Interim Rule Allowing Electronic Disclosures

Consumer Leasing Act
Docket No. R-1042

I. Introduction

On behalf of our low-income clients, the National Consumer Law Center1, as well as Consumers Union, the Consumer Federation of America, the Consumer Law Center of the South, the National Association of Consumer Advocates, the National Consumers League, and the U.S. Public Interest Research Group2, provide the following comments regarding the Federal Reserve Board's Interim Regulations regarding Electronic Disclosures under the Consumer Leasing Act.

First, on behalf of our clients and constituents, we would like to express our serious disappointment with the Interim Regulations. Some of the concerns that we had expressed in 1996 regarding the first proposal for electronic delivery of CLA disclosures were addressed in the 1999 proposed rule. However, this Interim Rule not only ignores the consistently expressed concerns of representatives of consumers, it represents a significant regression from some better proposals included in the 1999 proposal. For example, the 1999 proposal had required that consumers be provided paper copies of electronic disclosures upon request.

Important consumer protections were omitted from the Interim Rule, without any justification or explanation. The passage of the Electronic Signatures in Global and National Commerce Act (E-Sign)3 cannot be used as the rationalization for this abandonment of consumer protections, as that Act actually contains more protections for consumers then these Interim Regulations. For example, E-Sign's consent provisions clearly intend to require certain assurances of actual access to electronic communications, and that paper copies can be required to be provided4. We do not ask or expect the Board to violate the limitations on rulemaking authority under E-Sign5, we only ask that the Board implement the consumer protection provisions that are contained in E-Sign, pursuant to the purposes of CLA: to provide consumer protections.

The Interim Rule will make electronic disclosures a burdensome and risky process for consumers. Rather then providing an even playing field for electronic disclosures, this Rule will make accessing and retaining electronic disclosures much more difficult, and considerably more risky then the use of paper disclosures. The Interim Rule allows the use of electronic disclosures in situations which will facilitate - if not encourage - fraud. We are particularly concerned about the following ways, among others, which the Interim Rule is contrary to E-Sign:

Our comments regarding improvements to the proposed regulations should not be construed to indicate that we are opposed in any way to facilitating electronic commerce. We are not. Indeed, we believe that once access to the Internet is more widely available to all Americans, especially the nation's poor and elderly, there may be many new and beneficial opportunities made available. However, for electronic commerce to benefit consumers, the differences between a tangible piece of paper and an electronic record, must be addressed. The Interim Regulations fail to address every major concern expressed regarding the need to protect consumers who are engaging in electronic financial transactions.

The Board knows that predatory practices in the automobile leasing industry are a serious problem. However, if the Board continues the consent, retention and delivery of documents rules which are included in this Interim regulation, these fraudulent practices will flourish with electronic records. The abuses they currently engage in will be facilitated by electronic commerce, because consumers will not even have copies of the CLA disclosures describing the lease terms. Under these Interim Regulations, lessors will be permitted to use electronic records as a method of avoiding providing basic CLA information to the consumer who lacks access to the Internet (and a majority of individuals in this nation still do not have Internet access).

The Board's authority to adopt CLA regulations is found at 15 U.S.C. § 1667f, which states that the Board may adopt regulations to carry out the CLA, prevent circumvention of the CLA, and facilitate compliance with the CLA.. The purpose of the Consumer Leasing Act is articulated in section 102(b)):

The primary purpose of CLA is to protect consumer lessees, not to make compliance easier for lessors. Lessees will benefit from electronic disclosures. However, under these Interim regulations, many consumers, especially those whose leases were originally negotiated in face-to-face situations, will effectively lose the protections provided by the CLA.

The balance of these comments are in three sections. Section II addresses overall considerations regarding access to the Internet, differences between paper writing and electronic records, as well as the legal requirements of E-Sign's consumer consent, record integrity and retention provisions, and applies these overarching issues to the Board's Interim Rule on electronic delivery of CLA disclosures. Section III provides more specific comments on the requirements of the Interim Regulations, which were not otherwise addressed in the previous section. The Conclusion offers specific suggestions on how the Interim Regulations should be rewritten.

II. Consumers' Comments on Interim Regulations

A. Lack of access to the Internet MUST be considered

Electronic disclosures must in no way undermine consumers' ability to receive or retain their CLA notices and disclosures. Some lessors will undoubtedly take advantage of the loopholes created by allowing electronic disclosures to effectively avoid providing consumers with the required information under the CLA. We caution against blind assumptions that the two forms of communications are equivalent. Despite the benefits of electronic delivery over physical world delivery, there are incontrovertible differences between the two which dictate that the law not treat them in identical fashions.

The rules developed by the Federal Reserve Board for electronic disclosures rules will apply to situations and transactions which are face-to-face. If this were not the case, our concerns would be considerably different. But, neither E-Sign nor this Interim rule is limited to transactions conducted between parties who are both on-line. This means that consumers who are standing in a place of business may be asked to agree to receive important documents electronically. They may be asked to agree to receive electronic records immediately - relating to the transaction taking place in the lessor's place of business, or they may be asked to receive electronic records in the future - relating to an ongoing relationship between themselves and the lessor.

It does not take money to receive mail sent in the physical world. As the Department of Commerce's excellent report on the Digital Divide indicates, the majority of households are still not connected electronically6.

While we want to encourage and facilitate electronic commerce, we must remember that a majority of Americans are still not connected to the Internet, at home, at work, or in a public place. Only access at home can be considered a reliable method of receiving personal information. Use of a computer at work is frowned upon or considered grounds for disciplinary action by many employers. Public access computers have extensive waiting times and limitations on use.

Moreover, even as Internet access continues to expand, people continue dropping their Internet service as well. The latest report on the Digital Divide indicates that each year over 4 million households have dropped their electronic access10. This is a significant figure, especially when measured against the total number of households that are on line -- 43.6 million11, and only a portion of these use the Internet from their homes. This is a drop off rate of over 10% a year12. The message here, unfortunately, is that even as more households rush to obtain Internet access, a significant number are dropping off that access.

