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E-signatures get real
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June 30, 2000: 3:53 p.m. ET
Clinton signs bill giving electronic contracts full protection under U.S. law
By Staff Writer Steve Bills
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NEW YORK (CNNfn) - You could buy a house online, or establish an IRA electronically, under legislation signed Friday by President Clinton.
"It will open up the floodgates to many new transactions that consumers and businesses will be able to do online," exulted Rep. Tom Bliley, R-Va., chairman of the House Commerce Committee and an early backer of the measure.
"We'll look back a few years from now and say it was truly pivotal," said David Colton, legal counsel of the Information Technology Association of America.
The law also promises to enhance the competitiveness of small companies, a committee aide noted: "There is no more geographic limitation on small businesses to offer their services."
 The electronic signature bill breezed through Congress earlier in June, winning near-unanimous support. President Clinton signed it Friday, symbolically using new digital signature technology to do so.
The key aspect of the legislation is a simple recognition that people may use the Internet to enter into contracts, something that was not at all clear in the law before now.
Home sales by e-mail?
The law makes it possible, in one scenario, for a homeowner to move to another state, then sell the house that was left behind, communicating strictly over the Internet, without having to travel back home to attend a real estate closing or to have a lot of paperwork signed and notarized and couriered to a realty attorney's office.
It also will allow a future retiree to search the Internet for IRA choices, then establish an account and even transfer funds to the mutual fund company without ever putting physical ink on paper.
In the past, any commercial transaction of more than $500 required a "signed writing," and while your "X" mark on the signature line satisfied the requirement, it was not certain that your user ID and password on a secure Web site was equally valid under the law.
This legislation provides that recognition. In the future, if a question arises about the validity of an electronic contract, a court would look at the record to decide the question on its merits, the House aide said, but a judge would have no reason to reject the agreement simply because it was made in cyberspace, rather than across a conference table.
Oversight remains strong
In general, the new freedoms are likely to find expression first in regulated industries such as mortgage lending or securities, precisely because government oversight already is strong in those fields, said Jane Winn, a faculty member at the Southern Methodist University School of Law in Dallas and co-author of "The Law of Electronic Commerce."
"There are a lot of safeguards. There is a lot of oversight," she said. The law contains specific exemptions to prevent, for instance, an eviction or the cutoff of utility service based on an electronic signature, and Winn suggested those consumer protections were part of the reason the bill was able to roll up such large majorities in Congress.
The home mortgage industry could be one of the first to see the benefits. Winn pointed out that Freddie Mac (FRE: Research, Estimates) and Fannie Mae (FNM: Research, Estimates) -- companies that bundle mortgages and resell them in the secondary market -- already employ technology extensively in their back-end operations. Their mortgage-backed bonds, for instance, exist only in book-entry form, as files in a database, not as physical documents.
 "But the origination is still balled up with all this paper," she noted. The ITAA, for its part, projects that electronic mortgage origination could save $2,000 to $2,500 per loan in processing fees -- savings that could be passed along to the homebuyer.
One still must come to terms
Of course, this doesn't solve the whole problem of e-commerce. The mortgage lender -- or anybody on the other side of an online transaction -- still must check your credit rating, and you have to come to terms on a deal, just as you always did.
And you still have to satisfy yourself that the person on the other side of the computer screen is who she claims to be, and not some mail clerk who sneaked into the boss' office to use the PC.
This law doesn't address any of that. But it does smooth out certain bumps in the road. Some states have begun trying to set their own standards for recognizing electronic signatures. The federal law will supersede all that, without endorsing any particular technological scheme.
As a result, Colton expects a new scramble among tech companies such as Verisign (VRSN: Research, Estimates) and RSA Security (RSAS: Research, Estimates) along with private companies such as Protegrity, to set the standards for security and verification.
"There is a whole galaxy of companies" that will be fighting for business, he said. "Congress wisely decided not to dictate the technology."
Colton predicted the winners would be those companies that can marry reliable security with a friendly interface, to provide both consumer confidence and convenience. 
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