November 1, 1999
Signatures on Cyberspace's Dotted Line
By JERI CLAUSING
ASHINGTON -- What began as a seemingly simple attempt to stimulate
electronic commerce by giving so-called digital signatures the legal weight of their
ink-and-paper counterparts has erupted into a partisan political battle in Congress that
opponents fear could wipe out some basic consumer protections.
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The Associated Press |
Representative Thomas J. Bliley Jr.
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"Digital signatures" refers to various technologies including encryption,
fingerprint readers and stylus pads that are used to verify one's identity in cyberspace
to certify contracts that are agreed to over the Internet. They are accepted as legally
binding in some states and localities, but not in all.
The legislation was originally meant to create a uniform federal law recognizing the
validity of digital signatures. But lately it has been expanded in ways that critics say
would work against consumers.
At issue are the thousands of state and local laws that require institutions like banks
and insurance companies to keep certain paper records and to notify customers by mail of
certain situations, including default on their credit-card debts or loans; changes in the
terms of a financial agreement, like increases in a monthly payment; foreclosure of a home
mortgage; or cancellation of an insurance policy.
Under the legislation pending in both the House and the Senate, such companies would be
able to make those notifications electronically, instead of by mail, if the contracts were
made online instead of on paper. The companies would also be relieved of a number of paper
record-keeping rules.
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Related Article
Fight Over Electronic Contracts Heads to House
(October 19, 1999)
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Supporters say the measures would enable companies and their customers to realize the
full benefits and conveniences of electronic commerce. Not only would the legislation make
it easier for consumers to complete transactions from home, they say, but it would cut
down on paper and mailing expenses, helping reduce the shipping costs that are passed on
to customers.
But opponents fear that the proposals will allow companies to sidestep longstanding
consumer notification laws.
Consumers, they say, may not know that the fine print of their contract eliminates the
requirement for traditional notification. Or they may simply never get crucial information
if their computers break down or they change their Internet service provider or e-mail
address -- which typically has no forwarding-address procedure as does traditional mail.
Or, the opponents contend, companies can include contract fine print requiring that
consumers periodically check a World Wide Web site for updates on their agreements, a
provision that many may overlook or forget.
"It's bad public policy," said Andrew Pincus, general counsel for the
Commerce Department. "It's also bad for the Internet. If the online world is not safe
for consumers, what does that do to the future of electronic commerce? It goes in the
tank."
The Commerce Department had given approval earlier this year to a bill on validation of
electronic signatures by Sen. Spencer Abraham, R-Mich.
The Associated Press |
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Senator Spencer Abraham
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The department's support came after he agreed to reduce its scope so that the bill
would be temporary, applied to the handful of states that did not already have laws
recognizing the legality of electronic contracts. The idea was that Abraham's measure
would expire once all states adopted a uniform digital-signature
standard that has been recommended by a national group of lawmakers, state officials and
lawyers.
But the bill that Abraham tried to bring up for a vote last week was substantially
different from that compromise and included provisions that would pre-empt a number of
state and federal laws. So Sen. Patrick Leahy, D-Vt., blocked its consideration, saying
that Abraham had reneged on a carefully drawn compromise and was trying to pass off a
substitute as the same bill that had been supported by the Clinton administration.
Similar legislation is pending in the House, introduced by Rep. Thomas Bliley, R-Va.,
chairman of the House Commerce Committee.
The National Conference of State Legislatures issued a statement last
week saying that the Bliley bill "would eviscerate consumer protections" and
eliminate record-keeping requirements that allow state and federal oversight agencies to
do their jobs.
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Stephen Crowley/The New York Times |
Senator Patrick J. Leahy
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Lobbyists on both sides of the argument spent much of last week working with
legislators, trying to help settle the differences in the House and Senate bills.
Changes made on Friday to the House bill tried to address consumers' concerns by adding
provisions to clarify that state and federal consumer-notification laws still applied, and
that notification requirements could be made electronically only if the consumer had
consented by using a form separate from the credit or loan agreement.
The revised House bill would also state that insurance cancellation notices, home
foreclosure and utility-disconnection warnings would still have to be sent by mail.
But consumer groups and the administration remain staunchly opposed to both bills,
which could go to the floor for votes this week.
"Yes, they've made a lot of changes," said Margot Saunders of the National
Consumer Law Center. "But the problem is not the examples they have addressed. The
problem is the whole game."
Ms. Saunders said that exempting foreclosure notices did not get to the underlying
matter of all the warning notices that would precede that final document -- and which
would not come by regular mail in the case of contracts that had been completed
electronically. "The big difference between electronic information and written
information is that it costs money and takes extra effort for consumers to receive
electronic information," she said.
Chris Larsen is the chief executive of E-Loan, an online loan center in California's
Silicon Valley that is working with an industry group, the Electronic
Financial Services Council, to get the legislation passed. He said he was perplexed by
the administration's opposition to the Bliley and Abraham bills.
"We clearly see this as an aggressive pro-consumer issue," Larsen said,
"because it allows online disclosure that allows better disclosure to consumers at a
lower cost."
He said companies were not trying to get around consumer protection laws, but simply
wanted to bring their businesses into the electronic age.
He said his company had processed some $2.3 billion in loans online. Enabling more of
the transaction to take place electronically, he said, results in lower interest rates.
"We are not talking about changing any of the disclosures that are required at the
state or federal level," Larsen added. "We think all those protections are
essential to consumers. We just want to be able to deliver that electronically."
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