Mortgage Banking Commentary

Transcription

1 ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT July 11, 2000 On June 30, 2000, President Clinton signed into law the Electronic Signatures in Global and National Commerce Act (the E-SIGN Act or the Act ), S. 761, which generally becomes effective October 1, The Act represents a fundamental shift in the law that governs how the mortgage lending industry will conduct business in this new millennium. The implications will be significant, complex and transforming. The impacts on both the origination and secondary markets will be profound. By removing legal barriers to the use of electronic records, including electronic disclosures, electronic signatures, electronic notarizations and acknowledgments, and the use of electronic agents in the conduct of business, commercial and governmental affairs, the E-SIGN Act greatly facilitates the origination of mortgages over the Internet or through other electronic means. The Act also specifically defines a legal architecture through which electronic promissory notes for residential mortgages can be created, possessed and transferred as transferable records. This special Client Alert provides a detailed examination of the Act. Despite its relative brevity, the Act is quite complex in its prospective application and many issues remain unclear. Members of our firm have been closely involved in the long-term development of the Act, as well as the Uniform Electronic Transactions Act ( UETA ), a parallel state statutory scheme that has already been enacted in 18 states. Responding to the E-SIGN Act will require the coordinated efforts of business, technology and law; we look forward to answering your questions about the Act and being available to assist you in evaluating its impact upon your business. * * * * * * * * * LEGISLATIVE HISTORY The E-SIGN Act was approved by the House and the Senate after emerging from a Conference Committee which resolved the differences between electronic signature legislation offered by each house of Congress in the past year. The Act is similar in structure to and draws many concepts from UETA, promulgated by the National Conference of Commissioners on Uniform State Laws for enactment at the state level. As of the present date, 18 states have enacted some version of UETA. The Conference 75 State Street Boston, MA Payne Shoemaker Building 240 North Third Street Harrisburg, PA Wilshire Blvd. Eighth Floor, East Tower Beverly Hills, CA South Biscayne Blvd. Miami, FL Avenue of the Americas 45th Floor New York, NY Henry W. Oliver Building 535 Smithfield Street Pittsburgh, PA Pine Street, Suite 3200 San Francisco, CA Massachusetts Ave., N.W. 2nd Floor Washington, DC info@kl.com

2 Committee resolved several critical issues that distinguished the two versions of the legislation and threatened a Presidential veto if not properly resolved. Two issues that were particularly important from a mortgage industry perspective were: Protecting consumer rights and avoiding the loss of protections provided by paper-based disclosures and notices required by law. Clarifying the applicability of the Act to real estate mortgage notes and, in particular, the ability to electronically transfer possession and control of notes in electronic form. OVERVIEW In general, the Act provides that signatures, contracts and records in connection with transactions in or affecting interstate or foreign commerce may not be denied legal effect, validity or enforceability, solely because they are in electronic form or because an electronic signature or record was used in their formation. 101(a). The Act overrides any state or federal statute, regulation or other rule of law that requires written documents on paper or pen and ink signatures, including any writing requirements embodied in state statute of frauds and written disclosure requirements specific to mortgage lending activities. The Act also contains provisions that permit electronic records of signed documents to satisfy existing recordkeeping retention requirements. The Act does not require any person to use or accept electronic records or signatures. 101(b)(2). With respect to consumer transactions however, including mortgage loans, the Act requires a specific form and method of disclosure and consumer consent before records required by law to be provided in writing may be provided electronically. 101(c). Title II of the Act contains provisions specifically targeted to facilitate the execution, use and exchange of electronic mortgage notes, which are defined as transferable records under the Act. 101(d) and 201. In accomplishing these objectives, the Act does not limit, alter or otherwise affect any legal requirements other than the requirements that contracts or other records be in written form or signed with a handwritten signature. 101(b)(1). APPLICATION TO MORTGAGE LENDING ACTIVITIES The Act is universally understood to apply to mortgage lending. The Act applies to any signatures, contracts or other records relating to a transaction in or affecting interstate commerce. 101(a). The Act defines a transaction as an action or set of actions relating to the business, consumer or commercial affairs between two or more persons, including the sale, lease, exchange or other disposition of personal property, services or any interest on real property. 106(13). The term does not specifically refer to lending as a covered activity, but the definition of a transaction is broad enough to include lending activities. In addition, a mortgage loan would be related to such a transaction in any event, and thus be covered. To the extent a particular mortgage loan does not involve interstate commerce, mortgage lending activities as 2

