Consumer credit agreements

Section 61 says that a regulated agreement is not properly executed unless a “document in the prescribed form... is signed in the prescribed manner both by the debtor… and by or on behalf of the creditor…”

The Act does not give any further guidance on what is meant by “signed in the prescribed manner”.

The Act was amended by the Consumer Credit Act 1974 (Electronic Communications) Order 2004 (the “Order”) to permit the use of electronic communications. Although many changes were made under the Order, no amendment was made to section 61 of the Act.

It is therefore unclear whether a credit agreement regulated by the Act can be concluded by way of an electronically generated signature.

Are electronic signatures valid under general contract law?

There is a strong case to suggest that electronic signatures are valid under general contract law. However, whether concluding a contract by an electronically generated signature is valid and binding in law has not been tested in court. Nevertheless, and in the light of the growing popularity of e-commerce, it is likely that such a signature would be valid under general law.

A signature does not have to be made using a pen and handwriting. In the case of Goodman v J Eban Limited [1954] 1 QB 550 it was held that a rubber stamp can act as a signature. As long as a mark is made to indicate an intention to be bound then this appears to be sufficient. Whether this could be extended so that clicking an acceptance button is enough to evidence this intention is not known, but it would appear that this could be so. The Electronic Communications Act 2000 (under which the Order was passed) stated at Section 8(2)(c) that its purpose is to allow the use of electronic communications in place of “the doing of anything which … is required to be or may be authorised by a person’s signature”.

Are electronic signatures valid under the Act?

A more difficult issue to address is whether electronic signatures are valid under the Act and the Consumer Credit (Agreements) Regulations 2010 (the “Regulations”).

There is no clear statement in the Act or the Regulations that electronic signatures are the equivalent of signing – which is required under the Act – and can be used to conclude regulated agreements. However, it would appear from the Regulations that its intention is to allow the use of electronically generated signatures to ‘sign’ agreements, and that such agreements can be concluded on-line. The Regulations provide:

“Where an agreement is intended to be concluded by the use of an electronic communication nothing in this regulation shall prohibit the inclusion in the document of information about the process or means of providing, communicating or verifying the signature to be made by the debtor.”

What are the risks of using electronic signatures?

Evidential risks of not holding original paper document

There are certain risks with not holding an original paper document. A creditor may be required to provide proof that a “signature” has been made, that certain terms of a credit agreement exist, or even that an agreement exists at all. If no original paper document exists then it will be necessary to extract information from an electronic database.

Information from a database can be a document for the purposes of the Civil Procedure Rules but it is vital that creditors have an adequate audit trail that leads to a true copy of the original, confirming the terms of the agreement and that the agreement has been “signed” by both parties and the date of the agreement.

Fraud

There are two forms of electronic signature that can be adopted:

1. “Electronic Signature”: This is where the customer simply clicks or types their name and clicks an “I Accept” button on the screen.

2. “Advanced Electronic Signatures”: This is where the electronic signature is issued with a certificate of authenticity. The Electronic Signatures Regulations 2002 set up and regulate the market of providers of these certificates of authenticity. However, we believe that Advanced Electronic Signatures are unlikely to have mass appeal in a Consumer Credit arena.

There are more risks with following route (1) as it is impossible for a creditor to know exactly with whom it is dealing. Perhaps a creditor’s credit checks are rigorous enough to satisfy it of most identity issues but this is unlikely to be of much comfort against a determined identity thief. However, this risk is probably no greater than through any other way of concluding a contract, especially in a distance selling context.

Conclusion

Executing regulated agreements by electronic means does appear to be permitted, however, the Act still calls for such agreements to be “signed”, so the matter is not entirely without doubt. In any event, if creditors do decide to conclude agreements on-line, they will have to be alert to the evidential risks of so doing, and to the risks of fraud.