B. The Interim Rule ignores the real differences between tangible paper writings and electronic records

The CLA's underlying requirement that a disclosure be provided in writing is based on the belief that the consumer needs to receive the disclosure in a form the consumer can both access and keep. No one can dispute that the disclosures required under the CLA are critically important to consumers both to apprize them of the terms and obligations of their transactions and to provide proof of those terms to enforce rights in court.

The differences between the physical world and the electronic world must be recognized and appropriately addressed. For example, when the CLA requires a document to be in writing, there are a number of inherent assumptions that automatically apply to that writing that are not necessarily applicable to an electronic record:

1. A piece of paper handed to or mailed to a person can be read without any special equipment.

Yet the Interim Rule allows CLA disclosures otherwise required to be in writing to be provided to consumers without any assurances that the consumer has a computer - by allowing some disclosures to be provided electronically without a consumer's electronic consent.

2. A paper writing does not require special equipment to hold on to, or to retain. A consumer need only put it in the drawer, or in a file, where it will remain until the consumer removes it.

Yet the Interim Rule allows important CLA disclosures to be provided to consumers in an electronic record without setting any standards to assure that they will have the capacity to electronically retain them in a form they can later use.

3. A paper writing is by its nature solid and definite. Once delivered to a person the paper will stay on the table or in the drawer, wherever the consumer put it, until it is thrown out by the consumer. The consumer could easily keep the unopened envelope in a drawer until it is needed.

Yet, the Interim Rule specifically permits important CLA disclosures to be posted on a website for the limited period of 90 days. Many consumers will fail to access and download these disclosures within this period, only seeking them when a dispute arises. If this is after the 90 days, as is likely, the consumer simply will not have access to these disclosures.

4. The printed matter on the paper writing will not change every time someone looks at it, and the paper writing can be used at a later date to prove its contents in a court.

The Interim Rule does not require electronic records to have a level of integrity similar to paper writings.

E-Sign does not prohibit the Board from acknowledging these significant differences and addressing them. Appropriate use of the consumer electronic consent provisions in E-Sign and incorporating the requirements of the document retention and integrity requirements of E-Sign would address all of these issues. Set out below, in Section 4, is our proposal regarding how CLA disclosures can be delivered electronically, e-commerce can continue to flourish, and consumers can continue to be provided with useful records of CLA disclosures.

C. The Interim Rule does not address the distinctions between delivery of paper documents in the physical world and electronic delivery of electronic records

There is no question that electronic communication provides wonderful opportunities, but it cannot be assumed to be as reliable a method to receive essential information as postal delivery for the general public. The Interim Rule ignores the very real dangers of relying on constant access to the Internet. A 10% annual drop off rate from Internet access indicates that in any one year, 1 out 10 households which had Internet access the previous year will no longer be able to receive electronic communications14. The Board has also ignored E-Sign's specific provisions allowing consumers to withdraw consent to receiving electronic delivery. The Board's position on access to the Internet will leave many American consumers in the situation where they will not receive important, required CLA notices.

As the Department of Commerce noted, the drop off rate was higher among households at lower incomes. This should come as no surprise. Also, we can assume that households at lower incomes will continue to have less stable access to electronic commerce in the future. It is very important that the U.S. Government continue to require that access to essential information not be determined by one's wealth. Receipt of mail through the U.S. Post Office has always been free. Until electronic commerce reaches the same degree of universal access as the U.S. Postal Service does, the law should treat electronic delivery and physical world delivery of records differently.

The differences between the ease - and lack of expense - to receive paper records in the physical world and receive electronic records via the Internet are substantial. The Interim Rule has failed to recognize the distinctions and appropriately protect consumers in light of these differences.

1. A written record can be received by the consumer at no cost to the consumer. The consumer pays nothing to maintain and open the mailbox to which the U.S. Post delivers the mail daily.

2. If the consumer moves, U.S. Postal mail can be easily forwarded, at no cost to the consumer and with minimal difficulty - one notice to the Post Office suffices to forward all incoming mail for a year.

3. A paper writing mailed to a person will generally stay in the mail box or the post office until it is picked up by the recipient (or a designated agent), often for years.

Yet the Interim Rule only requires covered disclosures to be posted on a website for 90 days. This ignores the fact that most consumers will not refer to a particular disclosure until a problem arises, and most problems are likely to occur after the 90 day period. Even worse, the Interim Rule does not require pre-transaction disclosures to be posted for even 90 days.19

4. A paper writing mailed to a person can be held for receipt by an agent of the person for an indefinite amount of time without the person losing their privacy to that agent.

Unfortunately, the Interim Rule allows essential CLA notices to be posted on a website and the consumer notified about that posting by physical mail.20 Then the consumer has to find a computer with Internet access and a working printer and plug in the correct address for the web page containing the information regarding the consumer's particular transaction (which is likely to involve 50 to 100 separate characters which must be placed in perfect order) to access a CLA disclosure that is currently just mailed to the consumer. Further, this disclosure need only stay on the website for 90 days. So if the consumer is not able to jump through these hoops in time, the consumer will never have a copy of crucial information that affects important rights.

5. Junk mail received through the post office is readily identified and easily discarded such that it does not affect the delivery of important notices and documents.

Electronic junk mail filtering programs incorrectly filter out real message needed to be received by the recipient.

Delivery of all post-transaction CLA notices and disclosures otherwise required to be in writing and provided to the consumer in a form the consumer can keep should be considered to be delivered electronically only when there has been either an electronic acknowledgment or a manual acknowledgment that the consumer has opened the email. This can be done cheaply and can thus provide assurance that electronic disclosures are not being used as a way of avoiding actual delivery of important disclosures to consumers.

D. The Interim Rule fails to apply E-Sign's consumer consent provisions to implement the consumer protection purposes of the CLA.

1. Electronic consent must be required in a manner which ensures consumers will be able to access and keep disclosures otherwise required to be in writing.