3 a whole affect interstate commerce, and the individual mortgage loan can therefore be considered a contract related to transactions in or affecting interstate commerce, and thus be covered by the Act. General Provisions ELECTRONIC RECORDS The E-SIGN Act provides that records in connection with covered transactions may not be denied legal effect, validity or enforceability, solely because they are in electronic form. 101(a). For the purposes of the E-SIGN Act, a record means information inscribed in a tangible medium, or stored in an electronic or other medium and retrievable in perceivable form. 106(9). Thus, given this broad definition, a record would include any written agreement or written disclosure. An electronic record is a record created, generated, sent, communicated, received, or stored by electronic means. 106(4). Electronic is broadly defined to mean relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities. 106(2). An electronic record will satisfy any legal requirement that the record be in writing. Based on this provision, parties may execute contracts existing only in electronic form no paper document is required. Parties may also deliver legally required notices, disclosures and similar information in electronic form (provided the required prior consent, if needed, has been obtained). The Act does provide a specific exception to the preceding general rule, the breadth of which may not be resolved until clarification is obtained in the courts (or by subsequent lawmaking). Notwithstanding the general rule recognizing the validity of electronic records, if a law requires that a record, including a contract, be in writing, the legal effect, validity or enforceability of the record may be denied if it is not in a form that is capable of being retained and accurately reproduced for later reference by parties entitled to retain the record. Based on this provision, if a party would be entitled to retain a paper version of the record, the electronic version must be a similarly useful one, capable of being retained as a paper record would be, in order for the record to be entitled to the benefits of the Act. The scope of this concept is unclear in the drafting because there is no elaboration on the term entitled ; if the use of the word entitled is interpreted to mean something more than simply legally entitled, many records would be vulnerable to being denied legal effect in addition to those a party is entitled to keep by law. If the term only means legally entitled, then this issue arises in a relatively smaller number of instances where there is such a legal entitlement. Consumer Consent Requirements The use and acceptance of electronic records under the Act is voluntary no one (other than government agencies in connection with filings and the like) is required to use or accept them. Moreover, consumers, defined as individuals obtaining products or services used primarily for personal, family or household purposes, must affirmatively consent before information that other law requires be provided or made available to the consumer in writing can be provided by means of electronic records. 101(c)(1)(A). To continue to rely on the consumer s consent, it may not have been withdrawn. The withdrawal of the consumer s consent does not affect the legal effectiveness, validity or enforceability of records provided 3

4 prior to the withdrawal, which must be made effective within a reasonable period of time after receipt. 101(c)(1)(A) and 101(c)(4). A consumer s consent must be either electronic or confirmed electronically in a manner that reasonably demonstrates that the consumer can access information in the electronic form in which the records will be provided. 101(c)(1)(C). The meaning of this provision is open to interpretation. Whether a particular form of consent reasonably demonstrates a consumer s ability to access a form of electronic record is an issue ripe for dispute, particularly for systems that are especially high-tech or low-tech. Prior to providing consent, the consumer must be provided with a disclosure statement that informs the consumer of all of the following: Any right that the consumer has to receive the record in non-electronic form. The consumer s right to withdraw the consent and any conditions, consequences (possibly including the termination of the parties relationship) or fees that would result from such a withdrawal. The categories of records that may be provided or made available during the course of the parties relationship. The procedures the consumer must use to withdraw consent or to update the consumer s electronic address. How, after consenting, the consumer may obtain a paper copy of any electronic record and whether a fee will be charged for providing it. 101(c)(1)(B). The Act also requires a disclosure of the hardware and software requirements for access to and retention of the electronic records before electronic records may be used in a transaction with a consumer, although there does not appear to be any reason why the two disclosures could not be integrated into one. 101(c)(1)(C)(i). If there is any material change in the previously disclosed hardware or software requirements after the consumer s initial consent, the provider of electronic records must: provide the consumer with a disclosure of the new software and hardware requirements and of the consumer s right to withdraw his or her consent without the imposition of any fees or any conditions or consequences not provided for in the original disclosure for withdrawal of consent; and obtain a new electronic consent or confirmation that once again reasonably demonstrates that the consumer still can access information in the electronic form in which the records will be provided. 101(c)(1)(D). Neither this provision, nor any other provision of the Act, affects the content or timing requirements associated with a disclosure or other record required to be provided. The Act also does not eliminate any requirement for verification or acknowledgment of a disclosure, although if such verification or acknowledgment requires a signature, the signature may be electronic, as discussed below. 101(c)(2). So, once consent is obtained, existing business practices driven by regulatory requirements can continue without modification, except they may now be performed electronically. 4

