Pub. 10 2021 Issue 5

34 Legal and Practical Considerations of Electronic Signatures By Marci Kawski , Lauren Capi t ini and Chrissie Simpson W e are over one and a half years into the COVID-19 pandemic, over 500 days and 13,000 hours … not that anyone’s counting. We’ve all gotten the hang of working from home and managing our business from home. And if you haven’t taken steps to serve your customers from home, there’s no time like the present. Banks, large and small, are in the unique position of helping consumers and businesses obtain and maintain access to credit during these unprecedented times. Inevitably, your customers have needed to originate new loans; defer, extend, and modify existing loans; and open deposit accounts online, among other things. As a result, the use of “remote channels” has gone from “nice to have” to “need to have.” Over the past year, we have counseled many bank clients in their migration to electronic signatures. Below we highlight both practical and legal considerations that may need to be tackled as you consider implementation thereof. Electronic signatures First, if you are considering using e-signatures or increasing use of e-signatures for certain loan types, you should consider the following: 1. Are e-signatures lawful? Yes, e-signatures are generally legal and enforceable pursuant to the Electronic Signatures in Global and National Commerce Act (E-Sign), governing consumer and commercial transactions, and state laws adopted from the Uniform Electronic Transactions Act (UETA), including in Kansas. There are, however, exceptions to this general principle. Many of those exceptions — such as laws governing wills, codicils, or testamentary trusts — are not relevant in the consumer or commercial financial law context. However, one noteworthy exception is as follows: • Uniform Commercial Code (UCC). E-Sign and UETA do not apply to contracts governed by the UCC other than Articles 2 and 2A (Sales). However, the UCC has been amended to accept electronic signatures where they are excluded from coverage. The importance of this is that electronic signatures are permissible under relevant provisions of the UCC. 2. I f I want to begin using e-signatures in a loan transaction, do my customers have to consent to conduct transactions electronically? If so, how do I obtain consent? Yes, banks must obtain the appropriate level of consent from the customer before conducting the transaction electronically. The level of consent required depends upon whether your borrower is a business or a consumer. If originating a commercial transaction, consent is driven by UETA where the parties must agree to conduct the transaction electronically. Whether there has been agreement to conduct the transaction electronically is determined from the context and surrounding circumstances, including the parties’ conduct. In practice, consent could occur by simply asking the business customer whether they would like to receive their documents via email or by conducting business via email. Alternatively, banks can obtain consent from business customers, which is typically the case when using an e-signature platform. If the customer is a consumer, he/she must have affirmatively consented to conduct the transaction electronically (without withdrawing consent) and, prior to such consent, must be provided with E-Sign disclosures per 15 U.S.C. § 7001(c)(1). These disclosures are available in e-signature platforms and may also be provided by your document vendor or loan origination system provider. 3. What documents can be signed via e-signatures — for example, can the Promissory Note and Mortgage be signed electronically? Generally speaking, all documents are valid when signed electronically, unless specifically excluded by E-Sign (as described above) or under UETA. This includes loan modifications, Promissory Notes and recordable instruments. However, as it relates to the Promissory Note and recordable instruments, such as a mortgage, we suggest banks continue to obtain a wet signature for the reasons described below. This may result