Electronic Signature Law

Digital contracts came into being on October 1, 2000. Before this day, transactions on the internet were supposedly not legally protected in the way they are these days.

The new law made online contracts for a variety of business transactions, such as purchasing a car, buying an insurance policy, or closing a mortgage, more clearly enforceable. At the same time, it also allowed businesses to satisfy their obligation to provide legally required notices to customers by sending those notices electronically, once the consumer provides consent for such online communication. If a consumer wanted to revert to paper notices, the law permitted the business to charge a fee, as long as the fee was disclosed when the consumer first consented to electronic notice.

The law broadly authorizes electronic records and electronic signatures as legally effective. But it does not identify the technology that must be used for an electronic signature. Instead, it defines an electronic signature as an electronic "sound, symbol, or process" attached to a contract or other record which was "executed or adopted by a person with the intent to sign the record."

The E-Sign law contained some special consumer protections before businesses can send notices required by law to customers by email in place of paper notices. First, the consumer must consent or confirm a prior written consent electronically. The manner of consenting electronically must demonstrate that the consumer will be able to access the future information in the form in which it will be sent. Second, companies that send electronic notices must tell the consumer what hardware and software is needed to read them. Finally, under the federal law, businesses must continue to send paper notices for urgent matters such as utility shut-off, foreclosure, eviction, some loan default notices, and product recalls. This rule is designed to ensure that consumers do not miss critical notices because a computer problem prevented the consumer from receiving or opening the notice.