Fostering Digital Documents

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Louisiana legislation offers extra safeguards for electronic records

By David Boneno

Information and communication technology continues to advance, and banks continue to adopt the use of technology to increase efficiency and provide better service to their customers. One particular area where community banks are looking to use technology involves the creation of electronic records containing electronic signatures. This is where the original document is created on a computer and signed using an electronic signature and where there is no original paper document with a handwritten signature.

While technology may make the use of electronic records and electronic signatures possible, community banks need to make sure that such electronic records are legally enforceable. In 2001, the Louisiana legislature enacted the Uniform Electronic Transactions Act, which recognized the enforceability of electronic signatures and electronic records, and established the ability of parties to agree to contract certain types of agreements electronically. One year earlier, Congress enacted the federal E-Sign Act to facilitate the use of electronic signatures and electronic records in interstate commerce. However, the federal law has remained unclear as to how and when a bank or other financial institution can rely upon and judicially enforce an electronically created record. To provide some clarity in the law, the Louisiana Bankers Association earlier this year brought legislation to address some of these issues in Louisiana. The LBA’s efforts resulted in Act 84, which was signed by Gov. Bobby Jindal in June. (For more information about Louisiana legislative issues, see feature “Improving State Statutes”)

Act 84 establishes a procedure for submitting an electronic record as evidence in a court of law. The procedure requires that a record containing an electronic signature or a reproduction of a document containing an electronic signature be accompanied by a certification for it to be admissible into evidence as an original. A representative of the financial institution or an assignee must sign the R.S. 13:3733.2 certification, verfiying that the person’s signature is a genuine electronic signature. In addition, if the document is an obligation sought to be enforced, the certification includes language that the person is entitled to enforce the obligation.

For example, if a community bank needed to file suit to enforce an electronically signed promissory note, the authorized bank representative would prepare a certificate in accordance with the new statute and include it with the electronic note when the bank submitted it to the court as evidence of the debt. Unlike a handwritten signature on a piece of paper, an electronic signature may not always be unique or distinguishable. The certification helps to provide a layer of protection.

This legislation may be helpful to financial institutions in Louisiana, but some caution still should be used before completely relying on electronic records. The new law still needs some time to become seasoned. Once courts have demonstrated that they will consistently recognize electronic records as evidence, then financial institutions can more comfortably rely on them.

There may be additional factors to consider when using electronic records. For example, if the product is a secondary market loan, make sure that the investor will accept electronic loan records. In addition, if your bank might use certain loans as collateral to secure Federal Home Loan Bank borrowings, be sure to check with the bank to confirm that it will accept electronically created loan records.

Unlike a handwritten signature on a piece of paper, an electronic signature may not always be unique or distinguishable. The certification helps to provide a layer of protection.

Act 84 represents a step forward in the law to support the use of electronic records, but additional changes are still needed. Unfortunately, the law does not always move as fast as technology. Going forward, the Louisiana State Law Institute will be study and make recommendations relative to possible legislation to establish standards and procedures for the electronic notarization of documents.

Other practical considerations remain, such as whether all of our state’s parish or county clerks of court have the technology to accept electronic property records for filing, including those for mortgages and conveyances. Some rural-area parish or county clerks of court have limited budgets and are unable to upgrade needed technology. Limited Internet bandwidth in rural areas is also a challenge. While information technology seems to be evolving at a fast pace, changes to the law and infrastructure take more time.


David Boneno (boneno@lba.org) is general counsel for the Louisiana Bankers Association in Baton Rouge, La.

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