Maintaining compliance in the shift toward digitization

The COVID-19 pandemic accelerated the shift to digital contracting, and automotive and powersports lenders are implementing the programming and vendor relationships required to ensure electronic signatures result in binding contracts.

The enforceability of e-contracts is being scrutinized in the courtroom more than a year after lenders rushed to implement online transactions, Nisen & Elliott Partner David Gemperle said at the Powersports Finance Summit in Las Vegas.

“In the case of e-sign, the pace of technological development and business ingenuity is moving faster than the law,” McGlinchey Stafford Member Jason Bichsel said, noting that lenders can implement the necessary procedures to create enforceable digital contracts.

By implementing the right vendors, e-signature technologies and electronic programs, lenders can prepare themselves to stay ahead of the compliance curve when shifting to digital, attorneys said.

Courts are paying close attention to the need for a singular authoritative copy of every e-contract, Bichsel said. Altering digital contracts “is a very real concern and you have courts scrutinizing the process,” he said. Lenders can look to third-party hosts to store the authoritative copy of a contract, eliminating the risk of potential alteration.

Courts are also focused on disclosures being presented at the appropriate time during the contracting process, Bichsel said. When designing e-contracts, lenders can program them to be filled out in a particular order with the appropriate amount of time available for reading and signing in order to remain compliant.

Lenders can then prove that a “consumer read and understood what they were doing” when they went through a digital financing process with precautionary actions in place to protect them from the risk of nonbinding digital agreements, Bichsel said.