One of the lesser-known but significant provisions of HR 10, last year’s failed attempt at "bank powers" legislation, dealt with privacy issues in electronic communication and so-called "digital signatures." The proposal defines these "electronic signatures" as a method of signing an electronic message that identifies and authenticates a particular person as the source of the electronic message, and indicates the person’s approval of the information contained in the electronic message. This method of document authentication and approval holds vast implications for the real estate settlement industry, and title insurance professionals particularly. While the concept appears relatively straightforward, competing technologies and regulatory complications have made progress in this area surprisingly slow.
In general, digital signatures procedures are required to be compatible with standards and technology for electronic signatures that are generally used in commerce and industry and by state governments, and should ensure that electronic signatures are as reliable as is appropriate for the purpose in question, keeping intact the information submitted. To answer this need in 1998, Congress passed and President Clinton signed legislation establishing an advisory commission on electronic commerce in HR 4328, the Omnibus Appropriations Bill (PL 105-277). However, separate legislation, which would have encouraged the development and acceptance of digital signatures, failed in the Senate. That legislation directed the Office of Management and Budget (OMB), the Federal management agency which coordinates all Federal agency actions, to develop procedures for the use and acceptance of electronic signatures by federal agencies (except for the IRS) over the next year and a half. The IRS, which has accepted electronic filing of tax and information returns, has had procedures in place for several years.
Subsequent to the development of government-wide procedures, the federal government would have been mandated to ensure that federal agencies would provide, over the next five years, for the option of the electronic maintenance, submission, or disclosure of information when practicable as a substitute for paper, and for the use of electronic signatures when practicable. At the federal level, at least, it appears that progress may not occur as rapidly as one would hope, given the stated limitations of "practicality" that involve serious issues and limitations in terms of technology, bureaucratic inertia, and differences in state law.
In terms of lawmakers’ reactions to these procedural initiatives and issues, Senator Robert Bennet (R-UT) noted upon his introduction of the "Digital Signature and Electronic Authentication Law of 1998" (which covers the use by financial institutions of digital signature procedures) that while the concept is fairly simple, the legislative process of regulating even digital signatures has proven quite complex. He stated that he believed that the vast differences in state law and the complications resulting from the number of competing technologies available to provide authentication have actually slowed progress on this front. Senator Chris Dodd (D-CT) has also surfaced concerns about electronic issues related to electronic commerce and privacy, as ALTA® staff learned at a fund-raiser held in September of 1998. (See photo.)
The prognosis for additional passage of digital signature legislation remains mixed. While hearings on legislation dealing with the particular issues affecting financial services industries (introduced by Senator Bennet and Representative Richard Baker) were held in both the House and Senate Banking Committees, it is expected that action may not occur until the end of the next Congress. Given that the legislation addresses not only the mandatory recognition of digital signatures, but such matters as the oversight of transactions by federal and state banking agencies, an affirmative override of state law on these transactions, voluntary or mandatory participation, liability, technology neutrality, and licensing of certificate authorities, careful analysis seems appropriate. Like technological solutions, legislation on this issue would appear at first glance to simplify and expedite transactions, but may require significant review before implementation is undertaken.