SBA Encourages Greater Use Of Electronic Signatures

Recently, the SBA issued a procedural notice highlighting the acceptance of electronic signatures in its 7(a) and 504 Loan Program. The notice, which outlines various performance standards, is intended to encourage more lenders and agencies to accept electronic signatures. The announcement comes only weeks after the House Small Business Committee introduced legislation intended to “streamline and simplify the loan application process.” The ESIGN Act, enacted in 2000, made valid the use of electronic signatures in signing contracts and documents online, thus streamlining business operations and eliminating paper burdens for consumers.

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New TCPA Express Written Consent Requirement Takes Effect

On October 16, new rules took effect that require businesses to obtain express written consent before making certain telemarketing calls to customers. The rules arise from a February 2012 Report and Order issued pursuant to the Telephone Consumer Protection Act (TCPA), in which the Federal Communications Commission (FCC): (i) required that businesses obtain prior express written consent for all autodialed or prerecorded telemarketing calls to wireless numbers and residential lines, (ii) allowed consumers to opt out of future robocalls during a robocall, and (ii) limited permissible abandoned calls on a per-calling campaign basis. While the consumer opt-out and abandoned calls limitations are already in effect, compliance with the express written consent requirement was not mandated until now. The rules require that the written consent be signed and be sufficient to show that the customer: (i) receives “clear and conspicuous disclosure” of the consequences of providing the requested consent and (ii) having received this information, agrees unambiguously to receive such calls at a telephone number the consumer designates. In addition, the rules require the written agreement to be obtained “without requiring, directly or indirectly, that the agreement be executed as a condition of purchasing any good or service.” The FCC rule allows electronic or digital forms of signatures obtained in compliance with the E-SIGN Act—e.g. agreements obtained via a compliant email, website form, text message, telephone keypress or voice recording—to satisfy the written requirement. The FCC also removed an exemption that allowed businesses to demonstrate consent based on an “established business relationship” between the caller and customer.

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Fourth Circuit Relies on E-Sign Act to Hold Electronic Agreement May Effect A Valid Transfer of Copyright

On July 17, the U.S. Court of Appeals for the Fourth Circuit held that under the E-Sign Act, an electronic transfer may satisfy the requirements for transfer of a copyright under the Copyright Act, even though the Copyright Act itself does not define the “writing” or “signature” required to effectuate a transfer. Metro. Reg. Info. Sys., Inc. v. Am. Home Realty Network, Inc. No. 12-2102, 2013 WL 3722365 (Jul. 17, 2013). In this case, the company that operates the online real estate listing service MLS sued a competitor real estate referral service, contending that the referral service collected and used information without authorization – including photographs of listed properties – that MLS compiled for its customers. In order to submit photos to the MLS, customers are required to click a button and agree to certain terms of use. The court agreed with the MLS operator that its customers’ acceptance of the terms of use operated as a transfer of copyrights in any photograph provided to the MLS, and that as such the competitor service may have violated the Copyright Act through its unauthorized use of the materials. Noting the paucity of case law applying the E-Sign Act to instruments conveying copyrights, the court looked to cases in which circuit courts have applied the E-Sign Act to the Federal Arbitration Act’s protections that pertain only to written arbitration agreements, including the Second Circuit’s holding in Specht v. Netscape Comms. Corp., 605 F.3d 17 (2nd Cir. 2002). Based on the analysis in those cases, the court explained that “[t]o invalidate copyright transfer agreements solely because they were made electronically would thwart the clear congressional intent embodied in the E-Sign Act.” The court held that an electronic agreement may effect a valid transfer of copyright interests under the Copyright Act.  As such, the court affirmed the district court’s preliminary injunction prohibiting MLS’s competitor from displaying the MLS photographs.

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Virginia Publishes Electronic Notarization Standard

On January 21, the Virginia Secretary of the Commonwealth released the Virginia Electronic Notarization Assurance Standard. Citing challenges faced by notaries to “preserve and strengthen the role of the notary in the rapidly emerging digital economy and to ensure reliability and cross-border recognition of notarized electronic documents in a global economy,” the standards are intended to support transition of notaries in Virginia to performing electronic notarizations that have the same legal effect as traditional notarizations. They set forth registration and performance requirements, electronic signature and seal requirements, online notarization procedures, and notarized electronic document requirements. According to the Secretary, the Virginia standards (i) reflect the National Association of Secretaries of State Electronic Notarization Standard for Document Security; (ii) incorporate aspects of standards previously adopted by seven other states; and (iii) are consistent with the federal ESIGN Act, the UETA, and the Uniform Real Property Electronic Recording Act.

