The recent case of Bassano v Toft & Ors  EWHC 377 (QB) (“Bassano”) confirms that credit agreements regulated by the Consumer Credit Act 1974 (the “Act”) can be validly concluded by way of electronic signature.
There has been long standing ambiguity surrounding this question since neither the Act nor the subsequent Consumer Credit Act 1974 (Electronic Communications Order 2004) (the “Order”) provided any guidance in respect of what is necessary to properly execute a regulated agreement. The judgment in Bassano is therefore welcomed.
It has long been the case under section 61 of the Act that regulated agreements need to be physically signed by the customer and by or on behalf of the creditor.
Section 61 of the Act 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.”
Although the Act was amended in many instances by the Order, namely to permit the use of electronic communications, the opportunity to clarify whether an electronically generated signature could conclude a regulated agreement was not taken.
It therefore remained unclear whether a credit agreement regulated by the Act could be concluded by way of an electronically generated signature.
However, the Consumer Credit (Agreements) Regulations 2010 (the “Regulations”) offered slightly more insight. Whilst there was again no clear statement that electronic signatures are the equivalent of physical signature, it appeared that there was an intention to allow the use of electronically generated signatures to ‘sign’ agreements, and that such agreements could be concluded on-line (see bullets below).
The Court’s findings in Bassano
Mr Justice Popplewell made the following key remarks in his Judgment:
- “There is therefore nothing in the Consumer Credit Act 1974 to suggest that regulated agreements should not be capable of electronic signature; and I can see no reasons of policy why a signature should not be capable of being affixed and communicated electronically to an agreement regulated by the Act.”
- Regulation 4(5) of the Regulations made it clear that in the context of agreements concluded electronically, the requirement to ‘sign’ an agreement as prescribed by Regulation 4(3) in the space provided did not prevent the inclusion of information about the ‘process or means of providing, communicating or verifying the signature to be made by the debtor.’
- As such, there was nothing in the Act to prevent the execution of agreements electronically.
- A signature need not consist of a name, but may be of a letter by way of mark, even where the party executing the mark can write.
- Providing it is the space in the document indicated for the purpose, ‘I Accept’ can therefore constitute a valid signature because the word ‘I’ can be treated as unambiguous of the person agreeing to be bound by the terms of the document.
It should also be noted that the Court made clear that had it not taken this approach – therefore meaning that the agreement was improperly executed for the purposes of section 65 of the Act – it would in any event have exercised its powers to grant an order in favour of the lender having regard to section 127 of the Act on the basis that the defect was purely technical and the Claimant suffered no prejudice as a result.
Risks of using electronic signatures
Evidential risks of not holding original paper document
There remain 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.
There are two forms of electronic signature that can be adopted:
- “Electronic Signature”: This is where the customer simply clicks or types their name and clicks an ‘I Accept’ button on the screen.
- “Advanced Electronic Signatures”: This is where the electronic signature is issued with a certificate of authenticity. The Electronic Signatures Regulations 2002 was set up to regulate the market of providers of these certificates of authenticity. However, Advanced Electronic Signatures do not 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.
Bassano has confirmed that agreements regulated by the Act may be executed by electronic signature in the space provided for the purpose, which will be of interest to lenders entering into agreements electronically. However, creditors must still be alert to the evidential risks and risks of fraud, therefore ensuring that they have adequate systems and processes in place to ensure that they can verify the identity of the person entering into the agreement, if they elect to conclude agreements on-line.