The Signature Tsunami: A Gathering Storm
When any significant, confirmable interaction occurs, the signature is probably the most critical aspect of the transaction. Every document of importance (whether it relates to a business deal, a legal process or agreement, or even a private arrangement) requires a signature at the bottom. It confirms that the signer has read—or written—that document, and agrees to the terms presented within it. Without such an assurance, these documents would serve no legitimate purpose, and would have no ability to resolve disputes.
With more and more of the world’s interactions moving to online spaces, it is logical that important documents and the signatures that accompany them should follow into a format that fits this trend. Major and minor transactions and agreements are now often completed from opposite sides of the planet, and need to be verified to the same degree as they would be if they took place locally.
The problem, however, is that the relative anonymity of the Internet rids these interactions of the types of authentication that are present when documents are signed face-to-face. When a person signs a piece of paper, their signature takes the form of their individual handwriting style. Each person has a signature that is slightly different from everyone else’s, and so each signature carries some level of confirmation that the correct person has signed the document in question.
However, electronic signatures in their current form do not provide such verification. When a person signs a document online, they simply type their name into a form and click a button. Unlike paper signatures, there is nothing similar to handwriting style that provides evidence that the signer is who they say they are. Anyone could type any name they please into an online form, and there is no way to tell if the signer is who they claim to be.
Because of this major flaw, electronic signatures present a serious threat to every person who utilizes them in their current form, in a wide variety of contexts. Property managers could discover that their renters are not who they said they were, and can’t actually pay their rent. Banks could find that they have loaned money to the wrong person and won’t be repaid. An individual buying a house might have their title improperly signed, causing them to agree to pay hundreds of thousands of dollars more for their house than they should have. A defense lawyer could be at risk of someone signing a confession, relegating a client to a sentence that he or she does not deserve. People’s lives and livelihoods are on the line every time an important document uses an e-signature, and it’s only a matter of time before this vulnerability turns into an epidemic.
Fortunately, an alternate technology called digital signature is able to cover the important hole in the currently popular electronic signature format. Digital signatures use digital certificates in the form of a public key and a private key, which are assigned to each individual user. These certificates are attached to the user’s personal information and verified by a third party, called a certificate authority. This process creates an irrefutable link between the owner of the digital signature and the signature that they provide online, creating a defense against false contract signatures that is, in some ways, even more robust than the verification provided by handwriting analysis. With this process, the potential for electronic signatures to collapse the entire system of contractual legitimacy is almost entirely eliminated.
The importance of proper signature attribution was demonstrated by the buildup to the 2010 Foreclosure Crisis in the United States. Between 2004 and 2009 Linda Green, a former employee of a mortgage company called DocX, supposedly signed over two million documents. It was later discovered that many employees of the company were signing her name on important mortgage documents without reading them, a practice that was later referred to as “robo-signing.” As a result of these employees’ inattention, large numbers of foreclosures were incorrectly carried out, putting multiple banks on the hook for billions of dollars in damages and unfairly putting compliant homeowners out on the streets. The responsible employees were never punished, because their signatures could not be properly attributed to their signers. The only reason that anyone even discovered that multiple employees were responsible in the first place was because “Linda Green” was signed in a variety of handwriting styles. With the electronic signature format, this pattern of misconduct may never have been uncovered at all.
Despite the massive impact that the Foreclosure Crisis had on the economy in the United States and around the world, nothing was ever done to prevent a similar problem from occurring again. Robo-signing may still be happening, and the adoption of electronic signatures could make that even more difficult to expose. Despite American inaction, some other technological leaders have begun to address the danger that e-signatures pose: India’s high court recently ruled that only digital signatures can be recognized as legally binding, and the European Union is currently developing similar legislation. Both have begun taking steps toward securing a future of online interaction that doesn’t threaten the entirety of the economy and legal system. The United States, on the other hand, has jumped headfirst into the adoption of electronic signatures.
The one sector that has begun to recognize the importance of digital signatures is that of electronic notarization. Eighteen states have adopted e-notary laws that require digital signatures for authorization. Notarization is a strong second line of defense against false contract signatures, and it’s therefore important that they are safe from this phenomenon. But not every document requires notarization, and those that don’t still run the risk of forgery. The first line of defense is far more important than the second, and it’s therefore illogical that the second is now so much more protected in a large part of the United States. However, the fact that digital signatures have been adopted in the notarization industry on such a wide scale indicates that the format does hold a significant advantage over e-signatures, and provides evidence for the necessity of a change in how online documents are signed.
Until digital signatures become more prevalent, every online document and transaction—and every person and entity involved in them—is at constant risk of exploitation. There is a constant threat of a major meltdown in the worldwide Internet economy, or a legal disaster in which massive numbers of contracts become null and void. Fortunately, the solution already exists. All that’s left is its implementation. But for now, the threat of a large-scale disaster continues to loom.
Category: Digital Signatures