Modernizing Modern Disclosures

It seems like 2020 has been the year of change for banks. In some ways, everything has been turned on its head with banking remotely, being pushed into a further online presence, and a deluge of new rules, regulations, and guidance from the regulators on a wide variety of topics. Now E-Sign is one of those topics. On July 2, 2020, the E-Sign Modernization Act was introduced in the Senate, which could make some big changes for the bank.

The E-Sign Act as it is currently written requires that the bank obtain demonstrable consent from a consumer before sending federally required disclosures electronically. This means that the consent process must show the customer can receive the documents in the same manner in which they were sent and consent to receiving them in that manner, before the bank sends the forms in that medium. The intent of the rule was to be sure that consumers can receive the documents that are being sent to them. In the year 2000 when the E-Sign Act was originally enacted, this was a great win for consumers, but subsequently has become a burden for banks. This is because the current rule does not necessarily describe exactly what demonstrable consent looks like, or what would be considered sufficient. This has caused great debate, confusion, and frustration in the consumer industries. It also seems a bit unnecessary now in the 2020s, when nearly everyone has a smartphone, most applications are smartphone compatible, and communication regarding whether the customer received the documents that were sent to them is able to be nearly instantaneous.

For those reasons, some lawmakers have introduced the E-Sign Modernization Act to remove the demonstrable consent requirement from the E-Sign Act. Under the new rule, the bank would still need to provide disclosures regarding software and hardware requirements and obtain consent from the customer before sending any federally required consumer disclosures electronically. However, the consent would no longer have to be “demonstrable consent,” meaning, the consent would no longer have to be obtained in a way that shows that the customer can obtain the documents in the same medium that they will be sent. This could potentially remove some cumbersome financial and operational burdens from the bank and ultimately make transacting with consumers a faster and more efficient process.

So far, the rule has only been introduced, read twice and referred to the Senate Committee on Commerce, Science, and Transportation. It has not yet had any other movement in the Senate before Congress went on recess. Congress will be tentatively returning on September 8th after Labor Day weekend. Thereafter, the bill would still need to pass the senate and then the house in order to make it for signature before the President and then finally becoming law. As such, it is important that if banks want to see this change, that banks contact and support its State Banking Associations to lobby Congress to support the E-Sign Modernization Act and bring electronic disclosures into the new online era.