5 The consent requirement of the Act does not apply to any records provided or made available to a consumer who has consented prior to the effective date of the Act to receive such records in electronic form as permitted by any statute, regulation or other rule of law. 101(c)(5). Although this appears to provide a way to avoid the highly specific consumer consent requirements of the E-SIGN Act by means of a consent prior to the effective date of the Act, the provision is open to differing interpretations. It is not clear whether this provision means that the consent requirement of the E-SIGN Act can be avoided if the earlier consent was permitted by an existing rule of law, or if the electronic form was permitted by an existing rule of law. In either case, one or the other must have been authorized by specific law, and absent such authorization, a party must comply with the E-SIGN requirements. Even if a prior consent has been received, it may be desirable to re-solicit a consent in compliance with the E-SIGN Act requirement to ensure legality. The Act also specifies that federal and state regulatory agencies may utilize their existing regulatory authority to interpret the Act s consumer consent provisions, as well as the other provisions of Section 101 of the Act, with respect to the statutes that they administer. 104(b). The traditional state and federal regulators of mortgage lending entities may therefore interpret the Act s consent provisions for their individual purposes. However, this interpretive authority is constrained by conditions that are intended to ensure that federal and state agencies will merely flesh out or apply the Act s provisions in the context of their regulatory schemes without either changing or adding to the requirements imposed under the Act, as discussed further below. ELECTRONIC SIGNATURES The E-SIGN Act provides that signatures in connection with covered transactions may not be denied legal effect, validity or enforceability, solely because they are in electronic form. 101(a). The Act defines an electronic signature as an electronic sound, symbol, or process attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record. 106(5). Based on this broad definition, a wide range of items and processes may be considered an electronic signature, provided they are executed or adopted by a person with the intent to sign a record, that is, to cause the legal effect intended. This concept is important: it will be vital that the business and technical processes adopted give assurances that the required intent was present. No particular technology or security is required in order for an electronic signature to qualify as such, although the application of a particular form of technology (for example, public key encryption, or PKI 1 ) may be desired to reduce the risk of fraud. Absent a business need for a higher level of security, however, something as simple as a name appearing at the bottom of an message, or the process of clicking on a button appearing on an Internet web page, may be used to satisfy the requirement of an electronic signature, provided it is executed or adopted with the intent to serve as a signature of the related records, and such intent can be proven. 1 PKI, which stands for public key infrastructure, refers to a form of asymmetric encryption. In a PKI system, a transmitter of electronic information, such as an electronic record, contract, or signature, encrypts the information by use of a private key, under his or her control. The recipients then decode this information with a public key distributed to them, which thereby verifies the identity of the sender. 5

