House Finance Subcommittee Approves E-SIGN Act

(July 22, 1999) The House Finance Subcommittee approved by unanimous voice vote an amended version of HR 1714, a bill providing for the acceptance of electronic signatures. The subcommittee amended Title III, pertaining to electronic records and signatures used in securities trading.

HR 1714, the Electronic Signatures in Global and National Commerce (E-SIGN) Act, provides for the acceptance of electronic signatures in interstate commerce. Title III of the bill covers securities markets. The House Commerce Committee's Subcommittee on Finance, which has jurisdiction over Title III of the bill, adopted an amended version of Title III on Wednesday morning, July 21. The Telecom Subcommittee has yet to mark up Titles I and II of the bill.

"Today we will be considering a narrow piece of legislation that will actually help promote the growth and development of electronic commerce," Rep. Tom Bliley (R-VA), the Chairman of the House Commerce Committee. "This legislation establishes an equivalence between a written signature and an electronic signature and between a written record and an electronic record. This is a simple law designed to allow electronic commerce transactions to be conducted fully online with full legal recognition of any contract or agreement entered into online."

Rep. Mike Oxley (R-OH), the Chairman of the House Finance Subcommittee, presided at the hearing. Rep. Oxley is one of the original cosponsors of HR 1714.

Rep. Oxley

Rep. Oxley described Title III of the bill. He said that it "is designed to meet the specific needs of electronic brokerage. One goal is to allow customers to open accounts online without the need of physically signing a brokerage agreement and mailing it back to the broker. Title III of the legislation modernizes the securities laws by providing that requirements for a writing can be satisfied by an electronic signature with just a click of a button. The legislation does not endorse any particular electronic authentication technology. We think the market is the best place to decide that."

There are differences between the original version of Title III, and the amended version offered by Rep. Oxley at the markup. First, the Oxley amendment includes a provision which empowers the Securities and Exchange Commission to promulgate regulations that require paper signatures in connection with trading of penny stocks.

The new language reads: "the Commission may require that contracts, agreements, or records relating to purchases and sales, or establishing accounts for conducting purchases and sales, of penny stocks be manually signed, and may require such manual signatures with respect to transactions in similar securities if the Commission determines that such securities are susceptible to fraud and that such fraud would be deterred or prevented by requiring manual signatures."

Second, the new version adds a provision providing for the validity of electronic signatures in contracts between "brokers, dealers, transfer agents, investment advisors, and investment companies" and their customers.

The hearing proceeded quickly and smoothly. No one expressed opposition to the bill or any part of it. The Telecom Subcommittee held a hearing on HR 1714 last month.

Rep. Ed Markey (D-MA) also spoke in favor of the bill. He suggested that the preemption language of the bill may need some work. Rep. Anna Eshoo (D-CA) has introduced another electronic signatures bill, HR 1320 IH, the Millennium Digital Commerce Act. HR 1714 provides for strict preemption of state law; HR 1320 does not. Rep. Eshoo is not a member of the Finance Subcommittee, so she did not participate in the mark up.

Rep. Edolphus Towns (D-NY), the Ranking Minority Member of the Subcommittee, was not present. Rep. Ralph Hall (D-TX) sat in his place, and read his opening statement. It troubled him to read the line about the greatness of New York City.

The Oxley amendment, and the bill as amended, were both approved by a unanimous voice vote. The members of the subcommittee who were present for the vote were Tom Barrett (D-WI), Tom Bliley (R-VA), Lois Capps (D-CA), Diana DeGette (D-CO), Robert Ehrlich (R-MD), Greg Ganske (R-IA), Ralph Hall (D-TX), William Luther (D-MN), Ed Markey (D-MA), Mike Oxley (R-OH), Bobby Rush (D-IL), Bart Stupak (D-MI), and Heather Wilson (R-NM). Brian Bilbray (R-CA) participated in the meeting, but was not present at the time of the vote.