Legalized e-signatures bring convenience, risk

(CNN) -- A new federal law taking effect Sunday gives e-signatures the same legal standing as their handwritten counterparts, a significant change that promises new opportunities and risks on the Internet.

The Electronic Signatures in Global National Commerce Act, or E-Sign, as it is known, is designed to streamline commercial purchases of everything from stocks to houses.

Complicated leases or house refinancing contracts, for example, can take days to finalize while the parties track each other down, waving pens for the other to sign on the dotted line.

Replace the traditional arrangement with e-signatures and the process could be executed in minutes, according to e-commerce representatives that lobbied for the law.

VIDEO CNN's Rusty Dornin reports that consumers can begin using digital signature for legal contracts online Play video (QuickTime, Real or Windows Media)     MESSAGE BOARD Security on the Net

But the expanded definition of legal signatures and flaws in the technology could contribute to fraud. The law does not specify a type of technology for e-signatures. They can be obtained through secured processes, like secret passwords or digital fingerprints, as well as unsecured ones, such as faxed signatures or clicking an acceptance button on a Web page.

Although many e-signatures are secure when stored in a personal computer, malicious hackers could remotely break in and snatch them, said Bruce Scheier of Counterpane Internet Security Inc. and author of "Secrets & Lies: Digital Security in a Networked World."

He said an attack from a hacker "could take your signature and ship it across the Internet to someone else. It could show you one document and sign another. It could show you one document, sign that document and also sign several others. It's like having a signature stamp, where you give your signature to someone you don't trust."

The results can be costly. Someone stealing an e-signature, for instance, could pilfer an unsuspecting victim's bank account.

But some computer security experts downplayed the online dangers.

"It's always a risk between the criminals and the good guys. So the better they become at hacking it, the better we'll become at making it stronger," said Stratton Sclavos, CEO of Verisign, an Internet securities firm.

Schneier noted that all transactions carry risks, whether pen and ink or electronic. But if they take place online, then businesses -- not individuals -- assume most of the risks.

"If a company is willing to accept the risk that an account might be fraudulent in order to get your business, they're going to get more business. Whether they make money or not will depend on how they manage that risk," Schneier said.

Still, he cautioned against buying or selling a house online: "It would be scary. There's too much potential for ... abuse."

Moreover, Schneier was wary of individuals using fingerprints, eye scans or voiceprints to identify themselves.

"If there's a big database of fingerprints and someone hacks it, what do you do, issue everybody a new finger?" he asked.

There is one group that should benefit regardless of the consequences of the new legislation.

"I think there's going to be a lot of work for consumer advocates and lawyers as the new e-signature law unfolds," said Susan Grant of the National Consumers League.

CNN Science Correspondent Ann Kellan contributed to this report.

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U.S. government moves to electronic transactions
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The Electronic Signatures In Global And National Commerce Act
Counterpane Internet Security, Inc.
VeriSign
National Consumers League

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