6 We wish to emphasize this principle of technology neutrality that has characterized both the E- SIGN Act and UETA. Although significant attention is given to the use of digital signatures (a technology involving PKI), there is no statutory requirement for its use in the Act. Businesses will be able to use a variety of signature tools and processes and the legislators adopted the view that the marketplace will ultimately sort out which technology solutions are appropriate for different kinds of signature events. The consumer consent requirements discussed above do not apply to the use of electronic signatures, so a consumer may sign a record electronically without first receiving the disclosure statement and providing the consent described above. However, to the extent the signature is associated with an electronic record that is legally required to be provided to the consumer in writing, the party providing the record would have to comply with those disclosure and consent procedures with respect to the record in order to provide it in electronic form, before it could be electronically signed. If a signature is required by law to be notarized, acknowledged, verified or made under oath, the requirement may be satisfied electronically. A person authorized to perform the necessary acts does so by attaching or logically associating his or her electronic signature and all legally required information with the relevant signature or record. 101(g). Regrettably, the Act is silent on how a seal, when required by law, can be attached to or logically associated with a signature or record. In addition, although the Act would seem to require a county recorder s office to accept electronic deeds for filing, whether this will be a practical possibility given the realities of county recorders offices is another question. Generally ELECTRONIC CONTRACTS The E-SIGN Act provides that contracts in connection with transactions in or affecting interstate or foreign commerce may not be denied legal effect, validity or enforceability, solely because they are in electronic form or because an electronic signature or record was used in their formation. 101(a). Neither contract nor electronic contract is defined under the Act, however, the term electronic record includes contracts created, generated, sent, communicated, received or stored by electronic means. Thus, any provision of the Act regarding an electronic record applies equally to electronic contracts. As a result, to the extent a contract is legally required to be provided or made available to a consumer in writing, the consumer must receive the required disclosure statement and consent to the use of the electronic records, as discussed above, before it is provided to the consumer. Paving the way for the full automation of transactions, the E-SIGN Act also provides that a contract or other record relating to a covered transaction may not be denied legal effect, validity, or enforceability solely because its formation, creation, or delivery involved the action of one or more electronic agents so long as the action of any such electronic agent is legally attributable to the person to be bound. 101(h). An electronic agent is defined as a computer program or an electronic or other automated means used independently to initiate an action or respond to electronic records or performances in whole or in part without review or action by an individual at the time of the action or response. 106(3). Thus, contracts may be formed as a result of the interaction of electronic agents and individuals, or solely between electronic agents, even if individuals to be bound were not aware of or reviewed the actions of the electronic agents. 6

7 Transferable Records One of the most troublesome challenges in facilitating electronic commerce has been solving how to use electronic contracting practices for records that are legally transferred by physical possession, such as electronic promissory notes or mortgages. Clearly, in the absence of a thing to be transferred, the law did not seem to permit the ability to transfer the associated legal rights, such as the right to enforce the promissory note. For the mortgage industry, the challenge has been particularly difficult to overcome, since electronic records generally are vulnerable to being duplicated in a manner that invites problems in proving ownership and avoiding fraud. Title II of the E-SIGN Act is specifically designed to address these challenges. Title II of the E-SIGN Act contains provisions for the use, control and exchange of transferable records that are modeled on similar provisions of UETA. A transferable record is defined as an electronic record that: would be a note under Article 3 of the Uniform Commercial Code as in effect in an applicable jurisdiction (the UCC ) if it was in writing, the issuer (borrower) of the electronic record expressly agrees is a transferable record, and relates to a loan secured by real property. 201(a)(1). Thus, any mortgage note comprised of a signed electronic record will qualify as a transferable record for the purposes of Title II of the E-SIGN Act. Notably, although UETA contains similar provisions applicable to all electronic notes, the E- SIGN provision is restricted to mortgage notes, and was included in the Act specifically to facilitate the operation of the secondary market for mortgages. But the transformative effect of Title II on the mortgage industry comes from how Title II provides a solution for how one possesses an electronic record. Title II introduces the concept of control as the electronic equivalent of possession. Title II provides that a person with control of a transferable record is given all of the rights of a holder of the equivalent record or writing (i.e., a mortgage note) under the UCC, and, if the additional requirements of the UCC are met, all of the rights of a holder in due course. A party in control of a transferable record is therefore entitled to enforce the transferable record as it would a written mortgage note. Achieving control of a transferable record is not easy to accomplish, however. Generally, a person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred. 201(b). This provision is very broadly phrased, and may accommodate a number of imaginable systems. Again, the drafters have adopted a principle of technology neutrality as part of the Act. However, in this case, the Act provides a highly specific safe harbor structure. If a system satisfies the requirements of the safe harbor, then the party in control will be deemed to satisfy the general requirements of the control provision, and will have the ability to exercise the attendant rights. 7

