Online Credit Applications: Doing It Right
Originally Published: March 2013
Since the creation of the World Wide Web (WWW) in 1989, the Internet has radically changed how we receive information, learn, interact, buy and sell. In December 2012, total Internet users worldwide reached a staggering 2.4 billion. (More information and links available at the end of this article.)
Online Credit Applications
There are a number of advantages and issues that need be considered in transforming your paper credit application into an effective and enforceable electronic document.
Advantages of an Online Credit Application
- Customers cannot submit incomplete forms. Online documents can be constructed so that certain fields are “required”. Every field you consider vital to the application can be coded so that the potential customer cannot submit the application without completing them.
- Saves you time and expense. There is no need to re-key information from paper documents. The difficulties of reading a person’s handwriting are also eliminated.
- Reduced paper and postage costs. Email is much less expensive than “snail mail”. Yes, there are the up-front costs — hardware, software, an Internet connection and email hosting, but in the long run, the cost over standard mailings is considerably less.
- Turn-around time is faster than mailing the application and follow-up is easier and more efficient.
Developing an Online Credit Application
- The credit application should not require customers to have or use special software. They should be able to complete the form with a web browser.
- It should be easy for the customer to fill out. Consider using drop-down boxes where possible.
- It must be clear which required field has not been completed.
- An option for uploading documents should be included.
- The credit application should be legally enforceable in the case of dispute. Legal enforceability is key when developing an online credit application.
- Agreement: an offer by one party and acceptance by another.
- Consideration: something of legal value by one party exchanged for something of value by the other party. With an e-credit application, the creditor offers the potential of a sale on “open account” in exchange for an order for products or services.
- Contractual capacity: both parties must have the requisite legal authority to enter into a contract.
- Lawful object: the goal of the contract must be lawful.
Two pieces of legislation provide the basic requirements for electronic signatures: E-SIGN Act and UETA.
- Paper contracts and contracts in electronic form
- Handwritten signatures and electronic signatures
- Other legally required written documents and their electronic counterparts
The Uniform Electronic Transactions Act (UETA) represents the first effort at providing some uniform rules to govern state transactions in electronic commerce. The rules of UETA are primarily for “electronic records and electronic signatures relating to a transaction …”. It was designed “to facilitate and promote commerce and governmental transactions by validating and authorizing the use of electronic records and signatures and to promote uniform electronic transaction laws among the states. It is also designed to be consistent with other applicable law.”
To date, 47 U.S. states, the District of Columbia and the U.S. Virgin Islands have enacted the code or individual versions of it. The other three states, comprising Washington, Illinois, and New York, as well as Puerto Rico introduced it as a bill this year.
Types of e-Signatures
There are basically two types of e-signatures: electronic and digital. While the terms are often used by laypersons as interchangeable, legally they are very different.
However, electronic signatures may fail to be admissible or enforceable due to weaknesses in authentication or security.
To be admissible and to help ensure the enforceability of the e-contract (or e-credit application), the e-signature should have four components:
- Method of signing
- Data authentication
- User authentication
- Capture of intent
Digital signatures are preferred for use by many businesses as they include the four components listed above.
Digital signatures authenticate the identity of the sender of a message or the signer of a document, and they can also ensure that the original content has not been changed. They often include bank-level encryption technology and unique bits of personal data to ensure security and verifiability. Digital Signatures are easily transportable, automatically time-stamped and cannot be imitated by others.
Since digital signatures do require sophisticated software, businesses usually utilize a third-party e-signature provider.
An essential part of any credit application is the personal guarantee. We recommend that every credit application – paper or electronic – include one.
Requirements for Enforceability of an Electronic Personal Guaranty
To successfully bring a breach of guaranty claim requires that the creditor:
- Link the guarantor to the electronic credit application and guaranty.
- Identify the person signing the guaranty.
- Ensure the person is signing individually and confirming his intent to be bound by the guaranty.
- Confirm that the personal guaranty links to the related debt.
Additional Information re: the Inception and Growth of the Internet