In the face of COVID-19, a growing number of equipment finance businesses are finding that being able to contract electronically is essential. For equipment finance companies looking to ramp up their e-signing and e-leasing capabilities in the current environment, the Equipment Leasing and Finance Association’s May 6 webinar, “e-Signatures and e-Leases in the COVID-19 World,” outlined factors to consider. 

A total of 424 industry executives participated in the online event moderated by Dominic Liberatore, Deputy General Counsel of DLL, with panelists Stephen Bisbee, President of eOriginal, and Bob Cohen, Partner of Moritt Hock & Hamroff LLP. All three speakers have participated in ELFA’s multi-year initiative to expand the use of electronic documents and e-chattel paper in equipment finance. The association has promoted adoption of these technologies via a variety of educational offerings and an ELFA Board of Directors Task Force on e-Leasing, and the Equipment Leasing & Finance Foundation has released a number of articles and studies on the topic.

Bisbee kicked off the webinar noting an increasing number of equipment finance companies have been “jumping into the electronic world” in the last few months due to the challenges of remote execution of lease transactions in the COVID-19 environment.  He reported that between Feb. 6 and March 10 alone his company eOriginal saw a 230 percent increase in digital utilization for equipment finance transactions.

As more equipment finance companies consider how to advance their digital offerings, below are five highlights from the webinar.

1. The implementation timeline is shorter than you may expect.
It doesn’t take long to implement an e-signature platform. Implementing e-signatures—where a customer electronically signs a paper-based lease—can happen immediately. “You could begin today with a computer and a browser,” said Bisbee. Implementing full-blown e-leasing—where all parties sign a document electronically and it is sent to an electronic vault, typically by a third party—will take longer, but can be accomplished in weeks, not months.

2. Your company doesn’t need to invest in new IT infrastructure.
Implementing e-signatures and e-leasing doesn’t require heavy lifting on the equipment finance company’s part from an IT perspective. The good news is there are plenty of tools out there to enable you to move forward. While there are a lot of e-sign providers out there, make sure to choose yours carefully. Consider factors such as the provider’s name recognition and standing in the industry, size and overall viability, platform and security protections, signer authentication process and audit trail. If you plan to offer full-blown e-leases (with e-vault) later down the road, select a provider that offers that functionality. Again, name recognition and standing in the industry are very important when securitizing or syndicating.

3. Digital documents are legally enforceable.
The enabling laws and practices for e-signatures and e-leasing are established and proven. A number of laws support these practices, including:

• The Electronic Signatures in Global and National Commerce Act (E-Sign Act) is a federal law enacted in 2000. It covers UCC Article 2a leases but excludes UCC Article 3 (which includes promissory notes) and Article 9 (secured transactions)—however other provisions provide for those transactions.
• The Uniform Electronic Transactions Act (UETA) has been adopted in 47 states and does apply to promissory notes.  New York and Illinois have their own version of a similar law and Washington appears to be relying upon E-Sign.
• UCC Article 9 (covers secured transactions). Of special import is UCC 9-105 (Control of Electronic Chattel Paper) and UCC 9-330 (Priority of Purchaser of Chattel Paper or Instrument)

Current COVID-19 funding and other new legislation have not altered the enabling laws. There is a new proposed federal law that would enable remote notarization, and 42 state laws, declarations or orders have permanently or temporarily enabled remote notarization.

4. It’s critical that documents are managed properly.
There are a number of important rules regarding enforceability, transferability, authentication and execution of electronic documents. Make sure your e-sign provider uses industry standard technology to accomplish all of these. For example, the technology should:  

• Make sure you capture authentication so you have evidence of who created the instrument being signed and who signed it when, and make sure they have the rights and permission to sign. It’s common today to use multiple layers of authentication for extra security.
• Make sure the document cannot be altered.
• Make sure you have an audit trail or audit log of all the events that occur around that asset.

The enabling laws and practices for e-signatures and e-leasing outline what an authoritative copy is and where the digital original is. For example, it’s essential to have a single authoritative copy that is unique, identifiable and unalterable; have evidence of who is the secured party and who is the assignee; make sure any copies are distinguished from the authoritative copy or original; and be able to demonstrate any revisions were authorized. These are just some of the factors to consider.

Liberatore added a word of caution: In the COVID-19 world, you’ll need to determine which e-sign providers you will accept from your customers if they insist on using their own e-sign accounts. “It’s a good idea to do this upfront so you can be market responsive,” he advised. “Further, if you’re using an e-signature arising from someone else’s e-sign account, whether it’s a customer’s or originating vendor’s account, even if it’s the same company you’re using, it might not have the same signer authentication level you would have selected,” he warned. Additionally, if you have not been provided the audit trail, the e-sign provider may not be willing to provide same to you at a later point given that you are not the account owner for such e-signature. Last, if you accept an e-signature arising from someone else’s e-sign account, this generally cannot be combined with your own full-blown e-lease process to create a single authoritative copy.

5. The tide is shifting

Cohen noted that e-leasing did not really catch on in the equipment finance industry until the last six or seven years. Originally, companies were skittish about getting started. Now, there is greater recognition that there are many reasons to consider electronic signatures—from ease and convenience to a desire to enhance the customer experience and maintain a competitive position—especially during the current pandemic.

“Virtually every one of my clients has either done e-leasing or was considering it pre-COVID,” said Cohen. “Now obviously with COVID, for a lot of people who always said, ‘Yes I have to get to it, it’s on my list,’ suddenly it’s a critical priority.”

Learn More
A recording of the webinar and the webinar slides are available at www.elfaonline.org/events/2020/WW050620

For more information on this topic, visit ELFA’s Electronic Documents webpage at www.elfaonline.org/edocs.

More Webinars to Come
The May 6 webinar was part of ELFA’s “Wednesday Webinar” series designed to help equipment finance professionals navigate the current market and regulatory landscape and anticipate the changing environment in the face of the COVID-19 pandemic. The free webinars include live Q&A sessions so participants can connect with experts and colleagues on the issues they are grappling with. To register for upcoming webinars or view recordings of past events, go to www.elfaonline.org/events/elearning/web-seminars.