The electronic consent requirement was included in the E-Sign legislation to protect consumers in a number of ways. Clearly, one reason was to protect consumers from the use of electronic commerce to facilitate fraud on consumers. However, it is clear from the Congressional record that the electronic consent is also intended to create a type of electronic handshake between the parties - a means to ensure that the electronic communication will in fact be successful. It is also apparent that the electronic consent is meant to emphasize to the parties the significance of the agreement to receive records electronically and to ensure that there is actually a meeting of the minds.

The electronic consent protects consumers in both the off-line world, as well as the on-line world. The provisions protect consumers from agreeing to electronic records mistakenly, or as part of a form contract. They protect consumers from mistakenly agreeing to receive electronic records in a form that they are not able to access and retain. And these provisions protect consumers from fraudulent practices which might otherwise be facilitated by the laws like E-Sign, which are designed only to expedite the transition to an electronic marketplace.

The three distinct but related protections afforded by the requirement for a consumer to electronically consent are:

Senator Leahy emphasized these differences when he said on the floor of the Senate, regarding the passage of E-Sign:

The Board must keep in mind the important reason for the specific language on electronic consent and ensure that its rules promote the essential consumer protections intended with this statutory requirement. Each of the specific words included in the requirement of E-Sign Section § 7001(c)(1)(C)(ii) must be given meaning. A number of specific requirements in the Interim Regulation indicate that the Board has misinterpreted much of the rationale behind this requirement.

2. The Interim Rule does not implement the requirement for a consumer to "reasonably demonstrate" the ability to access and read electronic disclosures

The Interim Rule asks for comments on whether interpretive guidance is necessary on the meaning of the requirement in E-Sign that a consumer electronically consent in a manner which "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."22 On behalf of our clients, we urge the Board to provide guidance on this and related questions.

The issue is whether the consent process itself must electronically indicate that the consumer can access the electronic records provided, or whether this requirement is satisfied by allowing the consumer the opportunity to test his capacity to access the electronic records. The question is whether the requirement for an electronic consent is accomplished when an email which includes an attachment in PDF format simply requires the consumer to respond by email and affirm that the consumer could access the PDF attachment. The answer is unequivocal: unless the consumer's email response contains some information that necessitated the consumer's actual opening of the PDF attachment, this electronic consent would not satisfy the statutory requirement.

The statutory language itself is clear: "in a manner which demonstrates that the consumer can access" does not permit the consumer to simply affirm that access. The operation of consenting itself must provide the demonstration. This was a matter of considerable debate during the passage of E-Sign. Several Senators insisted that the electronic consent process test the consumer's computer's capacity to access the electronically provided information. They did not want to leave it to the consumer's subjective understanding of his or her computer's capacity. Every person who has ever received e-mail with attachments has found themselves unable to open some of those attachments. The electronic consent requirement mandates an electronic handshake - whereby the two computers communicating are assured that they can each open and read the electronic information to be shared between them.

This issue itself was the matter of extensive comment by Members of Congress involved in the passage of E-Sign. Consider the following excerpts from the Congressional Record regarding the language in 15 U.S.C. § 7001(c)(1)(C)(ii).

By Senator Leahy:

A joint statement by Senators Hollings, Wyden and Sarbanes, confirms this:

By Mr. Tauzin:

We urge the Board to hold that electronic consumer consent has been effectively accomplished only when the consumer has electronically confirmed that he or she is able to open and read the CLA disclosure that has been provided electronically.

3. The Interim Rule must only permit consent in face-to-face transactions when the consumer supplies the computer equipment used to electronically consent.

In the proposed regulations on electronic disclosures the Board recognized the inherent risks to consumers who are asked to agree to receive electronic disclosures in face-to-face transactions. Is the Board no longer concerned about these risks? Not only were these risks apparent to Congress when it passed E-Sign, but the language of the electronic consent requirement is included as a mechanism of addressing these risks.

The statutory requirement that the consumer test his capacity to access the information is deliberately not testing the consumer's personal knowledge base - does the consumer know how to access a record electronically? The requirement tests the capacity of the consumer - does the consumer have access to the necessary hardware and software to receive the electronic disclosures?

In face-to-face transactions, this means that if the consumer uses the computer equipment provided by the business seeking consent, the consumer has not established the ability to access electronic disclosures. In the Official Staff Commentary to § 213.6(b), the Board seems to assume that the consumer will have no trouble retaining disclosures accessed through equipment provided by the lessor so long as the "disclosures are sent to the lessee's e-mail address or ... made available at another location such as the lessor's Internet web site . . .." This completely ignores the very real possibility that some lessors will require that the consumer consent as a condition of the transaction (as is far too true with credit insurance, despite the separate disclosure box that the consumer must sign stating otherwise).26

The Interim Rule appears to contemplate that it would be legal for important CLA disclosures to be delivered to consumers standing in the lessor's place of business by posting them to a website which the consumer could access at later time, so long as the consumer electronically consents using the lessor's equipment. This is wrong. This is a complete misinterpretation of the electronic consent requirements of E-Sign. Agreeing to an electronic transaction on equipment supplied by the lessor provides no demonstration that the consumer can access information electronically. This represents a gross violation of the Board's mandate to interpret the provisions of CLA to protect consumers. The Board's commentary is an invitation to lessors to violate E-Sign's requirements.

Instead, the Interim Rule should only permit electronic consent to be effectively accomplished in face-to-face transactions when the consumer uses equipment supplied by the consumer. This is the only way the Board can be assured that consumers

In face-to-face transactions, only by using equipment (such as a laptop or other portable device) under the consumer's control can the consumer's actual capacity to access and retain be assured.

4. The Interim Rule should articulate the consequences of a failure of consumer consent

The Interim Rule should clearly state the consequences if the lessor has failed to satisfy the requirements for E-Sign's consumer consent. Some people have publically characterized E-Sign's electronic consent provision as simply a safe harbor. They have argued that a failure to comply fully with the consent provision does not, by itself, mean that the electronic delivery of records otherwise required to be in writing has not been accomplished.

