Consumer Banking and Payments Law: 11.2.5 Definition of “Consumer” in E-Sign for Purposes of Consumer Consent
E-Sign provides enhanced protections when applicable law requires that written records be provided to a consumer.
E-Sign provides enhanced protections when applicable law requires that written records be provided to a consumer.
While E-Sign applies to all federal writing requirements (such as consumer disclosures),76 it specifically excludes certain writings from its coverage, including important notices that are required to alert consumers to potential losses of important rights (such as cancellation of utility services, default on a mortgage contract or an eviction, or cancellation of health or life insurance).77
E-Sign and UETA exclude court documents, including records relating to court orders or notices or official court documents required to be executed in connection with court proceedings. Briefs, pleadings, and “other writings” are specifically listed as among the items regarded as included under this rubric.88 This does not prevent court filings from being filed electronically; it only means that the court and not E-Sign makes that determination.89
As a consumer protection—to ensure that consumers always receive the paper copies of these notices—Congress exempted a list of essential consumer notices from E-Sign’s coverage. In addition to E-Sign, many state enactments of UETA98 also exclude the following essential consumer notices from the rule that allows electronic records to stand in for paper writings:
[Editor’s Note: This section has been moved to § 11.2.8.4, infra.]
A California statute provides significant rights to consumers and employees when the business they are in arbitration with fails to pay initial arbitration fees, or other costs assessed on the business during the arbitration.261 The statute provides that if the business does not pay the required fees and costs to initiate an arbitration proceeding within thirty days after their due date, the business is in default and waives its right to compel arbitration.
Paperless lending is a developing issue in consumer credit. While credit transactions using electronic records and electronic signatures can provide conveniences for borrowers, they also create substantial opportunities for fraud.
Federal agencies have authority to interpret E-Sign, but the interpretation must be consistent with the statute’s rules for electronic disclosures and cannot add requirements.210 Agencies can set requirements for electronic disclosures only if they are substantially equivalent to the requirements for nonelectronic disclosures and do not impose unreasonable costs on acceptance and use of electronic records.211 Agencies also cannot require the application of a specific technology or technical spec
In the final rule, the FRB allowed three categories of TILA disclosures to be made without complying with E-Sign requirements.225 Those three categories are the following:
When Congress enacted E-Sign, it recognized the special vulnerability of consumers agreeing in the fine print of standard form contracts to the use of electronic records, and also recognized particular problems with the use of electronic records when the parties are in the same physical space and not actually communicating through the internet.
Regulation Z requires that disclosures be made in a form that the consumer can keep.247 The question is what this requirement means when disclosures required to be provided in writing are made electronically.
E-Sign does not address how electronic information should be delivered, except to say that states that pass UETA cannot circumvent the federal statute by imposing nonelectronic delivery methods. As a result, delivery methods required by TILA and Regulation Z remain in effect. While TILA’s language about how disclosures must be made was written without electronic means of transmission in mind, it still provides some safeguards.262
One subsection of the provision on E-Sign consent provides that the legal effectiveness, validity, or enforceability of a consumer contract shall not be denied solely because of the failure to obtain electronic consent or confirmation of consent.266 This language only means the failure to obtain E-Sign consent is not in and of itself sufficient to undermine the validity of the underlying contract.
The statute requires that closed-end disclosures be made “before the credit is extended.”271 Regulation Z uses the phrase “before consummation.”272 The requirement is important because the disclosures are supposed to guide the consumer in making a rational economic choice about the financial attractiveness of the transaction prior to entering into it, and to facilitate comparison shopping.273
While special timing rules have been added to TILA over the years requiring the delivery of disclosures at specific times,278 the general rule is that disclosures handed to the consumer even one second before consummation meet TILA’s requirement that the disclosures be delivered pre-consummation.279 Nonetheless, many creditors fail to deliver the documents until after consummation.280
Special timing rules that apply in closed-end consumer credit transactions secured by real property and subject to the Real Estate Settlement Procedures Act—and those governed by the TILA-RESPA integrated disclosure regime since October 3, 2015—are discussed at § 4.4.7, infra.287 Special timing rules for adjustable-rate mortgages are discussed at
Consummation is defined as “the time that a consumer becomes contractually obligated on a credit transaction.”289 For there to be consummation for TILA purposes, the consumer must be “legally obligated to accept a particular credit arrangement.”290 Whether—or when—a consumer becomes contractually and legally obligated is an issue of state law.291
The thrust of the official interpretations is that there is consummation when the creditor could successfully sue the consumer for breach of contract if the consumer defaulted on the terms. It is not enough that the consumer has made a psychological or financial investment in the transaction from which there is no return, “unless, of course, applicable law holds otherwise.”297 The example of such an investment in the official interpretations is the payment of a nonrefundable fee.
The Fifth Circuit in Clark v. Troy and Nichols, Inc.,302 as discussed above, relied on the fact that the creditor had the right to deny credit based on a subsequent credit investigation to find there was no consummation.
For some mail or telephone orders for credit sales or loans, the creditor may delay disclosures until the due date of the first payment. The following conditions must be met: