The Rise of E-signatures: Safety and Legality - Wisconsin Bankers Association

As more and more customer interactions shift to virtual, e-signatures have become central to some banks’ operations. With this shift, questions about the technology still remain.

The shift to virtual formats for banks has largely been a matter of giving customers more service options during the pandemic, and one particular method of this virtual communication has been a growing cause for concern. When conducting business online, are electronic signatures safe, and are they legal?

Are They Safe?

As banks continue to prepare under these evolving circumstances, there have been concerns that using e-signatures may be a potential safety issue. Limited lobby hours at banks paired with the convenience of doing business online has resulted in a heightened awareness of electronic transactions, and many have been understandably skeptical of potential issues.

When the pandemic hit, President of FIPCO Pam Kelly saw the number of their Compliance Concierge software customers opting to move forward with e-signatures quadruple. Many businesses are following this trend to take care of customers more efficiently. Determining what the safety risks might be is a vital part of adding e-signatures to your business.

When it comes to the implementation of e-signatures, there are a variety of factors to consider when opting for a safe approach. FIPCO provides e-signature services that banks can offer in their branches, or their customers can sign remotely through DocuSign. When allowing the completely virtual route, there are several authentication options ranging from text, authentication code, and personalized (knowledge-based authentication) questions that help assure the person signing is who they say they are. Most services come with audit trails and tracking options as added security measures.

“What’s important is that it’s secure and that they’ve been asked to authenticate who they are,” said Kelly. “There is some infamous publicity with hackers pretending to be DocuSign, but there are some simple steps you can take to know if it’s fraudulent.”

The most important rule is to never sign for something that you were not expecting to receive, a tactic that Kelly says is more likely to happen with businesses than individual clients. Reach out to the company that has supposedly sent you a document to e-sign and clarify your situation. They’ll be able to tell you whether they’ve requested your signature.

“The security goes into knowing your customer and knowing who they are, especially when you’re first doing business with them,” Kelly reminded. “That’s the bigger issue when it comes to doing business electronically. Make sure you’ve established other forms of communication with the client other than just a documentation channel.”

E-signatures are a safe and efficient resource when you take the basic precautions. Many clients that are typically hesitant of adapting to certain technologies are beginning to use this format because of its inherent convenience and simplicity. All this indicates that the spike in its use may very well continue after the pandemic has reached an end.

“I think this resource will grow,” said Kelly. “The convenience to the banker and the customer is a time savings of 30% in loan closings, helps banks improve their bottom-line, and provides environmental savings to help the planet. More people are really starting to take notice.”

Are They Legal?

Being safe is only the first step. Understanding e-signatures from a legal perspective is an important way to identify the risks of using e-signatures at your bank.

So, is this method of signing documents legal? The simple answer is: yes. The E-Sign Act of 2000 offers guidelines and national standards for e-signature authentication. Banks can use this resource on almost all loan and deposit agreements, and the validity cannot be denied solely because it’s electronic. The Uniform Electronic Transactions Act (UETA) adopted in Wisconsin in 2004 further recognizes an electronic agreement’s enforceability.

“These issues aren’t anything new,” said Heather MacKinnon, WBA’s vice president – legal. “The pandemic has just pushed awareness of it to the forefront, and many places are trying to determine how this might impact the way they operate. Our goal is to help bankers better understand what that means for them.”

The more detailed answer depends on a variety of factors that each bank must take into consideration, because an e-signature can still be challenged. Establishing other forms of communication and validation, as mentioned previously, is a good start to ensuring the signatures are binding. But, the bank must ask a series of important questions to know if e-signatures are the right move and to what extent they should be used. Ultimately, your bank's legal counsel should help decide on this implementation and what actions can be taken should any legal trouble arise.

“Successfully approaching the use of electronic agreements is being able to show multiple ways of saying ‘This is the person who signed it, and these are the reasons I know why they signed it,’” MacKinnon said.

To provide further information on this, WBA’s legal department has created an e-signature toolkit. The toolkit entitled “Electronic Contracting in Wisconsin: Is it Legal and Other Considerations” outlines the law as it relates to e-signatures and the considerations that banks should take when using them in contracts. It offers a list of possible scenarios your bank might face when dealing with e-signatures and multiple resources to help your bank best understand the risks of electronic transactions.

You can view and download the toolkit here. For further questions, contact wbalegal@wisbank.com.