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HR 1714 -- 11/09/99

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Office of Management and Budget


November 9, 1999

H.R. 1714 - Electronic Signatures in Global
and National Commerce Act

(Bliley (R) Virginia and 10 cosponsors)

The Administration strongly opposes House passage of H.R. 1714, in the version considered by the House on November 1, 1999. The Secretaries of Commerce, Housing and Urban Development and of the Treasury will recommend that the President veto H.R. 1714 in its present form for the reasons set forth in the Statement of Administration Policy dated November 1, 1999 (copy enclosed).

The Rules Committee has made in order consideration of en bloc amendments to be offered by Reps. Inslee, Eshoo, and others, that purport to address some of the concerns identified by the Administration, as well as consideration of an amendment in the nature of a substitute to be offered by Reps. Gephardt, Dingell, LaFalce and Conyers. The Administration believes that the en bloc amendments fall short of eliminating the serious defects in H.R. 1714, and the Secretaries of Commerce, Housing and Urban Development and of the Treasury will recommend that the President veto H.R. 1714, with the en bloc amendments. For the reasons explained below and in the enclosed Statement of Administration Policy, the Administration would support adoption of the Gephardt-Dingell-LaFalce-Conyers substitute (previously introduced as H.R. 3220).

The legislation that was initially considered by the House Commerce Committee was designed to ensure the legal validity of contracts in electronic form that are signed with electronic signatures (the States currently are considering the Uniform Electronic Transactions Act, which updates state contract law to recognize electronic contracts). These provisions are not controversial. They are embodied in the Abraham-Wyden-Leahy amendment to S.761 (which may be considered by the Senate this week) and in the Gephardt-Dingell-LaFalce-Conyers substitute.

The bill reported by the House Commerce Committee - H.R. 1714 - goes well beyond this limited but critical objective, and adopts provisions that broadly authorize the substitution of "electronic records" that do not provide equivalent protections as those for the written documents mandated by statutes and regulations requiring consumer notifications and disclosures. The bill also would allow businesses subject to statutory and regulatory record retention requirements (insurance companies, for example) to retain electronic records while not providing equivalent access to the written records required by those statutes and regulations. The Administration believes strongly that these provisions will leave on-line consumers with fewer consumer protections than they have in other forms of commerce.

For example, the bill ostensibly requires consumers to "opt-in" to electronic notices, but the consumer need not be told of the right to obtain information in written form or which specific records would be affected. Neither the States nor federal regulators will have any ability to eliminate abuses that may occur. And even with respect to notices concerning health and safety, the States (but not the federal government) can reinstate regulatory requirements, but the bill creates a gap in protection for the years that will elapse before reenactment occurs. Finally, the bill deprives the States of all authority to oversee retention of electronic records - businesses may decide for themselves how to keep information electronically, even if they do so in a way that makes it impossible for state regulators to do their jobs.

The en bloc amendments do not come close to addressing the Administration's concerns. Although it improves the "opt-in" standard by requiring that the consumer's consent be "conspicuous and visually separate" and that the consumer be informed of the hardware and software needed to access electronic records, it still does not require that the consumer be told of the right to receive written notice or of the particular notices and disclosures that would be affected. Moreover, the amendment does nothing to restore regulators' authority to prevent abuses by overreaching corporations. Rather, it weakens the already diminished ability of the States to protect health and safety. Under the version considered November 1 under suspension of the rules, and here again today, States could reenact requirements of written notices "necessary for the protection of the safety or health of an individual consumer"; under the en bloc amendments the States' power is restored only if notices are necessary for the protection of the "public health or safety of consumers," a standard that is plainly less protective of individual consumers. Finally, the en bloc amendments would subject consumers to the bill's electronic delivery provisions without adequate protections for at least 18 months while a study of the impact on consumers is completed.

The Gephardt-Dingell-LaFalce-Conyers substitute, by contrast, accomplishes the highly laudable goal of ensuring that signatures and contracts will not be denied legal effect solely because they are electronic in form. The Administration supports this substitute because it preserves long standing government authority to establish safeguards, such as consumer protection laws; covers only commercial transactions between private parties that affect interstate commerce; does not affect Federal laws or regulations; and sunsets completely when a state enacts the Uniform Electronic Transactions Act. The Senate may consider this week a proposal that is virtually identical to the Gephardt-Dingell-LaFalce-Conyers substitute. Hence, the important objectives accomplished by that substitute could be codified in legislation that is enrolled and presented to the President for signature virtually immediately.

Electronic commerce will play an important role in expanding our economy at the same time that it provides new benefits to consumers. The Administration believes that reliable electronic signature technology, used properly, is necessary to reap the full benefits of electronic commerce for consumers. The States and the Federal government can assist the growth of electronic commerce by ensuring a predicable legal environment with regard to the validity of electronic signatures and contracts.

In certain circumstances it will be appropriate for the law to allow ongoing communication between parties to be conducted in electronic form. Statutory changes to accomplish this task must be done with great care, however, to avoid placing vulnerable consumers at risk. The Federal Reserve is currently engaged in a public rulemaking process to evaluate various consumer protection regulations and determine the appropriateness of electronic disclosures and notices on a statute-by-statute basis. The Administration supports this process, which should not simply be preempted by H.R. 1714 or similar legislation.

The Administration recognizes that a number of Representatives also wish to address the issues of electronic records and electronic record retention and maintenance requirements that would not be addressed by the Gephardt-Dingell-LaFalce-Conyers substitute. The Administration is committed to working constructively with those Representatives to discuss their concerns and develop appropriate legislation that avoids the problems identified herein.

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