Allowing the consumer consent provision to be only a safe harbor is clearly wrong, and in derogation of the explicit language in E-Sign as well as Congressional intent. The consumer consent provision in E-Sign establishes an "opt-in" regime. No records required to be in writing can be considered to be provided to a consumer if they were provided electronically, unless the consumer consented properly according to the requirements of 15 U.S.C. § 7001(c). The consequences of that lack of consent are whatever consequences there are in the underlying law for the failure to deliver documents required to be in writing to the consumer. For example, when the CLA requires that a certain disclosure be provided to a consumer, then the electronic delivery of that disclosure is invalid if the consumer's consent did not comply with all of the requirements of 15 U.S.C. § 7001(c).

E-Sign specifically distinguishes between its treatment of contracts and other records required to be in writing. There is a very limited, but clear, difference in the treatment of electronic contracts and other records provided electronically to consumers in section 15 U.S.C. § 7001(c)(3), which says:

This section indicates that the contract itself shall not be considered invalid just because the consumer did not electronically consent in conformance with the statutory requirement. So, for example, a contract which was delivered electronically despite the fact that the consumer did not electronically consent, may still be fully enforceable. The effect of the failure to electronically consent has the same effect as failing to provide a copy of the contract to the consumer. In some cases, there may be no consequences from this. A contract enforced under the statute of frauds, for example, must be in writing and signed by the person against whom enforcement is sought. But this contract does not need to have been provided to the person against whom it is being enforced.30 If a contract governed only by the statute of frauds were entered into electronically by a consumer and a business, and the consumer had not electronically consented, then the contract would not be deemed unenforceable just because of the failure to obtain the consumer's consent.31 However, if the underlying law requires the contract to be delivered to the consumer to be valid, then the fact that the consumer had not electronically consented would mean that the contract would not be valid. But the invalidity would flow from the fact that the contract had not been delivered to the consumer, not from the consent failure by itself.

There need not be such complex analysis applied to the situation where a consumer has failed to electronically consent to receive records which are not contracts. The legal requirement in E-Sign for a consumer's consent is only triggered by the requirement of another law for a document to be in writing. Therefore, if the consumer has not properly consented to the receipt of that writing electronically - by electronically consenting pursuant to section 15 U.S.C. § 7001(c)(1)(C)(ii) - the document cannot be considered to have been provided to the consumer. The consequences for not providing the document to the consumer are those that are specified in the underlying law. In the CLA, this means that the consumer was not provided with the required CLA disclosure, triggering actual and statutory damages.

E. The Interim Rule has completely ignored E-Sign's record retention and integrity requirements.

1. The electronic disclosure must be provided in a manner that the consumer can retain at the time the disclosure is provided.

When disclosures are provided electronically consumers must be assured that they will have a way of keeping those disclosures to be used at another time. Also, disclosures must be provided in a manner which allows consumers to use the electronic record containing them to prove the terms of the disclosures in court, if necessary. As E-Sign wound its way through Congress there were several significant changes to it relating to document retention and integrity. These changes are reflected in § 7001(d) and (e), the provisions of which are not limited to consumer transactions. The Interim Rule has failed to require compliance with these sections. Consider subsection (e):

This means, among other things, that any disclosure required under the CLA to be in writing must be provided to the consumer in a form which the consumer can retain. Providing a disclosure to a consumer in a face-to-face transaction, after the consumer consents using the lessor's equipment, by posting it on a website, and requiring the consumer to then go to another Internet access computer to find the appropriate link in the right website and download the disclosures does not meet these requirements. The visual display of CLA disclosures without a viable method at that moment for the consumer to download or print the disclosures is not providing the consumer an electronic record which is "capable of being retained."

The Board indicates in the Official Staff Commentary (213.6(b)-5) in relation to this situation that the disclosures should be either a) sent to the consumer's email address, b) made available at another location, such as the lessor's website, or c) printable on a printer supplied. We believe that this requirement of E-Sign would be met if the disclosures are a) sent to the consumer's email address, or b) immediately printed. However, it must be clear that the consumer must have already established that email address. Neither the lessor - or his agent - can establish an email address for the consumer.

We commend the Board for defining email address to exclude those which can only receive communications transmitted by the lessor (Official Staff Commentary § 213.6(d)-1). However, when the agreement to receive electronic transactions is obtained in a face-to-face transaction there needs to be a further protection. As those situations are so fraught with the potential for abuse of the consumer, special protections are required and should be applied.

E-Sign's consumer consent requirement invalidates a consent which was obtained in a face-to-face transaction using the lessor's computer equipment in which the lessor establishes the email address for the consumer. Unless the consumer has previously established an email address which the consumer can access through his or her own computer or a public access computer which the consumer regularly uses (which is established by the fact that the consumer has already established an email address), the consumer's consent does not meet E-Sign's requirements. A consumer using a lessor's hardware and an email address established by a lessor in a face-to-face transaction cannot electronically consent "in a manner that reasonably demonstrates that the consumer can access information in the electronic form."

2. The electronic disclosure must be provided in a form which the consumer can use to accurately reproduce the disclosure to prove the terms at a later time.

E-Sign's language regarding record integrity is very different from the original language in E-Sign, and it is different from the requirements for writings in the Uniform Electronic Transactions Act (UETA). The differences made in the federal statute were deliberately inserted to ensure that recipients of electronic records were provided records they could actually retain and use at a later time. The E-Sign language goes beyond UETA's provision by putting the onus on the provider of the electronic record to prove its validity.

E-Sign's requirement for document integrity specifically requires that the electronic record be capable of being accurately reproduced for later reference by all parties.32 This should mean that the electronic record provided to the consumer should have the same legal viability as the electronic record retained by the lessor. Consumers must be provided a viable opportunity to keep the record, and the electronic record itself must be useful to the consumer. Senator Leahy specifically addressed this issue in the Conference Report on E-Sign:

The Interim Rule should require that all disclosures otherwise required to be in writing must be provided to the consumer in an electronic form which the consumer can retain at same time the disclosure is provided. This means that if the consumer is in a face-to-face transaction, the disclosure must be either 1) downloaded to a device operated by the consumer, 2) printed immediately by the lessor and the paper copy handed to the consumer, or 3) e-mailed to the consumer at a pre-existing email address, which the consumer can access prior to proceeding with the transaction. Simply allowing the disclosure to be posted to a website for future downloading - if ever - by the consumer, does not provide the consumer with a viable opportunity to retain the disclosure in a form which the consumer could later use to resolve a dispute on the terms at a later time.

