CFPB Taskforce on Federal Consumer Financial Law proposes changes to ESIGN

On January 5, 2021, the Consumer Financial Protection Bureau (CFPB) released a report with recommendations on how to improve consumer protection in the marketplace. The report consists of two volumes: the first volume examines the context of consumer finance and regulation today, while the second volume focuses on the Taskforce’s recommendations. This Insight discusses the report’s review of ESIGN and the Taskforce’s recommendations.

The Taskforce focused its review of ESIGN on the necessary consumer consent requirements that are triggered when a statute, regulation, or other law requires that information be provided or made available to a consumer “in writing.” Of these consent requirements, the Taskforce primarily focused on the need for “reasonable demonstration” that the consumer can access the required information in the format in which it is provided.

The Taskforce stated that while “these requirements may have appeared flexible and accommodating to changes in technology… [ESIGN] has nonetheless created hurdles to providing electronic notices that may not substantially benefit consumers.” It then offered example of where, under the Truth in Lending Act, one provision allowed for statements to be delivered “in writing or electronically,” thus not triggering the consumer consent requirements, whereas another provision required statements be provided “in writing,” thus triggering the consumer consent requirements. The Taskforce stated that “[i]t is difficult to see how consumers benefit from the applications of these diverging regimes.”

In the second volume, the Taskforce made three primary recommendations for improving ESIGN:

• Congress should revise ESIGN such that “antiquated” requirements such as required hardware and software disclosures and requiring “reasonable demonstration” be eliminated (see our prior coverage of the E-SIGN Modernization Act of 2020, which proposed eliminating the “reasonable demonstration” requirement). The Taskforce more generally recommended that Congress consider revising the ESIGN consent process - and presumably solely the consumer consent process - to allow a simple statement of consent to conduct transactions electronically or allow consent through an inference based on the circumstances of the transaction.
  
  
• Pending any congressional action, the CFPB should provide guidance on what constitutes “reasonable demonstration.”
  
  
• Pending any congressional action, the CFPB should review its rules that require information to be provided “in writing” and consider amending the rule, where allowed by the enabling law, to allow for electronic disclosures.
  

With the recent change in CFPB leadership, however, it is not clear whether these recommendations will be pursued.