Are Virtual Signatures Legally Binding?

Howard Schulman

Technology is changing how businesses are conducting their activities. Not so long ago, businesses would need people to sign on their documents manually. However, things are changing. More businesses are embracing the concept of virtual signatures. Virtual signatures are becoming popular because they are secure, traceable, and can assist the organization to save time. The value of transactions that used virtual signatures in the last five years has increased by $754 million. Despite the popularity of these signatures, one might still have questions about their validity. Do virtual signatures pose the same legal status as traditional signatures? Read on to find out.

Background on the Legal Status of Virtual Signatures

Virtual signatures refer to an electronic sound, symbol, or process parties attach to a contract. In the year 2000, the E-sign and the UETA Acts developed a criterion for validating virtual signatures for electronic documentation.

These laws required that the following criteria had to be met for eSignatures to be legally binding:

  1. Consumer Disclosures

Organizations need to make certain disclosures before they obtain consent from a consumer. The consent gives them legal permission to rely on a virtual signature. The organization needs to first inform the consumer of any right to have the transactions provided in paper or a non-electronic form.

The entity should also inform the consumer of their right to withdraw consent. Stakeholders need to make the consequences of withdrawing clear to the consumer. The organization has the mandate of informing the consumer of the procedures of withdrawing consent or updating their information.

Additionally, a company needs to clarify if the consent will affect a single transaction or multiple transactions. Lastly, the firm will need to notify the consumer how nonetheless they can get paper copies of the transactions and if any charges will apply for this service.

New call-to-action

2. Record Retention

The Uniform Electronic Transactions Act requires organizations to maintain accurate electronic records. These records should reflect the information contained in their business contracts, notices, and disclosures. The recordings should also remain accessible to all people who have permission to access them. The law will stipulate the period of accessibility for all the parties. Furthermore, the records should be in a form which the parties can reproduce for later referencing.

3. Consent

The Act requires that consumers provide consent. Consumers can confirm their consent through writing or electronically. The consumer’s consent should be provided in a manner that demonstrates they can access the subject of consent in an electronic form. If a consumer provides oral consent for an electronic signature, the contract will be null. The Act also stipulates that oral communication cannot qualify as an electronic record. It does not matter if the consumer records oral consent in an electronic device.

4. Notice of Changes

Organizations should provide consumers with statements before they shift to virtual signatures. The statement will show the software and hardware requirements that consumers need. These tools will help consumers access and retain electronic records. Sometimes the organization can change its software and hardware facilities. The consumer can be a material risk of not accessing the information if this happens.

The organization must, therefore:

  • Provide the consumer with a revised statement of the new hardware and software requirements for accessing the information
  • Provide the consumer with a statement indicating they have a right to withdraw their consent
  • Provide a statement which makes it clear that the consumer will not suffer any financial or legal consequence because of withdrawing consent

Virtual Signatures Are Legally Binding

The E-Sign Act came into effect in the year 2000 and has general provisions for validating electronic signatures and records that affect foreign and interstate transactions. The Act allows the use of virtual signatures in a manner that satisfies all statutes and regulations that need the subject information to be presented in writing. So long as the consumer consents to the use of the virtual signature, the contract becomes valid.

The UETA Act validates all transactions that are used or intend to use virtual signatures on or after October 1, 2000, but only if the transactions adhere strictly to the guidelines that the Act recommends. As a result, using virtual signatures have the same legal standing as the manual signatures. No one should deny the legal effect of the virtual signature because it is in an electronic form.

The Takeaway

Virtual signatures have a legal binding because there is a statute that gives it this status. The regulations governing the use of virtual signatures in different jurisdictions vary. It is prudent that people conduct due diligence to establish how these laws work for them. It is only after understanding these laws that you can use virtual signatures for legally binding transactions.

In these times, consumers are glued to their phones. Businesses, therefore, need to be on the lookout for ways to serve these consumers who are on the go in real-time.

Lightico‘s next-generation virtual signatures are customer-centric and designed to help businesses collect documents and payments. Get to know more about Lightico’s virtual signature capabilities and how they can streamline workflow in your organization at Lightico.com

New call-to-action

New call-to-action