We must also consider the form of the electronic record which is provided. When a paper disclosure is provided, the consumer will have no trouble using that paper to prove the terms of the disclosure at a later time. The lessor however, could provide an electronic record of a disclosure which is so easy to alter that the downloaded version of the disclosure would be useless to the consumer in court. E-Sign's § 7001(e) forces the lessor to make a choice: either 1) provide the electronic record in a version which the consumer cannot inadvertently alter, or 2) retain and later use the same less secure version of the electronic record in court. The crucial point here is that the provider of the electronic record must provide to the recipient the same type of record which the provider will use to prove the terms of that record if a dispute arises later. The Board should specifically address this issue and mandate that the lessors follow the requirements for document integrity in E-Sign's § 7001(e).

III. Consumers' Specific Comments on the Interim Regulations

Need for Exemptions

The Interim rules request comment on whether there is a need for the Board to exercise its exemption authority under section 104(d) of E-Sign. No exemptions should be adopted at this time. E-Sign requires that exemptions can only be provided only if the exemption "will not increase the material risk of harm to consumers. Indeed, the exemptions allowed by the Board for "pre-transaction disclosures" to be delivered electronically without previous consumer consent do not comply with E-Sign's requirements that they only be allowed if no material harm results to consumers, and after opportunity for public comment.34

§ 213.6. Requirements for electronic communications

(a) Definition. We commend the Board for limiting electronic communications to visual text messages. This corresponds with the requirement in E-Sign disqualifying oral communications or recordings from electronic records for consumers.35

(c) When consent is required.. We support the Board's exclusion of advertisements from the electronic consent requirements. We object, however, to the Board's effective abrogation of consumer consent in face-to-face transactions by allowing lessors to obtain consumer consent on equipment controlled by the lessor.

When the communication between a consumer and lessor is truly electronic - rather than face-to-face - the consumer will have the opportunity to access and download the information provided electronically at the same time as the consumer consent is provided because the consumer will be using his or her own computer. Prior to actually agreeing to the transaction the consumer transacting business on line will be able to read and retain all the disclosures provided. This consumer will be able to ensure that the disclosures provided and kept electronically properly express the terms of the lease agreement, before the consumer executes the agreement.

However, the Interim Rule also permits a consumer to electronically consent to receive electronic disclosures in a face-to-face transaction. This situation is fraught with many more potentials for abuse, none of which the Interim Rule has recognized nor protected consumers from.

Assume a consumer walks into a car dealership to lease a car. The salesman says the monthly lease payment will be $600, so long as the consumer agrees to accept all records relating to the transaction electronically. The consumer points out he does not have a computer at home or work, and he certainly does not have an email address. The salesman assures the consumer that he can access his documents at any public library. He says that as the dealership printer is broken, if the consumer insists on paper, the monthly payments will be $150 a month higher. The high pressure sales tactics work, and the consumer electronically signs the lease as the Interim Rule would allow. The consumer drives away in his new car without a copy of the signed contract.

There could be two detrimental consequences from this scenario. The first is simply burdensome on the consumer. The second facilitates fraud.

No effective disclosures. At the least, the consumer will have the significant burden of finding a public access computer with the type of programs necessary to access the internet, figuring out what the dealerships' website is, and what the link is to the disclosures provided to him, open the electronically provided documents sent by the car dealer, and figure out how to download or print the disclosures. This is considerably easier to articulate then it is to do. In many public libraries in populous areas, there is a often a long wait to use computers with Internet access, and an even longer wait for computers attached to a working printer. Many consumers, particularly older consumers, low-income consumers, and recent immigrants, have never opened an electronic file, used a mouse, or gone to a website. This required sequence of efforts is so burdensome that it is likely that many consumers simply will not procure the electronic copy of their paperwork. If and when there is a dispute with the lessor - months or years later - then the consumer will try to get a copy of the records. But if the consumer has failed to download the disclosures within the first 90 days - often well within a honeymoon period for a new car, the records will no longer be accessible.

Some may ask what is the incentive of the car dealer in this scenario to avoid providing paper to the consumer. The answer is that in this case this car dealer will have complete protection from lawsuits alleging CLA violations. If consumers never secure a copy of the disclosures, consumers have no way to prove whether the dealer complied with the CLA's requirements.

Expedites fraud. The more serious consequence to the consumer is the extent to which the potential for electronic provision of documents eases - even encourages - fraud while leaving a consumer without any reasonable means to prove it. In the car dealer scenario described above, when the consumer "signs" the documents electronically at the computer on the car dealer's desk, the consumer has not necessarily "locked" the document. In a paper transaction, the consumer would pen his name to a piece of paper, either several times, or once with carbon copies being automatically created. The dealer then signs, tears off the consumer's copy and hands the consumer his copy. The consumer takes that copy away with him when he drives off. But when the consumer electronically signs the contract at the dealership, and then the records are posted to a website by the dealer, the dealer has the opportunity to change the electronic record, after the signature was affixed. (There is nothing in either E-Sign or the Board's proposal which requires that the process of electronically signing a record would prevent alteration of that record.)

After the consumer leaves, the salesman could easily change the terms of the electronic contract, for example, by increasing the early termination charge or not giving the consumer credit for the trade-in. If the consumer later objects, he has absolutely no basis on which to contest the electronic contract, because the electronic record was not locked when he signed, and he walked away with no paper copies of the agreement that he agreed to. Even if the documents are not altered, providing them electronically makes it much easier to slip onerous terms past the consumer, who may not see the entire document on the screen at the dealership and will not have a paper copy to review.

