents. Once they do this we receive notice they have opened and agreed to receive their documents electronically. This process as it is now is compliant with E-sign.

We are looking at going to a Web based application set up and one of the concerns I have is when the consumer consents to E-Sign they are simply clicking a radio button on the disclosure to show their consent. There is no document for them to open to show they are able to open a Word, Excel or PDF format document.

This is the response from the vendor (the bold emphasis was added by me);

A concern some clients have shared is that the initial consent is offered to the borrower in a different format than the subsequent documents are offered for the borrower’s access.

The E-Sign Act does not require that the initial consent be offered to the borrower in the identical format as the subsequent documents are offered for the borrower’s access. The E-Sign Act requires that the initial consent is completed in a manner that reasonably demonstrates the borrower’s ability to access the subsequent documents:

15 USCS § 7001(c)(1) ... such information satisfies the requirement that such information be in writing if ... (C) the consumer … (i) prior to consenting, is provided with a statement of the hardware and software requirements for access to and retention of the electronic records; and (ii) consents electronically, or confirms his or her consent electronically, in a manner that reasonably demonstrates that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent; ...

The issue is whether a borrower’s ability to access and operate a web browser using hypertext markup language (“HTML”) in order to consent to E-Sign, reasonably demonstrates the borrower’s ability to access documents in a graphics interchange format (“GIF”). GIF is a widely available format supported and built-in to all modern browsers. Ellie Mae’s position is that a borrower’s ability to access a website using HTML with a browser is an exceedingly sufficient demonstration of that borrower’s ability to access documents in a GIF format using the same browser.

My contention is this is not compliant because the consumer has not provided demonstrable consent that they can access the document in the form it will be provided. A GIF, from my understanding is primarily an “image” file and not a “document” file. If they are demonstrating their consent using a GIF file then the way I read the regulation we would have to provide all our documents subject to E-sing in a GIF format.

What would be your opinion as to whether their process would be compliant with E-sign’s demonstrable consent requirement?

Thanks.

Dan, I think your concerns are justified. I've always been very conservative when it comes to E-SIGN as this rule is a law rather than a regulation, meaning that only the courts can really answer some of our questions. As I am not an attorney (and don't follow much case law to even know if the courts have or haven't ruled on this), I either take the conservative stance (which in this case would be to agree with you that it doesn't clearly comply) or pass the decision/risk off to an attorney (and or management).

Personally, I view ESIGN as a very high-risk rule as non-compliance would result in saying that none of your disclosures provided electronically were provided at all - which could have major consequences. While Ellie Mae's position may appear reasonable, I just don't know how they can guarantee it complies without having either 1) a regulation that allows for this or 2) applicable court cases that back up their position.

The bottom line is that while I don't know that they are wrong, I believe there is risk associated with their position based on the points you outlined. In addition to this, ESIGN seems to be a growing hot button with regulators, so IMHO, that risk seems to be increasing.

Thanks for the input Adam.

I agree with your observation, my understanding is that the consumer has to demonstrate they can open the file in the format it will be provided to them to be in compliance with the Esign Act.

FWIW I posed the issue to my EIC for my upcoming FDIC compliance exam and they agreed the process is not compliant.

the customer would have to demonstrate they can receive documents that the information is sent in – a GIF in this example. Proving they can open a .pdf would not be in compliance if you are providing information in a GIF format.

I agree with everyone's concerns that substitution of e-documents for paper can be high risk if not done appropriately. The problem, of course, is that there's no regulation, commentary, or interpretive mechanism to know in advance that you comply with ESIGN--which in turn, means you comply with the law or regulation that required the "written" disclosures contained in the documents in question.

Dan, you mentioned several electronic file types, but which type(s) will you actually use for e-deliveries?

Richard, those were for illustrative purposes. What I was trying to imply is demonstrating they can open a GIF file format does not demonstrate they can open one of the file formats I mentioned.

Our current format is PDF.

I agree with you (and the FDIC examiner) 100%. If the live disclosures will be in a pdf document, then the customer's ability to receive, open, and read the content of pdf documents must be demonstrated in order for the consent to be valid.

When you mentioned a mixture of image and text file formats, that raised an interesting ESIGN issue I'd never considered. Nowhere in Section 7001(a) through (c) did Congress use the word "document." That word is the foundation of paper delivery systems and we moved it right into all of our e-delivery discussions. In the world of ESIGN, however, the foundation is "electronic record"--a broader concept than "document."

Section 7006(4) says "the term “electronic record” means a contract or other record created, generated, sent, communicated, received, or stored by electronic means." There's no definition or use of the word "document" and no preference for editable text or pictures of text. For that matter, even an audio or video file meets this definition...so with fully compliant demonstrable consent, a singing video would (arguably) comply with Reg. E's or Z's delivery requirements. Those rules (Section 1005.4(a)(1) for example) say that "the disclosures required by this part may be provided to the consumer in electronic form, subject to compliance with (ESIGN)."

The point to all of this is that "electronic records" can be vastly different in nature and that makes it all the more important to do an exact test drive before you declare the consent to be valid.

UPDATE: Apparently in the first demonstration presented to me our implementation team did not carry it completely through the application process.

We went through a demo from start to finish yesterday to make sure we didn't miss a step and and with the additional information the implementation team obtained the new process closely follows our current procedures. After yesterday's testing I'm confident we now meet the demonstrable consent requirement.

I appreciate everyone's input.

Good deal--glad the "problem" turned out to be incomplete communication...not a real problem. ESIGN and its relationship with the other laws/regs has been one of the most difficult sets of rules I've ever seen our industry tackle. It works like a license, not a typical regulation, and bankers have struggled with that concept for 20 years.

This may be moot at this time as graphics are not the delivery method here, but I would ask about plans for ADA compliance. When you mention graphics, my immediate thought was tremendously long ALT tags necessary for a screen reader.