8 The E-SIGN Act provides that a system will satisfy the needs of the control requirement, and a person will be deemed to have control of a transferable record if: a single, authoritative copy of the transferable record exists which is unique, identifiable, and except as otherwise provided for in the E-SIGN transferable records provisions, unalterable; the authoritative copy identifies the person asserting control as the person to whom the transferable record has been issued, or the most recent person to whom it has been transferred; the authoritative copy is communicated to and maintained by the person asserting control or its designated custodian; copies or revisions adding an assignee of the authoritative copy can only be made with the consent of the person asserting control; each copy of the authoritative copy, and any copy of a copy, is readily identifiable as not being the authoritative copy; and any revision to the authoritative copy is readily identifiable as authorized or unauthorized. 201(c). These provisions essentially define a method through which the secondary market may transfer and possess the essential instruments involved in residential mortgages. Whether control is to be established by a system satisfying the safe harbor requirements, or through some other system, if a person against whom enforcement of a transferable record is sought requests proof of control, reasonable proof must be provided. In the case of a system satisfying the safe harbor requirements, that proof may include granting access to the authoritative copy and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control thereof. 201(e). Therefore, assuming a mortgage lender wishes to create an electronic note that is not only binding on the borrower, but can be freely transferred in the secondary market, it will not have the freedom to use just any form of electronic record in its creation. Although an electronic note which simply qualified as an electronic record, and was signed electronically, would be binding between a borrower and lender, if control over the electronic note as a transferable record could not be adequately established, it could not be sold into the secondary market as the rights in such a note could not be adequately secured. In order to create a mortgage note that is capable of being sold in the secondary market, systems will need to be devised for the creation and transfer of the mortgage notes which either qualify for the safe harbor, or otherwise satisfy the general control requirements. Designing effective strategies for implementing the potential for transferable records will be an enormous focus within the mortgage industry. We anticipate significant debate on whether systems meet either the general requirements of control or fall within the more specific framework of the safe harbor provisions. More than one piece of litigation can be contemplated in the event multiple parties seek to enforce a single obligation. However, taken as a whole, the Title II provisions provide for the mortgage industry an enormous acceleration for true end-to-end electronic commercial practices. 8

9 ELECTRONIC RECORD RETENTION Under the E-SIGN Act, electronic records may be used to satisfy laws requiring the retention of contracts or other records relating to a transaction. 101(d). Electronic records that are so retained, however, must accurately reflect the information (other than codes and other non-substantive data used for communications purposes) set forth in the record; and remain accessible, for such period as is required under other law and in a form that allows the record to be adequately reproduced, to all parties who are entitled under other such law to have access to the record. Electronic records that are retained in accordance with these requirements also satisfy requirements that originals of records be maintained. This provision is not limited in application to electronically created records, and therefore would appear to permit electronic record retention of records that initially were in paper form, and without regard to whether such records were created before or after the effective date of the Act. Thus, this provision opens the possibility of using imaging and electronic storage of paper documents to satisfy record-keeping requirements, and disposal of paper files, provided the requirements of the section are met. GOVERNMENT IMPLEMENTATION The E-SIGN Act permits federal and state regulatory agencies to promulgate regulations or other guidance regarding the application of the Act pursuant to their existing rulemaking authority. 104(b)(1). However, these agencies may not adopt any such regulations or other guidance unless the adopted rules are consistent with and do not add to the requirements of the electronic signature, records and contract provisions of the Act, and the agency finds that: there is a substantial justification for the regulation or other guidance; the methods selected to carry out the purpose are substantially equivalent to the requirements imposed on non-electronic records and will not impose unreasonable costs on the use and acceptance of electronic records; and the methods selected to carry out that purpose do not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures. 104(b)(2). The agency may violate the last of these provisions in the course of setting performance standards designed to assure accuracy, record integrity, and accessibility of records required to be retained, if the imposed requirements serve an important government objective and are substantially related to the achievement of that objective. 104(b)(3). The agency cannot specify a type of software or hardware to be used, however. Based on these provisions, it appears a federal or state agency may deviate from the general provisions of the Act for electronic records and signatures. The permissible range of such deviation is severely constrained, however, perhaps to the point of being illusory, since the regulation or other guidance must still be consistent with the Act, and not add to its requirements. 9