E-Sign's consumer electronic consent provisions should clearly prevent both of these scenarios from taking place. However, the Interim Rule has wrongly interpreted E-Sign's provisions to allow this activity to occur. Congress intended to prohibit just this scenario by requiring electronic consent "in a manner which reasonably demonstrates that the consumer can access information in an electronic form." A consumer who is in a face-to-face transaction should not be able to consent electronically by using the computer equipment belonging to the seller. That consent does not meet E-Sign's requirement that the electronic consent demonstrate "that the consumer can access information in the electronic form." As Senator McCain said, "[t]his should mean that the consumer must initiate or respond to an email to consent or confirm consent."36 Congressional statements by the sponsors of this legislation indicate that the only rational reading of E-Sign's strict requirements for consent would prohibit this activity.37

The Interim Rule proposes to allow electronic disclosures to be provided to consumers either by e-mailing them to a consumer, or posting them on a web site and notifying the consumer by email or otherwise of their availability on the web site.

We believe that there are only two ways, not three, to provide electronic notices to consumers. Both ways require the use of a consumer's email address. The lessor either 1) emails the consumer and includes the notice in the body of the email or as an attachment, or 2) emails the consumer and provides a weblink in the body of the email to the notice posted on the lessor's website.

Receipt of and access to electronic disclosures should be no more difficult for consumers than receiving paper disclosures. Electronic disclosures are designed to facilitate commerce, not to provide a method for lessors to avoid giving consumers disclosures in a manner which they actually read or keep.

It is likely that lessors will be mailing these notices to consumers whose email has bounced back to the lessor. If the consumer's email has bounced back, that is a good indication that the consumer no longer has Internet access. That situation should automatically trigger a reversion to physical world delivery (with the concomitant, but reasonable costs associated with this change in delivery systems). It would be grossly unfair, and clearly in violation of the consumer protection purposes of the CLA, to allow lessors to continue to post notices electronically when there was no reason to believe that the consumer has Internet access.

As the discussion in Section II.C. of these comments points out, over 10% of the households connected to the Internet in one year will no longer be connected the following year. We cannot assume that electronic communication is as ubiquitous in U.S. households around the nation as it is in the halls of government in the nation's capital.

It simply makes no sense to allow a lessor to mail a notice of a notice to a consumer! Why not just include the CLA notice itself in the mail?

Finally, even assuming the household continues to enjoy Internet access, it is necessary to consider the difficulty that even the most computer literate consumer would undergo to access the particular web site where the proper notice would be displayed. The consumer would be required to a) turn on the computer, b) dial up the Internet access and wait for connection, c) connect to the Internet, d) type in perfect order the potentially dozens of letters and numbers (some Internet links have two or more lines in the web address), and e) download or print the disclosure. This exercise would all be unnecessary if the lessor simply included the notice in the same envelope that was used to send the notice of the notice. Allowing lessors to replace paper notices with a procedure which requires this multiplicity of tasks defeats the purpose of CLA's underlying requirement for the notice.

We believe that the posting of disclosures on a website should only be permitted when it is accompanied by an emailed notice to the consumer which includes a weblink to the website disclosures. Even in this limited instance, there is no reason to limit the time that these disclosures will be available to the consumer to 90 days.

E-Sign's section 7001(d) specifically requires that electronic records must "remain accessible to all persons who are entitled to access by statute, regulation, . . . for the period required by such statute . . .." If electronic records replace paper writings required to be provided to consumers under the CLA, then those electronic records must remain accessible to consumers for the entire time for which the consumer is bound or affected by those records. The electronic provision of that record - posting it on the website - replaces providing the paper copy to the consumer. If the consumer has the right under the CLA to receive the record in a form the consumer can keep, then the electronic posting of that record must remain available for the entire time the consumer might need the record. Any other standard makes receiving electronic records more burdensome for the consumer, and less protective, than paper records. The purpose of E-Sign, and presumably the purpose of the Board's regulations on electronic disclosures, is to provide equivalent legal status to electronic records, not to make using electronic records more difficult then their paper equivalents.

(3) Exceptions. In this subsection the Interim Rule exempts advertisements form the requirements for electronic delivery of notices. We do not object to this exemption. Indeed, the glut of "spam" advertising e-mail messages undermines the potential effectiveness of electronic disclosures. We commend the Interim Rule for avoiding mandates that would add to the increasing tide of junk email that threatens to drown important communications.

(e) Redelivery. The Interim Rule has bent over backwards to make it easy for lessors to satisfy their obligations under CLA, without adding new requirements to ensure that consumers actually receive electronic disclosures. The Interim Rule proposes a minimal standard for redelivery of bounced back email - but doesn't require redelivery if all other signs (such as non-payment) indicate that the consumer may not be actually receiving the electronic communications. The Interim Rule does not even require the lessor to conduct a periodic testing to ensure that consumers are still receiving email at addresses established months or years before.40

There are many technological advantages to lessors and consumers alike from electronic delivery of notices. One of these advantages is that there are numerous technological methodologies which enable the sender of an electronic record to determine if the recipient of the record actually accessed it.41 The program built into the ubiquitous Microsoft Outlook which allows senders to ascertain that emails have appeared on the recipient's screen, is just one of a multitude of similar technologies.42

The purpose of the CLA is to provide information to consumers. If there is a fairly easy and inexpensive way to ensure that consumers actually receive this information, especially when ongoing access to electronic notices remains an expensive and illusive proposition for the majority of households in the nation,43 that methodology should be required.

We propose that the following be added to the redelivery requirement in § 213.6(e).

The recommended language gives two ways to trigger effectiveness of a notice: 1) manual acknowledgment or 2) a technological automatic acknowledgment received by the sender. This is technologically possible, easy, and fair. It would go a long way to ensure that electronic communications benefit consumers as much as they benefit lessors.

IV. Conclusion and Recommendations

We are disappointed with the Board's Interim regulations on electronic disclosures. The Board appears to have substantially ignored the consumer protection purposes of E-Sign, to have stepped back from several important protections articulated in previous proposals, and to have disregarded Congressional intent to protect consumers evidenced in E-Sign.