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CFPB Addresses Use of Electronic Periodic Statements for Residential Mortgage Loans

The CFPB’s recent rule amending Regulation Z (TILA), issued on January 17, included, among other changes, the requirement that mortgage servicers provide consumers with periodic billing statements. As required by the Dodd-Frank Act, the rule explicitly allows electronic distribution of the statements. However, the Bureau restricted the use of electronic statements only to instances where “the consumer agrees.” In describing the process through which this agreement must be obtained, the rule departs from the formal requirements of the federal ESIGN Act’s consumer consent process, authorizing instead a “simpler process” which requires only the consumer’s “affirmative consent.” The CFPB staff, in the accompanying Official Interpretations, indicates that consent may be presumed for consumers who are currently receiving electronic account disclosures from their servicer for any type of account, mortgage or otherwise. In light of concerns about information security, the Official Interpretations also indicate that mortgage servicers may make electronic periodic statements available on a secure website and notify the consumer that the statement is available, rather than delivering the statement directly to the consumer. Recognizing that some consumers may not desire regular notification emails, the Official Interpretations also allow a consumer who has demonstrated the ability to access statements online to opt out of receiving such notifications. Neither the rule nor the Official Interpretations address how the rule relates to other laws that may affect when an electronic communication is delivered, such as the sending or receipt requirements of state UETA statutes.

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Federal District Court Finds Valid Agreement under ESIGN Based on Upload of Images in Accordance with Website Terms of Use

On November 13, the United States District Court for the District of Maryland held that uploaded pictures to a website disclosing in its Terms of Use (TOU) that uploading images creates valid assignments of the rights to use those images were electronic signatures creating valid assignments. Metro. Reg’l Info. Sys., Inc. v. Am. Home Realty Network, Inc., No. 12-cv-00954 (D. Md. Nov. 13, 2012). The plaintiff had obtained a preliminary injunction against the defendant’s use of images that appeared on the plaintiff’s website, and the defendant appealed the injunction, arguing, inter alia, that no valid assignment of the images had occurred under Section 204(a) of the Copyright Act, which requires assignments to be in writing and signed by the assignor. Citing Section 101(a) of the Electronic Signature in Global and National Commerce Act (ESIGN Act), the court found that users’ acts of uploading images constituted electronic signatures sufficient to satisfy the requirements of the Copyright Act. The court thus denied the defendant’s motion to suspend the preliminary injunction.

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CFPB Hosts Webinar on Remittance Transfer Rule

On October 16, the CFPB hosted a webinar regarding the new remittance transfer rule, set to take effect February 7, 2013. The presentation reviewed (i) the types of transactions covered, (ii) the definition of “remittance transfer provider” and the “normal course of business” safe harbor, (iii) disclosure requirements, including the use of estimates, and (iv) cancellations, refunds, and error resolution. For example, the disclosure requirements discussion covered the timing and form of disclosures, the application of the ESIGN Act in the remittance context, and appropriate reliance on sender representations. The webinar included certain practical compliance tips and the CFPB stated that it will accept email and phone requests for legal compliance guidance. In advance of the webinar the CFPB issued a compliance guide for small businesses.

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New York Appellate Court Holds Electronically Signed Affirmations Admissible

On June 21, a New York state appellate court held that an electronically signed affirmation is admissible under state court rules. Martin v. Portexit Corp., No. 303854/07, 2012 WL 2344889 (N.Y. App. Div. June 21, 2012). In this personal injury case, the defendants moved for summary judgment in the trial court and relied on two electronically signed expert affirmations. In opposing the motion, the plaintiff argued that the electronically signed affirmations were inadmissible because they did not comply with court rules. The trial court agreed. On appeal, the court determined that the term “subscribed” in state court rules does in fact include electronic signatures; as such, electronic signatures have the same legal effect as handwritten signatures. Further, the court held that under the federal E-SIGN Act and state law, a party to a suit need not prove who placed the electronic signature on an affirmation.

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New Jersey Updates Title Recordation Laws

On January 17, New Jersey enacted a 2010-2011 session bill, A2565, to modernize the state’s title recordation laws to permit the use of electronic documents and to reorganize and streamline the state’s recordation requirements. Given that the federal E-sign Act and the New Jersey Uniform Electronic Transactions Act both authorize the acceptance of electronic alternatives to paper documents and encourage the development of systems that accept electronic documents, the bill updates state law to, for example, (i) broaden the definition of “document” and “recorded” to allow for electronic recordation; (ii) delete statutory references to separate sets of books or separate databases for different kinds of documents; (iii) remove requirements for marginal notation of documents; and (iv) require development of standard formats for electronic documents.

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SPeRS Announces Release of Updated E-Commerce Compliance Guidelines

Recently, the Standards and Procedures for Electronic Records and Signatures version 2.0 (SPeRS 2.0) was released. This new version of SPeRS reflects current e-commerce business practices and updates applicable electronic record and signature case law and federal regulatory developments since SPeRS was originally published in 2003. The update also examines nationwide developments in the evolving area of electronic notarization laws. SPeRS is a technology-neutral set of guidelines and strategies for industry use in designing and implementing systems for electronic transactions under the federal Electronic Signatures in Global and National Commerce Act (ESIGN) and state adoptions of the Uniform Electronic Transactions Act (UETA). SPeRS 2.0 updates the groundbreaking guidance contained in SPeRS 1.0, developed by a broad cross-section of leading financial service companies and trade associations. More information about SPeRS is available at www.spers.org.

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