10 These provisions of the E-SIGN Act address the issue of records required to be filed with government agencies. In developing the E-SIGN Act, many in Congress realized that it will be critical that agencies be able to accept the records resulting from the use of electronic commercial practices. There is little advantage in using technology with the permission granted by the Act if government continued to require paper documents through other regulations. For the mortgage industry, the critical government office in this regard is the office of the county recorder, and the foregoing provisions will govern their authority as they issue rules on electronic filing of deeds. SPECIFIC EXCEPTIONS There are some specific exceptions to the application of the E-SIGN Act. The E-SIGN Act electronic signature and electronic record provisions do not apply to contracts or any other records to the extent they are governed by the laws applicable to: (a) the execution of wills, codicils and testamentary trusts; (b) adoption, divorce, or other matters of family law; or (c) the UCC, 2 other than its sales and leases articles. 103(a). In addition, the provisions regarding electronic signatures and electronic records do not apply to court documents, or to certain specified categories of notices. Most importantly to mortgage lenders, the provisions do not apply to notices of default, acceleration, repossession, foreclosure, or eviction, or of the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual. 103(b)(2)(B). Accordingly, to the extent such notices are required to be in writing under any applicable law, they still must be delivered in the form of a printed document in the manner set forth in the applicable law. Because of the serious nature of the events involved, the E- SIGN Act does not apply to such notices. EXCEPTIONS TO PREEMPTION Although the E-SIGN Act generally overrides any state or federal statute, regulation or other rule of law that requires a document be provided in writing on paper, or that any signature be made by pen and ink, there are certain exceptions to this preemption. The Act provides that a state statute, regulation or other rule of law may modify, limit, or supersede the provisions discussed above with respect to state law if the state statute, regulation or other rule of law: is an enactment of UETA as approved and recommended for enactment by its drafter, the National Conference of Commissioners on Uniform State Laws ( NCCUSL ), except that certain exceptions to the scope of UETA are preempted to the extent inconsistent with the E- SIGN Act. 102(a)(1); or specifies alternative procedures or requirements for the use and/or acceptance of electronic records or signatures, if such alternative procedures or requirements are consistent with the E-SIGN Act, and do not require or favor any specific form of technology in the use of electronic records or signatures. 102(a)(2). 2 Although the general provisions of the Act are not applicable to transactions governed by the UCC (other than the sales and leases articles), as discussed above, Title II of the Act contains provisions intended to provide for control of electronic mortgage notes, thereby filling in some of the gaps in the application of Article 3 of the UCC to electronically executed notes. 10

11 The scope of these exceptions to the preemptive effect of the E-SIGN Act is unclear. Although 18 states have adopted UETA as of the present date, very few have adopted it precisely as approved and recommended for enactment by NCCUSL. Indeed, the form of UETA approved by NCCUSL invites states to identify specific exceptions to its scope and applicability. If this provision is strictly interpreted, only the states enacting UETA without any exceptions could be considered outside the preemptive effect of the E-SIGN Act. With respect to the second exception, it is difficult to understand how a non-ueta state electronic signature law could both modify, limit, or supersede the provisions of the E-SIGN Act, and also be consistent with the Act, and thus provide an exception to the preemption. The Act also places into uncertainty the status of various state laws that favor particular technologies for the use of electronic signatures. Utah was the first of several states that enacted laws giving legal effect to electronic signatures, but only those signatures executed through the use of a PKI system. Other states have followed that lead (e.g., Washington) and others have given extra benefits to those types of solutions (e.g., Illinois). The Act appears to take a dim view of such early technology choices and, although the use of PKI clearly satisfies the Act, it is not clear that the use of other systems for electronic signatures adopted in reliance on the Act will be accepted by those states with laws favoring specific technologies. Finally, if a state law provides an exception to the preemptive effect of the E-SIGN Act, it could have the interesting side effect of eliminating the required procedures for consumer consent provided in the Act. For example, in a state where UETA was enacted in such a form to qualify for an exception to the preemptive effect of the E-SIGN Act, it would not include the consumer consent provision found in the E- SIGN Act, and thus would appear to supersede that provision. A cautious approach in asserting such an effect seems advisable, however, due to the risks involved. EFFECTIVE DATE The electronic signature and contract provisions of the E-SIGN Act are generally effective on October 1, (a). The effective date for the record retention provisions are delayed until March 1, 2001 with respect to record retention requirements imposed by federal statutes, regulations or other rules of law, and state statutes, regulations or other rules of law promulgated or administered by a state regulatory agency, and further delayed until June 1, 2001 in certain limited circumstances. In addition, the effective date of all of the electronic signature and contract provisions with regard to certain government insured or guaranteed loans is delayed until one year after the enactment of the Act. 107(b). The effective date for Title II of the Act, addressing transferable records, is 90 days after enactment of the Act, or September 28, * * * * * * * * * 11

