It used to be so simple.  When a customer wanted to borrow money or wanted to purchase a living room suit “on credit,” he or she would come to the office or store, discuss the terms of the transaction, sign a note or installment sales contract—and that was it.   How times have changed! Now, customers can phone in or email credit requests or more likely, use the web to make purchases. Why do we even have brick & mortar locations any longer?!?

Well, there is not enough time or space here to analyze consumers’ borrowing and buying habits.  But, there is enough for a quick review of electronic commerce.

I think that every state in which we have readership has adopted the Uniform Electronic Transactions Act (“UETA”).  This is the body of uniform state law that ensures (with a few exceptions) that electronic contracts, records and signatures have the same validity as their paper counterparts—removing the barriers to electronic commerce.  That is, transactions cannot be denied legal enforceability merely because they are in electronic form.  

The first step, however, is for the parties to agree to conduct the transaction by electronic means.

So, how may that agreement be achieved? UETA provides that an electronic signature will be valid based on the “context and surrounding circumstances at the time of its creation, or adoption, including the parties’ agreement.”  Basically, that means that signing an email works. Clicking-through a process to borrow money or buy goods, concluding with “I agree” works, too.  

Creating a website or other portal is the creditor’s first step in offering goods and services electronically.  That can be the means to accept applications for loans or purchases, and to accept the pdf. of any required customer documentation—ID, pay stubs, etc. The portal or website should specifically include an authorization for obtaining a credit report, verifying employment, dunning and so forth.   It can also be the venue for responding to the applicant, including sending an ECOA turn-down notice.  And, in the final step, it is the portal for the electronic signing of the transaction document.

Privacy notices can be posted on the website, loan payments can be made via ACH, collection notices can be emailed or texted, and advertisements can be posted. In short, the creditor and debtor need not ever be in the same room together.  Is that a good thing?  That is not my call; but the point here is that such is achievable via electronic commerce.

It is also important to know that UETA as adopted in most states gives consumer protections, including making it less likely that a consumer will be locked into strictly electronic means of record access and notification without full consent, and allowing consumers to reverse such consent if given.

Practice Pointer:  Electronic commerce is a big thing in consumer finance.   The laws are in place to do it.   It is important that creditors review their policies and procedures to ensure compliance.

Please Note: This is the forty-seventh blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.