Joint FTC/Commerce Department Report Released on "Reasonable Demonstration" Requirement of ESIGN

The Federal Trade Commission and the U.S. Department of Commerce's (Commerce) National Telecommunications and Information Administration (NTIA) today released a report they prepared jointly at the request of Congress regarding the benefits and burdens of the "reasonable demonstration" requirement of the consumer consent provision contained in the recently enacted Electronic Signatures in Global and National Commerce Act (ESIGN). The report states that "it is reasonable to conclude that, thus far, the benefits of the consumer consent provision of ESIGN outweigh the burdens of its implementation on electronic commerce . . . It preserves the right of consumers to receive written information required by state and federal law. The provision also discourages deception and fraud by those who might fail to provide consumers with information the law requires that they receive." The report further concludes that ESIGN's reasonable demonstration requirement "appears to be working satisfactorily at this stage of the Act's implementation," and recommends that Congress take no action at this time to amend the statute.

ESIGN ensures that contracts entered into electronically will be legally effective and valid, and that consumers who enter into contracts electronically have the same protections they have when contracting in the "brick and mortar" world. To preserve these consumer protections, ESIGN mandates that information legally required to be in writing can be made available electronically to a consumer only if he or she affirmatively consents to receive the information electronically, the business clearly and conspicuously discloses specified information to the consumer before obtaining his or her consent, and the consumer's consent is conveyed in a manner that "reasonably demonstrates" that the consumer can access information in the electronic form that will be used to provide the information that is the subject of the consent.

To determine the impact of the reasonable demonstration requirement on both consumers and businesses, Congress tasked the FTC and NTIA with submitting a report within 12 months of the Act's enactment addressing any benefits provided to consumers by the procedures required by Section 101(c)(1)(C)(ii), and any burdens imposed on electronic commerce by the requirement; whether the benefits outweigh the burdens; whether the absence of the procedure required by Section 101(c)(1)(C)(ii) of the Act would increase the incidence of fraud directed against consumers; and suggesting any revisions of the provision deemed appropriate. The agencies solicited comments from the general public, consumer representatives and the electronic commerce business community to address these questions. They also held a public workshop on April 3 of this year to provide interested parties an opportunity to develop and exchange their views.

The data collected, which were summarized and analyzed in the report released today, show that the general consensus of the workshop participants and commenters was that not enough time has passed since the law took effect to: 1) allow consumers or businesses to experience the full effect of the provision; 2) develop sufficient empirical data to evaluate quantitatively whether the benefits of implementation outweigh the burdens; and 3) determine whether the lack of the type of procedure required by the consumer consent provision would lead to an increase in deception and fraud against consumers.

However, based on the information collected, the agencies do conclude in the report that thus far the benefits of the provision outweigh the burdens of its implementation on electronic commerce and that the provision appears to be working satisfactorily at this stage of the Act's implementation. Finally, almost all participants in the agencies' study recommended that, for the foreseeable future, "implementation issues should be worked out in the marketplace and through state and federal regulations" and that "Congress should take no action at this time to amend the statute."

The Commission vote to approve the report and transmit a copy to Congress was 5-0.

Copies of the joint agency report are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. P004102)