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District Circular Letters

October16, 2000

BANKING SUPERVISION AND REGULATION:
ELECTRONIC SIGNATURES IN GLOBAL
AND NATIONAL COMMERCE ACT

To State Member Banks, Bank
Holding Companies, Financial
Holding Companies, U.S. Branches
And Agencies of Foreign Banks,
and Others Concerned,
in the Twelfth Federal Reserve District

ESign Act Establishes Legal Validity of Electronic Signatures, Contracts, and Disclosures (CA 00-7)

In June 2000, Congress passed the Electronic Signatures in Global and National Commerce Act (ESign Act). The ESign Act establishes the legal validity and enforceability of electronic signatures, contracts, and other records (including disclosures) in interstate and foreign commerce transactions. The Act is effective October 1, 2000. Some of the key provisions of section 101(c) of the ESign Act may affect the design of your current system, or plans to introduce a system, through which to conduct electronic transactions with consumers.

The ESign Act does not mandate that institutions or consumers use or accept electronic records or signatures. It does, however, permit institutions to satisfy any Federal law requirement that information be provided to a consumer in writing by providing the information electronically after obtaining the consumer’s affirmative consent. But before consent can be given, consumers must be provided with the following information:

  • Any right to receive a disclosure in paper form

  • The right to withdraw consent to have records provided electronically and the consequences of doing so. The institution must describe the procedures for withdrawing consent and for updating information needed to contact the consumer electronically.

  • Ways the consumer may obtain a paper copy upon request

  • The scope of the consent (for example, whether it applies only to a particular transaction or to categories of records that may be provided during the course of the parties’ relationship)

  • The hardware and software requirements for access to and retention of the electronic information.

The consumer must consent electronically or confirm consent 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." If an institution implements changes to hardware or software requirements that may prevent the consumer from obtaining access to or from retaining electronic information, consumers must be notified of the new requirements and be allowed to withdraw consent without charge.

The ESign Act grandfathers existing agreements between a consumer and an institution to deliver information electronically. On or after October 1, 2000, however, institutions must comply with the ESign Act when entering into new agreements with consumers for electronic delivery of information. The Board’s interim rules under Regulations DD and E do not apply to agreements between a consumer and institution regarding electronic delivery of information on or after October 1, 2000.

To ensure compliance with the consent provisions of the ESign Act when providing records electronically on or after October 1, 2000, institutions should update any existing products or systems that include the electronic delivery of information. For example, if your bank currently allows consumers to agree to electronic delivery of periodic statements for a checking account, the account agreement should be reviewed and changed to incorporate the consent notice and to obtain appropriate electronic consent from consumers on new accounts. Beginning October 1, 2000, any conversion of an existing customer from paper to electronic statements, or agreement with a new customer to supply electronic statements, must comply with the new requirements. If a customer has, before October 1, 2000, agreed to receive electronic statements in compliance with the interim rules under Regulations E and DD, your bank may continue to send electronic statements to that customer even after October 1, 2000.

The ESign Act contains additional provisions regarding the retention of contracts and records, specific exceptions, definitions, and transferable records. We would encourage bank management to review the products the bank delivers through electronic means and the systems that support them to ensure compliance with applicable provisions of the ESign Act.

Additional Information

For additional information regarding the Esign Act, please contact our Banking Supervision and Regulation Department, at (415) 974-2977 or (415) 974-2955.

FEDERAL RESERVE BANK OF SAN FRANCISCO