Q&A: Here’s a question that a Wisconsin credit union recently asked The League’s Legal Affairs team, along with our answer. Do you have a compliance question? Contact The League’s Compliance Hotline at (608) 640-4050 or email.
Q. I recently discovered that our commercial team is requiring business account opening docs to be signed in person/wet signatures. I am looking for guidance that requires us to collect wet signature? I would like to make the suggestion to allow them to use electronic signatures for these documents but want to make sure there is not a requirement for them to be signed in person/wet.
A. The bottom line is that business account opening documents (and many other documents or agreements for businesses) can be signed electronically.
We have information on electronic signatures in The League’s ii Release No. 0175. The ii Release discusses two different sets of laws, one state and the other federal, and it’s important to keep in mind the differences between them.
The federal E-Sign law – which requires certain disclosures and consent before electronic signatures can be used – only applies to consumers. The consumer protection provisions in E-SIGN do not apply to commercial transactions. As a result, the credit union is free to use electronic signatures for its commercial loan agreements or account opening without having to comply with E-SIGN.
Wisconsin has adopted the Uniform Electronic Transactions Act (UETA). Unlike E-Sign, UETA does apply to business transactions. The ii Release summarizes UETA and includes this:
UETA does not require anything to be done electronically; it only allows parties to conduct transactions electronically if they agree to. For UETA to apply, each party to a transaction must agree to conduct it electronically. The agreement can be determined by the parties’ conduct and the surrounding circumstances. However, if the credit union wants to handle a transaction electronically, it may include a provision in the agreement that says all parties consent to contract electronically.
Under UETA, a signature, contract or record may not be denied legal effect or enforceability just because it is in electronic form. An electronic record or an electronic signature satisfies any law that requires a record to be in writing or to contain a signature.
In other words, so long as the credit union and its business members agree to use electronic signatures, your agreements will be just as enforceable as if they were on paper with a “wet ink” signature. That agreement could be implied by the actions you and your member take, but you may want to consider whether to include a clause in an agreement saying that the parties consent to conduct the transaction electronically.
I should explain that certain documents are not subject to UETA. For instance, security agreements for personal property (as opposed to real property) are subject to the Uniform Commercial Code (UCC), instead. The ii Release explains that UETA does not apply to most UCC transactions:
UETA does not apply to transactions under Wisconsin’s Uniform Commercial Code – except for sales and leases of goods, which are governed by Chapters 402 and 411 of the Wisconsin Statutes. For example, UETA would make an electronic agreement to buy a car enforceable, but it would not extend to the security agreement needed to give the credit union a security interest in that car. Security interests are governed by a separate chapter of the Uniform Commercial Code – Chapter 409 of the Wisconsin Statutes.
This means that a security agreement is not subject to UETA. But the UCC has its own provisions that allow electronic signatures. Wis. Stats. §409.102(1)(bm) says that to “authenticate” a UCC document means to sign it or “with present intent to adopt or accept a record, to attach to or logically associate with the record an electronic sound, symbol, or process.” A different ii Release – No. B060 – summarizes UCC provisions, and it includes this:
Revised Article 9 gives legitimacy to transactions consummated through electronic commerce by the concept of “authentication.” No longer is a “signature” on a “writing” required for rights to be asserted or agreements to be enforceable. Instead, Revised Article 9 requires “authentication” of a “record.” For example, Revised Article 9 no longer requires that a security agreement be in writing and be signed, only that a debtor have authenticated a security agreement including a description of the collateral. § 409.203(2)(c)(l).
Therefore, a debtor can sign a tangible record (e.g., a security agreement typed on paper) or accept or adopt an electronic record (e.g., a security agreement that is electronically stored) to authenticate a security agreement. As a result, for all practical purposes, security agreements and other business loan documents may be executed electronically in the credit union transactions, too.
Some issues to consider
Using e-signatures isn’t risk-free. The validity of those signatures could still be challenged, just like a pen-and-ink signature could be (e.g., on the basis of fraud or forgery). So, the credit union must think about possible risks and the steps it can take to mitigate them. For example, before allowing electronic signatures (for business accounts or any other services), consider issues like these:
- Do you work with a reputable vendor that understands the UETA, E-Sign, or any other relevant legal requirements? Do they ensure compliance with all applicable laws? What technological standards and processes do they use to confirm the validity of electronic signatures?
- Does your system capture a member’s signature and apply it so that it is logically associated with the agreement and evidences the member’s intent to be bound?
- Does your credit union’s bonding company have recommendations or steps that must be taken to obtain proper coverage for e-signatures? If fraud is discovered related to an electronic signature, will your bond cover it?
- Does your credit union have policies and procedures in place to address electronic signatures?
- Are staff adequately trained to understand how to properly conduct transactions and obtain signatures electronically?
- Will your security system accommodate electronic signatures and protect against security breaches?
- Does the credit union work with any investors (like Fannie or Freddie) that may have their own requirements for e-signatures? Or is the credit union involved in participation lending, and if so, do your participation loan agreements impact your reliance on electronic transactions?