Panelists Stephen Bisbee, founder of eOriginal; Bob Cohen, partner of Moritt Hock & Hamroff; and Dominic Liberatore, deputy general counsel of DLL, hosted an hour-long discussion moderated by Wendy Hurwitz, marketing director of eOriginal. The webinar was a follow-up to two previous ELFA webinars presented by this panel and addressed follow-up questions from previous sessions as well as questions posed during the new presentation.
Bisbee kicked off the webinar with an overview of topics examined during the panel’s Dec. 2 webinar, including COVID-19 as a digital adoption accelerator; emerging digital trends for consumers and funders; methodologies for digitizing the lending process; risk management in a digital world; laws that are applicable for the creation, sale or assignment and management of digital leases; as well as how to make an e-signature implementation successful.
To better understand how e-signatures and e-leases work in equipment finance, here are five highlights from the webinar.
Equipment finance companies are recognizing the benefits of e-signing and e-leasing.
In addition to the need for contactless, digital transactions during the COVID-19 pandemic, e-signing and e-leasing have numerous long-term advantages over traditional wet-ink-signed paper documents. When set up properly, they create greater efficiency through time-saving contract signings that can be completed in minutes instead of hours. Digital processes do not allow signing to continue until all signature and initial fields are completed correctly. Anecdotal reports suggest that cost savings from eliminating overnight delivery charges more than offset the cost of adopting e-signatures. Customers can enjoy greater convenience since documents can be sent to multiple people in different places at the same time. In addition to these practical benefits of electronically signed documents, Cohen also addressed them from a philosophical point of view.
“e-signatures are the future, and equipment finance companies need to keep up,” Cohen said.
Upcoming generations are accustomed to and expect the convenience of digital transactions, whether in the form of a paper-based lease that the lessee e-signs or a true electronic lease that is e-signed by all parties and is then stored in a Uniform Commercial Code (UCC)-compliant e-vault. Financing sources want to be viewed as smart and forward-looking, not as dinosaurs.
E-leases are not simply copies of ink-signed documents.
The process by which digital documents are electronically signed, stored and managed distinguishes them from photocopies or scans of lease documents. E-signature platforms use a front-end vendor to authenticate and verify the identity of the person who signed the document. E-signed documents are electronically signed by both parties in the transaction to create e-chattel, which is stored in an e-vault, unlike scanned copies. The process of e-vaulting a document within a secure, trusted environment fulfills the legal and regulatory requirements for uniqueness and negotiability of the document as a digital financial asset.
Digital documents are enforceable by three material statutes.
Digital documents are enforceable by the Electronic Signatures in Global and National Commerce Act (E-SIGN), the Uniform Electronic Transactions Act (UETA) and Article 2A of the UCC.
E-SIGN is a federal law designed to ensure the validity of electronic signing and contracting. It creates a national regulatory framework by preempting non-uniform state versions of the UETA.
UETA is a model state law designed to enable the general legal enforceability of digital signatures and records. UETA ensures that an electronic signature, contract or other record can be valid and enforceable. UETA has been adopted in 48 states (excluding New York and Illinois, which have separate statutes that are generally similar in design). E-SIGN specifically provides that the UETA statute is recognized and enforceable.
UCC Article 9-105 sets forth rules for digital records as electronic chattel paper for non-real estate assets and was the first law to apply “control” rather than possession for the priority of security interests under the UCC.
Electronic documents are subject to the same challenges to enforceability as paper contracts.
Whether a lease is ink- or e-signed, if a document must be enforced in court, it must be proven that the correct person signed it. For ink signatures, handwriting experts may be used to examine other signature samples (e.g., driver’s license, voter registration card, etc.) from the signee. With e-signatures, multi-factor authentication of the person signing the document enables the verification of the person’s identity as well as their intent to enter the contract. Sending a text message with a one-time and time-limited code to a person’s phone is a popular authentication process. Knowledge-based questions that ask about situations that are not current are another form of verifying a person’s identity. For example, questions such as, “Have you ever lived at a certain address?” cannot be answered by an “out-of-the-wallet” test in case a person’s ID and credit cards have been stolen.
If you don’t have a fully e-signed lease, it can still be converted into e-chattel paper.
As Liberatore explained, if an existing lease is ink-signed or one of the parties did not e-sign, there is a proprietary process to convert it into “full-blown” e-chattel paper in compliance with UCC rule 9-105. Paper In can create an original e-chattel document from the original paper document (not a scan or copy). When creating a new original electronic document, it is critical that the ink original be destroyed (or permanently marked to indicate that it is not the authoritative copy) since there cannot be two originals. Conversely, when you Paper Out or convert an asset from digital to an enforceable paper document, the electronic original document must be destroyed.
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