Dealers stick with pens amid legal confusion

Despite federal and state laws allowing electronic signatures for online vehicle transactions in most states, many dealers stick to pen and paper rather than risk legal liability, industry experts say.

The federal Electronic Signatures in Global and National Commerce Act, or ESIGN, enacted in 2000, permits e-contracting of auto sales. And 47 states and Washington, D.C., have Uniform Electronic Transaction Act laws, giving e-signatures legal authority, said Michael Charapp, a dealer lawyer with Charapp & Weiss in McLean, Va.

But in California, where the most vehicles are sold in the U.S., laws are murky for dealers.

California's 1999 transaction act law allows digital signatures for transactions, but it exempted vehicle sales and lease contracts, meaning a wet signature is required in those cases, said Brian Maas, president of the California New Car Dealers Association.

Many lawyers believe the federal law pre-empts contradictory state law, Maas said, but there is confusion in California.

"Because there's been no definitive ruling about whether the federal ESIGN Act pre-empts California law, it's kind of up in the air," he said. "We've got a number of members who are like, 'I don't need another lawsuit, thank you very much. I'm going to resist doing digital signatures,' even though captive finance companies and lots of third-party vendors are pushing very hard to get them to do that. Frankly, many dealers would like to do it."

The California dealers association supported legislation in 2016 and 2017 that would have allowed dealers to offer buyers the option of signing their conditional sales contracts and lease agreements electronically, but both bills stalled in the Legislature, Maas said.

In 2015, President Barack Obama signed the Fixing America's Surface Transportation Act, allowing states to decide whether to allow electronic signatures on odometer forms. And in March 2016, NHTSA issued a proposed rule on federal odometer statements that would permit states to allow electronic odometer disclosures. But the agency has yet to issue a final rule.

Many dealers are waiting for that final ruling, which could clear the way for a uniform electronic titling system, Charapp said.

Meanwhile, some states such as Texas are taking proactive moves to eliminate paper forms.

In 2013, Texas launched an electronic title system for licensed Texas dealers called webDealer, which allows dealerships to electronically submit odometer disclosures and title applications, said Clint Thompson, chief of title services for the Texas Department of Motor Vehicles.

And on Jan. 1 this year, Texas adopted a law to allow dealers to use third-party systems to capture electronic signatures on certain documents, such as titles, and upload them to webDealer, he said. Or customers can sign electronically on an iPad at the dealership for use on state documents, Thompson said.