The Electronic Signatures in Global and National Commerce Act ("ESIGN" or the "Act") has been in effect since October 1, 2000. The purpose of the Act is to facilitate the use of electronic records, signatures and contracts in commerce by placing them on the same legal footing as their paper analogues. ESIGN creates a tremendous opportunity for mortgage originators to achieve greater efficiencies and cost savings, particularly in the area of consumer disclosures. Few mortgage originators, however, appear to be taking advantage of these ESIGN benefits.

The basic principal of ESIGN is straightforward: a signature, contract, or other record may not be denied legal effect solely because it is in electronic form, and a contract may not be denied legal effect solely because an electronic signature was used in its formation. An "electronic signature" is defined to mean "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." (15 USC 7006(5)) Thus, for example, clicking an "I accept" or "I consent" button in a web browser falls within the definition an electronic signature.

The heart of ESIGN as it relates to consumer disclosures is set forth in Section 101 (c)(1) of the Act (15 USC 7001(c)(1)): "...if a statute, regulation, or other rule of law requires that information relating to a transaction...be provided or made available to a consumer in writing, the use of an electronic record to provide or make available (whichever is required) such information satisfies the requirement that such information be in writing..." provided the remaining requirements of Section 101(c)(1) are complied with. These other requirements are described below.

ESIGN establishes an "opt-in" regime: the consumer must affirmatively consent to the use of electronic records, and once given, must not have withdrawn such consent. Prior to consenting, the consumer must be provided with a clear and conspicuous statement containing all of the following information:

• any right or option the consumer possesses to have the record provided or made available on paper or in nonelectronic form, the right to withdraw consent and of any conditions, consequences or fees in the event of such withdrawal;
• whether the consent applies only to the particular transaction giving rise to the obligation to provide the record, or to identified categories of records that may be provided or made available during the course of the parties' relationship;
• a description of the procedures the consumer must use to withdraw consent and to update information needed to contact the consumer electronically;
• how, after the consent, the consumer may, upon request, obtain a paper copy of an electronic record, and whether any fee will be charged for such copy; and
• the hardware and software requirements for access to and retention of the electronic records.

The Act also regulates the manner in which the consumer's consent is obtained. Specifically, the consumer must consent electronically, or confirm his or her consent electronically, "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." So, for example, if the information is provided in a .pdf, .tif or other format, the process by which the consumer's consent is obtained must be such that the consumer show that he or she can actually view the document in that format.

The Act imposes further obligations once a consumer's consent is obtained with respect to hardware or software requirement changes if such changes pose a material risk that the consumer will not be able to access or retain an electronic record. Essentially, a statement of the revised hardware and software requirements must be provided and the consumer must be given the right to withdraw consent without consequence, and the consumer's consent must be obtained once again.

In the mortgage lending arena, particularly with respect to consumer disclosures, the Act offers a way to reduce costs greatly. Envision if you will a scenario in which instead of mailing initial disclosure packages to each mortgage loan applicant, electronic disclosures are made available at a secure website where a consumer, after consenting to the receipt of the disclosures electronically, can visit and access them whenever he or she desires. Imagine the cost savings in terms of personnel, production and postage if such initial disclosure were to be made available electronically as opposed to being printed out, stuffed into an envelope and dropped in the mail. This is the promise of the Act that is available today but which few mortgage originators appear to be utilizing. At DocMagic, we have established an electronic disclosure regime at no additional cost to our customers. Please feel free to contact Bill Lambropoulos, General Counsel, at (800) 649-1362, x277, if you have any questions regarding the DocMagic electronic disclosure solution.

Bill Lambropoulos is the General Counsel and Director of Compliance and Legal Services at Document Systems, Inc.