We request that the Board immediately withdraw these Interim regulations and rewrite them with the following changes:

1) In face-to-face transactions, consumers cannot "reasonably demonstrate" their ability to access information in the electronic form unless they are using hardware under their own control. (This requirement simply implements the protections in E-Sign's requirement for consumer electronic consent.)

2) A consumer consent is only valid when it is accompanied by a disclosure of all the terms required by E-Sign's § 7001(c)(1), including the consumer's right to request a paper copy. (This is E-Sign's requirement, which should be reiterated in the Interim Rule.)

3) All disclosures required to be provided to consumers must be emailed to the consumer or posted on a website, after the consumer has received an email which includes a weblink to the disclosure. (As delivery requirements were not addressed by E-Sign, this change simply implements in a reasonable way the consumer protections purposes of CLA that consumers actually receive and are able to retain the CLA disclosures required to be provided to them.)

4) Disclosures which are provided on a website, rather than emailed to the consumer, must either be left on the website, or otherwise made available to the consumer, for the duration of the transaction between the parties. (This provision implements E-Sign's requirements on document retention in§ 7001(d).)

5) Disclosures electronically delivered to a consumer should only be considered delivered a) when the lessor can determine that the consumer has accessed the weblink containing the disclosure, or b) the consumer acknowledges receipt of an email, or c) an automatic acknowledgment notifies the lessor that the consumer has opened the email. (As delivery criteria were entirely omitted from E-Sign, this requirement simply implements the CLA's consumer protection purposes of ensuring the required disclosures actually be provided to consumers. It recognizes that ongoing access to electronic communications remains considerably less definite for many households in this nation.)

6) Disclosures electronically delivered to a consumer must be provided in an electronic format which the consumer can retain, and can accurately reproduce at a later time. (This means that if the lessor provides disclosures to a consumer in an electronic format which can be altered, the lessor cannot later complain in a court proceeding that that electronic format does not meet evidentiary requirements to prove the terms of the record.) (This simply implements the requirements of E-Sign's § 7001(e) on document integrity.)

7) Consumers should be clearly permitted to electronically respond to notices electronically provided to consumers. (This seems a matter of basic equity - to make electronic disclosures equally useful to consumers and creditors - which was mandated in the Board's previous iterations of rules on electronic disclosures but for some reason was not included in the Interim Rule.)

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1 The National Consumer Law Center is a nonprofit organization specializing in consumer issues on behalf of low-income people. We work with thousands of legal services, government and private attorneys, as well as community groups and organizations, from all states who represent low-income and elderly individuals on consumer issues. As a result of our daily contact with these advocates, we have seen examples of predatory practices against low-income people in almost every state in the union. It is from this vantage point - many years of dealing with the abusive transactions thrust upon the less sophisticated and less powerful in our communities - that we supply these comments. We have led the effort to ensure that electronic transactions subject to both federal and state laws provide an appropriate level of consumer protections. We publish and annually supplement twelve practice treatises which describe the law currently applicable to all types of consumer transactions. These comments are written by Margot Saunders, Managing Attorney and Carolyn Carter, Staff Attorney, in NCLC's D.C. office.

2 Consumers Union is the publisher of Consumer Reports.
The Consumer Federation of America is a nonprofit association of over 280 pro-consumer groups, with a combined membership of 50 million people. CFA was founded in 1968 to advance consumers' interests through advocacy and education.
The Consumer Law Center of the South is a non-profit, public interest organization, incorporated in Georgia in 1995. The Center's mission is to advocate for consumer protection through consumer education, legislative reform, involvement in the regulatory process and litigation and support. Professor Mark Budnitz of Georgia State College of Law is the Chairman of the Board.
The National Association of Consumer Advocates (NACA) is a non-profit corporation whose members are private and public sector attorneys, legal services attorneys, law professors, and law students, whose primary focus involves the protection and representation of consumers. NACA's mission is to promote justice for all consumers.
The National Consumers League, is America's pioneer consumer organization. NCL is a private, non-profit membership organization dedicated to representing consumers.
The U.S. Public Interest Research Group is the national lobbying office for state PIRGs, which are non-profit, non-partisan consumer advocacy groups with half a million citizen members around the country.

3 15 U.S.C. § 7001 et seq.

4 15 U.S.C. § 7001(c)(1)(B)(iv).

5 15 U.S.C. § 7004(b)(2)(B) prohibits a federal agency from adopting a regulation which adds to the requirements of § 7001.

6 U.S. Department of Commerce, Economic and Statistics Administration & National Telecommunications and Information Administration, "Falling Through the Net: Toward Digital Inclusion" A Report on Americans' Access to Technology Tools," October, 2000. Figure II-13.

7 Id. in Executive Summary.

8 Id. in Figure II-13.

9 Id. in Executive Summary.

10 Id. in text accompanying Figure I-18.

11 Id. in Part One -- Overall Household Findings.

12 Actually, if one compares the drop off rate in the year 2000 to the number of households which were on line during the previous year, which may be the better comparison, this ratio will be higher. However, we do not have the number of households which had Internet access the previous year, only the percentage.

13 It is conceivable that the consumer without regular access to a computer with a hard disk could use a floppy disk or a CD to retain important electronic records. But this requires access to a computer on which to download the records onto the floppy when they are received, and access to a computer with similar capabilities to access the electronic records at a later time when they are needed.

14 U.S. Department of Commerce, Economic and Statistics Administration & National Telecommunications and Information Administration, "Falling Through the Net: Toward Digital Inclusion" A Report on Americans' Access to Technology Tools," October, 2000. Part One -- Overall Household Findings.

15 Official Staff Commentary § 213.6(b)-5.

16 § 213.6(e).

17 15 U.S.C. § 7001(c)(1)(B)(iii).

18 See discussion of extensive software technologies available which provide automatic acknowledgment that the recipient of an email has opened it, in Section III, regarding Interim Regulation § 213.6(e).

19 §213.6(d)(2)(ii).

