Update, 16/10/2007: To the surprise of
many, Schwarzenegger has vetoed this
bill.
Final amendments to the measure, called Assembly Bill No. 779,
were approved by the California State Assembly last week and it now
awaits the signature of Governor Arnold Schwarzenegger. Observers
have called this last step a formality: Governor Schwarzenegger is
said to back the bill.
In passing the measure California would extend its national lead
in security breach notification law to include some data protection
elements. Back in 2003 the state was the first to introduce a law
that required businesses to disclose data breaches that could
expose individuals to identity theft. That law has since been
adopted by most other US states. Last month a committee of the
House of Lords called for a similar security
breach notification law to be introduced in the UK.
The new bill amends an existing state law on the protection of
personal data of a financial nature.
AB 779 forbids retailers from storing payment-related data
unless the business has a data retention and disposal policy which
limits the amount of data held. Sensitive authentication data, such
as the data on a card's magnetic strip, must not be held after card
authorisation, even if that data is encrypted, says the bill.
Payment-related data must not be sent over the internet unless
"encrypted using strong cryptography and security protocols or
otherwise rendered indecipherable," it adds.
Businesses must also limit access to payment-related data to
only those individuals whose job requires that access.
If required to notify a data breach under the state's existing
legislation, a business must now give more comprehensive details of
the breach.
If a business fails to comply with the new requirements it shall
be liable to the owner or licensee of compromised information "for
the reimbursement of all reasonable and actual costs of providing
notice to consumers pursuant to the breach […] and for the
reasonable and actual cost of card replacement as a result of the
breach of the security of the system."
American banking industry sources have estimated the cost of
notifying customers of a qualifying breach, and providing them with
new cards, at between $12 and $15 per customer.
Dr Chris Pounder, a privacy law expert with Pinsent Masons, the
law firm behind OUT-LAW.COM, said: "As with security breach
notification laws, the recognition that there needs to be
additional protection for individuals has been seen by politicians
at the state level rather than at the federal level. With the Bush
administration coming to an end and the primaries due in the next
few months, one can expect that the protection of individual
privacy could well become an element in the various political
campaigns of presidential hopefulls."
If the new bill is signed it will come into force on 1st July
2008 to give retailers time to put in place the required security
controls.
