E-SIGN and EFTA Permit Telephonic Consent to Automatic Debits with Mailed Confirmation–Blatt v. Capital One (Guest Blog Post)

[By guest blogger John Ottaviani. John is an attorney with the Rhode Island and Massachusetts-based law firm Partridge Snow & Hahn LLP. His practice focuses on transactions, contracts, and intellectual property protection for businesses of all sizes. He is also a member of the American Bar Association’s Electronic Contracting Task Force.]

Although this case is a little old, Eric and I think it still is worth discussing, as E-SIGN cases have been few and far between.

E-SIGN is the fundamental law upon which electronic financial transactions have been based. Prior to its enactment in 2000, there were a growing number of inconsistent state laws, some of which prescribed specific technology, determining when and how electronic signatures or electronic documents would be enforceable. There was also concern about how to amend thousands of state laws which require certain documents to be “in writing” and/or “signed.” The elegance of E-SIGN is in its simplicity and in its uniformity. E-SIGN overrides all of these state laws, by stating that a record cannot be denied effect solely because it is delivered electronically, and a signature cannot be denied effect solely due its electronic nature, so long as certain other requirements are met. E-SIGN also provides uniformity in its application, which allows businesses to conduct transactions across the country without having to comply with the laws of all 50 states.

The case itself involves a rather routine consumer transaction. Capital One Auto Finance obtained Blatt’s authorization over the telephone by having him listen to a recording of detailing the terms of his authorization, and then having him press “1” to agree to automatically debit monthly payments from his bank account. (E-SIGN permits an electronic signature by a “process,” such as a mouse click or pressing a digit on a telephone, to manifest assent). Two days later, Capital One sent a letter to Blatt via United States mail confirming the terms of the authorization.

That should have been where things ended. But for some reason, Blatt (or, more likely, his attorneys) decided to file a class action suit, claiming that Capital One violated the federal Electronic Funds Transfer Act (EFTA), 15 U.S.C. §1693 et seq., which governs proper authorization of electronic fund transfers. Blatt claims that: (1) Capital One did not obtain Blatt’s authorization to the recurring payments in writing, as EFTA requires; and (2) the letter capital One mailed to Blatt was insufficient to meet EFTA’s requirement that Capital One mail a copy of the authorization to him.

The relevant part of EFTA is found in Section 1693e(a): “A preauthorized electronic fund transfer from a consumer’s account may be authorized by the consumer only in writing, and a copy of such authorization shall be provided to the consumer when made. Regulation E  implements and contains official interpretations of EFTA. Regulation E allows for the consumer’s written authorization to be provided electronically, so long as the electronic authorization complies with E-SIGN.

This is where E-SIGN comes in. Blatt stipulated that his electronic signature was valid, but argued that his electronic consent to the recurring payments was invalid because Capital One failed to comply with a portion of E-SIGN requiring certain consumer disclosures. Section 7001(c) of E-SIGN states that “if a statute … requires that information relating to a transaction … be provided or made available to a consumer in writing, the use of an electronic record to provide or make available … such information satisfies the requirement that such information be in writing” if Capital One provided Blatt with certain disclosures. These disclosures generally address the consumer’s right to have the information be made available in paper form, and to withdraw consent to receiving the information electronically.

The Court quickly rejected this argument. The Court noted that the Section 7001(c) disclosure requirements may have applied to Blatt’s situation had Capital One provided Blatt with a copy of his authorization electronically, but this was not the case. Capital One obtained Blatt’s signature electronically, and then provided Blatt with confirmation of his authorization (the “information relating to the transaction” for purposes of ESIGN) in paper form, so the disclosures required by Section 7001(c) of E-SIGN were not required.

(Because the Court rejected this argument, the decision does not address the more interesting question of the consequences of failing to comply with E-SIGN’s disclosure provisions. Section 7001(c) is silent as to the consequences of failing to comply with the disclosure. Presumably, failure to comply would have prevented Capital One from relying on E-SIGN as the legal basis for satisfying the requirement of EFTA that the information be provided or made available in writing. But even if Capital One had failed to comply with E-SIGN, Capital One could still argue that one needs to look at EFTA to determine whether the circumstances constituted “a writing” for purposes of EFTA and, if not, the legal effect of such failure.)

Blatt’s next argument that Capital One did not provide him with “a copy of such authorization … when made” also failed. The Court held that the “when made” requirement does not require contemporaneous disclosures. Although the Court declined to establish a bright line definition of “when made,” the Court found that Capital One’s mailing the letter two days after authorization is sufficient.

Finally, the Court rejected Blatt’s argument that the words “a copy” means that the copy of the authorization called for by EFTA needs to be in the same format and restate verbatim the same words and phrases from Blatt’s telephone conversation. The Court found that EFTA does not require that the copy be provided in the same form in which the authorization was obtained, nor that the letter must recite the exact words used in the telephone conversation. That the copy of the authorization that Capital One mailed to Blatt contained the amount of the payments to Capital One, the recurring schedule of the payments, the date of which Blatt agreed to the terms electronically, and information on how to cancel or change his direct pay enrollment, was sufficient to meet Capital One’s duty under EFTA that Capital One provide Blatt a copy of his authorization.


One wonders why this case was brought in the first place. Since 2000, financial institutions have relied on E-SIGN to build systems to allow for telephonic and electronic payment systems and authorizations. Blatt’s attempts to read new requirements into the law failed. As the Court found, the plain language of E-SIGN and EFTA permits Capital One’s authorization process. But it is still nice to have a decision affirming that the statute means what it says. The Court’s ruling also prevents major disruption in payment systems, and confirms the validity of commonly used practices in the financial services industry.

Case Citation: Blatt v. Capital One Auto Finance, Inc., Case No. 2:15-CV-0015 (M.D. Tenn. Feb 17, 2017)

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