12 The E-SIGN Act provides a great measure of certainty in the area of electronic commerce by recognizing the validity and enforceability of electronic records, signatures and contracts, and by providing a uniform standard for the treatment of such items nationwide. However, many questions remain regarding the interpretation of its provisions, and a degree of risk will continue to exist with respect to electronic transactions and disclosures until the limits of the Act are further defined by practice and possible judicial interpretation. We hope this letter will be of assistance as you begin to consider the new opportunities presented by the E-SIGN Act, and would be glad to assist you in answering any questions you may have regarding the Act. * * * * * * * * * THIS NEWSLETTER IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE 12

13 MORTGAGE BANKING/CONSUMER FINANCE GROUP Kirkpatrick & Lockhart LLP practices law both nationally and internationally from offices in Boston, Harrisburg, Los Angeles, Miami, New York, Pittsburgh, San Francisco and Washington. Founded in 1946, the firm is one of the thirty-five largest law firms in the country, with over 560 attorneys. Kirkpatrick & Lockhart LLP represents a broad range of clients in a wide variety of matters, including corporate and securities, e-commerce, investment management, insurance coverage, financial institutions, mortgage banking and consumer finance, creditors rights, intellectual property, tax, labor, environmental, antitrust, health care and government contracts. You can learn more about our firm by visiting our Internet website at Over one half of our lawyers are litigators who practice nationwide in federal and state courts. We have particular experience in class action lawsuits, generally defending financial institutions, broker-dealers, public companies, investment companies and their officers and directors against claims of violations of securities laws, consumer credit laws and common law tort and contract claims. The Mortgage Banking/Consumer Finance Group provides legal advice and licensing services to the consumer lending industry. It provides legal advice on all aspects of the origination, processing, underwriting, closing, funding, insuring, selling and servicing of residential mortgage loans and consumer loans, from both a transactional and regulatory compliance perspective. Our focus includes both first- and subordinate-lien, residential mortgage loans, as well as open-end home equity, property improvement loans and other forms of consumer loans. We also have substantial experience in multi-family and commercial mortgage loans. Our clients include mortgage companies, depository institutions, consumer finance companies, investment bankers, insurance companies, real estate agencies, home builders, and venture capital funds. Members of the Mortgage Banking/Consumer Finance Group and their telephone numbers and addresses are listed below: ATTORNEYS Laurence E. Platt (202) lplatt@kl.com Phillip L. Schulman (202) pschulman@kl.com Thomas J. Noto (202) tnoto@kl.com Costas A. Avrakotos (202) cavrakotos@kl.com R. Bruce Allensworth (617) ballensworth@kl.com Daniel J. Tobin (202) dtobin@kl.com Emily J. Booth (202) ebooth@kl.com Eric J. Edwardson (202) eedwardson@kl.com Irene C. Freidel (617) ifreidel@kl.com Suzanne F. Garwood (202) sgarwood@kl.com Joel E. Hewer (202) jhewer@kl.com Melanie L. Hibbs (202) mhibbs@kl.com Steven M. Kaplan (202) skaplan@kl.com Carol M. Tomaszczuk (202) ctomaszczuk@kl.com Nanci L. Weissgold (202) nweissgold@kl.com DIRECTOR OF LICENSING Stacey L. Riggin (202) sriggin@kl.com REGULATORY COMPLIANCE ANALYSTS Dana Schmitz (202) dschmitz@kl.com Nancy J. Butler (202) nbutler@kl.com Susan C. Grassmann (202) sgrassmann@kl.com Tasha M. Thompson (202) tthompson@kl.com Joelle Myers (202) jmyers@kl.com Marguerite T. Frampton (202) mframpton@kl.com Andrea Elder (202) aelder@kl.com Allison S. Wise (202) awise@kl.com Kimbely R. Jennings (202) kjennings@kl.com Robin S. Nordt (202) rnordt@kl.com LAW CLERK Tara L. Goebel (202) tgoebel@kl.com 13