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Follow These Four Best Practices on Electronic Agreements from Adams and Reese LLP

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In a recent PAR/WACHA Compliance Tip, we discussed the importance of financial institutions updating their ACH Origination Agreements. Many financial institutions use outdated agreements, leaving them susceptible to various risks including financial losses and noncompliance of the NACHA Rules.

In the article "Electronic Execution of Agreements with Business Customers," Adams and Reese LLP cover some best practices regarding electronic signatures for online agreements.

"Generally speaking, banks must answer the following questions in the affirmative when entering into agreements through the use of electronic signatures by business customers:"

  • Do the terms of the agreement provide the bank’s business customer’s consent to enter into an agreement electronically?
  • Does the process for collecting the business customer’s electronic signature provide an actual expression (manifestation) of assent to enter into the agreement? 
  • Can the bank reasonably identify the individual electronically “signing” the agreement?
  • Does the individual “signing” the agreement have the authority on behalf of the business customer to execute and deliver the agreement for all purposes in the agreement?

"Banks must ensure that any and all agreements in which they enter with a business customer are 'signed' by an authorized representative of the business customer and that the 'signature' contains a reasonable manifestation of the customer’s assent to enter into the agreement." Not doing so, according to the article, could result in an "unenforceable agreement."

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