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House and Senate negotiators have agreed on a bill that would greatly expand the use of electronic signatures in everyday commerce. It's about time.
Final approval of the measure would pave the way for billions of dollars in routine business-to-business transactions to take place over the Internet. At the same time, it would allow customers of banks, brokers, and insurance companies to set up accounts and receive bills, confirmations, and statements in online-only form. While consumer advocates objected to earlier versions of the bill, the current measure includes some important provisions to protect customers.
The measure has been a top priority of business groups for nearly two years. That's because it could save them billions of dollars in transaction costs. Today, for instance, nearly all business contracts must be signed in ink. That requires faxes, overnight mail, and signature authorizations.
EYE SIGN.
The same limitations have plagued business-to-consumer transactions. While investors can, of course, trade online, they still must open brokerage accounts by mail with old-fashioned signatures. At the same time, brokers are required to mail a paper confirmation of a stock trade even if a customer also receives an electronic version. That is simply a waste of money -- needless costs that are passed on to customers.
The new law would end all that. It would allow financial transactions to take place entirely online, through the use of various kinds of electronic-signature technology. Congress deserves credit for carefully making the bill neutral in the way it treats the still-evolving world of e-signatures: Various technologies, from retinal scans of the eye to certified passwords to digital fingerprints, would be allowed -- whatever works best for the consumer and the company. Essentially, the measure says that a contract signed electronically carries with it all the same rights and liabilities as an agreement signed in ink.
In another big money-saver for business, the measure would also permit electronic record-keeping and allow companies to throw away tons of paper now required by state and federal authorities. However, businesses would be required to retain records in readable electronic form.
HEALTHY CONSENSUS.
In response to concerns raised by consumer groups, companies would have to ensure that customers have the proper software and hardware to read electronic correspondence before they enter into such an online-only relationship. In other words, the onus is on the company to provide the customer with the service. Customers would have to consent to the arrangement. If they don't, they could still do business the old-fashioned way. A handful of documents, such as wills, court orders, mortgage foreclosures, and utility cancellations, would still have to be sent in paper form.
Congress also worked out a key dispute over where federal law stops and state law begins. For more than a year, states have been developing their own uniform code for such transactions. And the House-Senate agreement would defer to that law in those states that adopt it.
The e-signature bill could be approved by the House as early as the week of June 12, and as long as it's not tangled up in the Senate, it will probably be signed by President Clinton by July 4. It took nearly two years for this legislation to get worked out -- much longer than necessary to resolve the concerns of consumer groups, financial institutions, and states. But every so often, Washington reaches a consensus that can make life easier for business and consumers. The e-signature bill is a good example. Too bad it doesn't happen more often.
Gleckman is a senior correspondent in Business Week's Washington bureau
EDITED BY BETH BELTON
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