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Tests for Preemption of State Laws Under Electronic Signatures in Global and National Commerce Act

I. Preemption Question Presented   

The question is whether a state's law is preempted if it passes a uniform version of the Electronic Transactions Act, which

a) specifically states that the passage of such Act is not intended to displace the consumer protections in Section 101 of E-Sign; and/or 

b) is accompanied by companion language which provides additional consumer protections which are not addressed in E-Sign. 

The answer is NO. A state’s law will not be preempted if it passes a uniform version of the Electronic Transactions Act which specifically states that the passage of such Act is not intended to displace the consumer protections in Section 101 of E-Sign. Neither will a state’s law be preempted if the uniform version of UETA is accompanied by language which provides additional consumer protections which are not addressed in E-Sign. 

In passing the federal Electronic Signatures in Global and National Commerce Act (E-Sign), Congress intended to allow states to pass their own state laws governing electronic records and signatures, and still avoid state preemption. E-Sign provides that a state may avoid preemption when it passes a uniform version of UETA, and when it provides alternative procedures or requirements for the use or acceptance of electronic records.[1]  A bill providing for alternative procedures or requirements for electronic records must meet two tests to avoid preemption:  

1) the alternative procedures must be consistent with E-Sign, and

2) the procedures do not favor any particular electronic technology.  

Congress contemplated that a state could do both: pass a uniform version of UETA, and pass alternative procedures governing electronic records and signatures, under both subsections (a)(1) and (2) of 15 U.S.C. sec. 7002.  Congressional statements by the sponsors of the bill indicate this unequivocally: 

Congressman Bliley, the House sponsor of E-Sign, stated: 

Further, some States are enacting or adopting a strict, unamended version of UETA as well as enacting or adopting a companion or separate law that contains further provisions relating to the use or acceptance of electronic signatures or electronic records.  Under this Act, such action by the State would prompt both subsection (a)(1) (for the strict enactment or adoption of UETA) and subsection (a)(2) (for the other companion or separate legislation).  Subsection (a)(2) would also apply for any amendments made by a state in the future to their statutes, regulations or rules of law pertaining to the original enactment or adoption of UETA that qualified under subsection (a)(1). (Emphasis added.)[2] 

A similar point was made in a joint statement by Senators Wyden, Hollings and Sarbanes. Senator Wyden was  a sponsor of the bill in the Senate; Senator Hollings is and was the lead Democrat on the Senate Commerce Committee, and Senator Sarbanes is and was the lead Democrat on the Senate Banking Committee. They articulated that a state can adopt both a uniform UETA and other provisions without preemption:   Exemptions to Preemption. Section 102(a) allows a state to "modify, limit or supersede section 101'' in one of two ways: (1) by passing the Uniform Electronic Transactions Act ("UETA'') as approved and recommended for enactment by the National Conferences of Commissioners on Uniform State Laws in 1999, or (2) by passing another law which specifies the requirements for use or acceptance of electronic records and electronic signatures which is consistent with this Act.  These choices for states are not mutually exclusive. (Emphasis added.)[3]  

Federal law thus permits states to avoid preemption by E-Sign while enacting both a uniform version of UETA and companion consumer protection provisions.  The companion provisions must be “consistent,” a phrase that generally means that both statutes can be satisfied, and must also be technology neutral.  E-Sign is primarily a broadly worded enabling statute.   

There is no problem if a state enacts consumer protection rules copied from those already codified in E-Sign; they are by definition “consistent” with E-Sign. Further, there should be no problem with a state enacting consumer protection rules which are not in E-Sign, so long as these rules do not violate the twin prohibitions in (a)(1) and (2) of 15 U.S.C. sec. 7002: requiring consistency and prohibiting the favoring of a particular technology.  

For example, as E-Sign leaves delivery requirements for electronic records to state laws, nothing prohibits a state from establishing clear rules on electronic delivery. As Congressman Dingell said:

[P]rovided that the delivery methods required are electronic and do not require that notices and records be delivered in paper form, States retain their authority under Section 8(b)(2) of UETA to establish delivery requirements.[4]  

II. Minimalist Language to Preserve Federal Consumer Protections 

"No provision of the Electronic Transactions Act is intended to limit, modify, or supersede the requirements of Sections 101 (c), (d), or (e), or to authorize electronic delivery of any notice of the type described in Section 103(b) of the Electronic Signatures in Global and National Commerce Act." 

Explanation: 

This language expressly preserves in a state adopting UETA, the following consumer protections in the federal law: 

1. Requirement for Electronic Consent.  

E-Sign requires a specific and electronic consent process before an electronic notice may replace a legally required written notice. UETA merely requires that the parties agree to conduct transactions by electronic means, but does not specify how that agreement is to be proven.  Instead, UETA states that agreement is determined from the context and circumstances.[5] UETA’s agreement requirement applies to all types of electronic notices (legal and contractual).  UETA undercuts its own basic premise of agreement by permitting the agreement to conduct transactions electronically to be found from the context, including conduct.  UETA also permits the agreement for future electronic notices to be given only on paper.  UETA does not exempt any categories of consumer notices. 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 three distinct but related protections afforded by the requirement for a consumer to electronically consent are: 

  • To ensure that the consumer has reasonable access to a computer and the Internet to be able to access information provided electronically.

  • To ensure that the consumer’s means of access to electronically provided information includes the software to read the electronic records provided.

  • To underscore to the consumer the fact that by electronically consenting, the consumer is agreeing to receive the described information electronically in the future.

2. E-Sign’s Document Integrity and Retention Requirements  

Record “integrity” standards are important because both UETA and E-Sign generally allow electronic records to replace documents required by law to be in writing. Yet the law traditionally has made certain inherent assumptions that about the characteristics of paper “writings” that are not necessarily applicable to electronic records:  

  • A paper writing is by its nature tangible. Once handed to a person a paper writing will not disappear unless lost or destroyed by the recipient.