20 § 213.6(d)(2)(i).

21 146 Cong. Rec. S5219-5222 (daily ed. June 15, 2000) (statement of Sen. Leahy).

22 Electronic Signatures in Global and National Commerce Act, ("E-Sign") 15 U.S.C. § 7001(c)(1)(C)(ii).

23 Id.

24 146 Cong. Rec. S 5229-5230 (daily ed. June 15, 2000) (statement of Sens. Hollings, Wyden and Sarbanes).

25 146 Cong. Rec. H4360 (daily ed. June 14, 2000) (statement of Mr. Tauzin).

26 Equity Predators: Stripping, Flipping and Packing Their Way to Profits: Hearing before the Special Committee on Aging United States Senate, 105th Cong. 2d Sess. 33-34, Serial No. 105-18 (Mar. 16, 1998) (statement of Jim Dough, former employee of predatory lender). Allegations of coercion in the sale of what is supposed to be a "voluntary"" product have been the subject of federal enforcement cases and private litigation. In re USLIFE Credit Corp. & USLIFE Corp., 91 FTC 984 (1978), modified on other grounds 92 FTC 353 (1978), rev''d 599 F.2d 1387 (5th Cir. 1979); Lemelledo v. Beneficial Management, 674 A.2d 582 (N.J. Super. Ct. App. Div. 1996), aff'd on other grounds, 696 A.2d 546 (N.J. 1997).

27 In the 1999 proposed regulations on electronic disclosures the Board recognized the potential coercive opportunities for lessors to insist that consumers accept electronic disclosures.

28 As is required by E-Sign's 15 U.S.C. § 7001(c)(1)(C)(ii).

29 As is required for any electronic disclosures provided to consumers which replace writings. The CLA requires a lessor to "give ... a lessee prior to the consummation of the lease a dated written statement" with the disclosures, 15 U.C.S. § 1667a, and E-Sign requires that consumers must be able to retain electronic records replacing written records provided to them. See 15 U.S.C. § 7001(c)(1)(C)(i) and § 7001(c)(1)(D) requiring a new electronic consumer consent if a change in the hardware or software requirements needed to access or retain electronic records creates a material risk that the consumer will not be able to access or retain a subsequent electronic record that the was the subject of the consent. (Emphasis added.)
It certainly makes no sense to interpret E-Sign's requirement for consumer consent to test the consumer's capacity to retain documents only in the event of a second consent, but not in the first consent. Clearly, the first consent process must ensure that the consumer has the capacity to retain the electronic records as well.

30 See e.g. U.C.C. § 2-201. Formal Requirements; Statute of Frauds
(1) . . .A contract for the sale of goods for the price of $500 or more is not enforceable by way of action or defense unless there is some writing sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement has been sought . . . .

31 However, the fact that the consumer had not electronically consented could be raised to show that there had not been a meeting of the minds, or that the electronic signature did not actually belong to the consumer. There would be no bar against the consumer making some other argument to show that the contract could not be enforced against him. However, in many states, the failure to provide a copy of a small loan contract to a consumer carries the statutory consequence that the contract may be unenforceable against the consumer. (See e.g. the law in North Carolina governing small consumer loans: "(a) At the time a loan is made, the licensee shall deliver to the borrower . . a copy of the loan contract . . . " N.C.G.S. § 53-181.)

32 E-Sign 15 U.S.C. § 7001(e).

33 146 Cong. Rec. S 5219-5222 (daily ed. June 15, 2000) (statement of Sen. Leahy).

34 15 U.S.C. § 7003(c)(2).

35 15 U.S.C. § 7001(c)(6).

36 146 Cong. Rec. S5219-5222 (daily ed. June 15, 2000) (statement of Sen. McCain).

37 Subsection (c)(1)(C)(ii) requires that the consumer's consent be electronic or that it be confirmed electronically, in a manner that reasonably demonstrates that consumer will be able to access the various forms of electronic records to which the consent applies. The requirement of a reasonable demonstration is not intended to be burdensome on consumers or the person providing the electronic record, and could be accomplished in many ways. For example, the "reasonable demonstration" requirement is satisfied if the provider of the electronic records sent the consumer an email with attachments in the formats to be used in providing the records, asked the consumer to pen the attachments in order to confirm that he could access the documents, and request the consumer to indicate in an emailed response to the provider of the electronic records that he or she can access information in the attachments. . . . The purpose of the reasonable demonstration provision is to provide consumers with a simple and efficient mechanism to substantiate their ability to access the electronic information that will be provided to them.
106th Congress, 146 Cong. Rec. H4352-4353 (daily ed., June 14, 2000) (statement of Cong. Bliley).

38 15 U.S.C. § 1667a.

39 12 C.F.R. § 213.5.

40 See discussion on the differences between physical world delivery and electronic delivery in section II.C, infra.

41 Just a few examples of the available technology include:
http://www.readnotify.com/
http://www.electradoc.com/
http://www.greenbaycd.com/emailp.html
http://www.slipstick.com/addins/auto.htm
http://www.msbcd.com/cds4sale/23246.html

42 For example, in just one of the dozens of websites which listed software that provided automatic acknowledgment of a recipient's opening of an email (http://www.sharewareplace.com/file_pc/int_mail.htm) the following was explained:
Description: The G-Lock EasyMail was developed to help people run and manage mailing lists, newsletters, announcement lists and customer updates and other legal uses. G-Lock EasyMail is a powerful group mailer which sends your message directly from your outbox to the recipient's mail server (without using any ISP's SMTP server). This takes the load off of your mail server and speeds up message sending significantly. It gives instant confirmation of delivery by checking the address before it sends, which eliminates the dreaded "Mail undeliverable" messages you can get. It can also get confirmation that your message has been read.

43 Only 41.5% of all households can access the Internet from their home. U.S. Department of Commerce, Economic and Statistics Administration & National Telecommunications and Information Administration, "Falling Through the Net: Toward Digital Inclusion" A Report on Americans' Access to Technology Tools," October, 2000. Figure II-13.