  • The printed matter on the paper writing will not change each time someone views it.  The writing can be used at a later time to prove its contents. 

  • While the information on the paper can be deliberately changed by forgery, that takes an effort and some skill.

None of those assumptions necessarily applies to an electronic record.  Congress recognized these distinctions when it passed E-Sign, and E-Sign’s provisions are stronger on these points than UETA.  UETA does not require that the format used for electronic records be change-proof or tamper-proof.  Under UETA, a record can be sent to a person in a format that allows the record to be inadvertently changed every time it is opened.  Imagine the problems that might result if the homeowner's copy of a mortgage note was saved in an automatically-updating word processing format, such that every time the homeowner reviewed the document electronically, the record was saved with a new date on it.  The mortgage company will have kept its own electronic copy in a more secure fashion, and will have the technical capacity to prove in a court of law that the electronic document it has in its possession is the same one electronically signed by the homeowner.  Yet, if the homeowner had been provided only with a version that can be inadvertently changed, the homeowner will face a much tougher battle using his or her copy to prove the terms of the contract.  E-Sign, while not perfect, attempts to address this concern by requiring that the record be provided in a format that can be accurately reproduced for later reference by all parties who are legally entitled to retain the record.[6]  It is important to note that, unlike the consent provisions, the retention and integrity requirements of E-Sign are not limited to consumers; they apply to all users of electronic records. 

3. E-Sign Has Specific Exceptions for Certain Consumer Notices

Congress was convinced that some notices to consumers are so important that state law requiring paper notices should not be preempted to allow electronic records to replace paper writings for these types of notices.[7]  E-Sign specifically excludes the following consumer notices from the federal rule allowing electronic records to replace writing requirements:[8] 

  • Utility termination and shut offs

  • Default, acceleration, repossession, foreclosure or eviction, or a right to cure, under a rental agreement or a mortgage on a principal residence

  • Cancellation or termination of health insurance or benefits, and of life insurance benefits (except annuities)

  • Product recall or material failure of a product that risks endangering health and safety.[9]

UETA has no exceptions for any consumer notices. 

III. STATUS OF E-SIGN'S CONSUMER PROTECTIONS IN THE STATES As of April, 2001, it looks like the consumer protections in E-Sign will apply in the majority of states. Below is a compilation of the states.  1. States that passed UETA prior to the effective date of E-Sign (and have not since amended it and are not in the process of amending it) such that E-Sign’s consumer protections will clearly apply:
Arizona Delaware Florida Hawaii Iowa 
Idaho   Indiana Kansas  Kentucky Maine   
Maryland Minnesota Nebraska Ohio Oklahoma
Pennsylvania Rhode Island South Dakota Utah Virginia

Total – 20 

2.  States that Passed UETA After E-Sign specifically PRESERVING Federal Consumer Protections (or adding more protections). 

North Carolina   Tennessee

Total  - 2 

3.  States that are considering UETA with Federal Consumer Protections (or local advocates are very optimistic)

California Connecticut Illinois Louisiana
Massachusetts Nevada New Jersey Oregon  
Texas Vermont West Virginia Wisconsin

Total - 12 

4.  UETA not on the table – so E-Sign applies 

Alaska Colorado Georgia New York
North Dakota South Carolina Washington

Total - 7 

TOTAL COUNT -- 41  

States in which E-Sign applies –  or likely will apply –   #s 1, 2, 3, and 4

5. Status unknown, because it is not clear whether E-Sign's consumer protections will be applied as UETA moves through the state legislature:

District of Columbia    New Hampshire

Total -- 2

6. States that Passed UETA After E-Sign Without Preserving Federal Consumer Protections:
Alabama  Arkansas   Michigan Mississippi Montana
New Mexico Wyoming

Total 7

7.  States that are considering UETA – unknown or pessimistic status of Consumer Protections   

Missouri 

Total - 1 

COUNT --  11  Total states probably without consumer protections  – #s5 & 6  

Total includes 50 states counted in some category and the District of Columbia. 

April 18, 2001

Margot Saunders
Managing Attorney
National Consumer Law Center
Washington, D.C.
Margot@nclcdc.org

[1]15 U.S.C. sec. 7002(a)(1) and (2).

[2]Statement of Congressman Bliley Regarding the Electronic Signatures in Global and National Commerce Act, Congressional Record - House, Wednesday, June 14, 2000, 16th Congress, 2nd Session, 146 Cong. Rec. H 4352‑4355.

[3]Statement of Senators Hollings, Wyden, and Sarbanes Regarding the Electronic Signatures in Global and National Commerce Act, Congressional Record ‑ Senate, Thursday, June 15, 2000, 106th  Congress, 2nd  Session, 146 Cong. Rec. S 5229‑5230.

[4]Statement of Congressman Dingell Regarding the Electronic Signatures in Global and National Commerce Act, Congressional Record - House, Wednesday, June 14, 2000, 16th Congress, 2nd Session, 146 Cong. Rec. H 4357-4358.

[5] UETA § 5.

[6]E-Sign 15 U.S.C. §70001(d) and (e).

[7]Like UETA, notices relating to wills, family law and the UCC (other than the Statute of Frauds and Articles 2 and 2A) are excluded from the application of E-Sign. E-Sign  15 U.S.C. §7003(a).

[8]In addition to the consumer notices, E-Sign also excludes court orders and notices, as well as official court documents executed in connection with court proceedings. E-Sign 15 U.S.C. § 7003(b)(1).

[9] E-Sign 15 U.S.C. § 7003(b)(2).

 

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