California Dreaming of Breach Law Expansion

A Schwarzenegger-backed bill to hold retailers responsible for data breaches would be the strongest in the nation.

California may be on the brink of establishing another precedent setting data breach law following the states landmark 2003 measure that requires companies to publicly disclose breaches of their databases.

In a bill that now only awaits Gov. Arnold Schwarzeneggers signature, the Consumer Data Protection Act would require retailers responsible for lost data to reimburse banks and credit unions for breach notifications and credit card replacements. The financial institutions estimate it costs $12 to $15 each to notify consumers and mail them new cards.

The bill would also prohibit retailers and other merchants that deal in credit card transactions from storing and retaining data taken from the cards magnetic strips. In addition, the states notification requirements to consumers would be expanded to include the names of merchants who lost the data and the type of information potentially compromised by the breach.

Merchants would not be liable for the reimbursement costs if they can prove they were in compliance with all state data security laws at the time of the breach.


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"Anything that brings home the notion that security is very, very important is a good thing," said David McGuire, director of communications for Washingtons Center for Democracy and Technology, a long time advocate of consumer Internet privacy. "California has served as a lab for this type of legislation."

Prior to 2003, data breaches were not disclosed to consumers. Since California passed its seminal breach disclosure law, approximately 150 million confidential records have been reported as potentially compromised. In 2005, following the ChoicePoint data breach, California Sen. Dianne Feinstein said, "We in no shape or form are able to pierce the depth of what happened in that industry [pre-2003]."

Since California passed its breach disclosure law, 35 other states have passed similar laws. "[Californias] law is directly responsible for making security a highlight issue," McGuire said.

Despite a number of proposals, Congress has yet to pass any national laws, although several existing laws have been beefed up following an embarrassing string of breaches among federal agencies.

The Veterans Affairs Information Security Act was amended to add data security, privacy, notification and credit protection for veterans and their dependents. The Health Insurance Portability and Accountability Act, or HIPPA, governs health data privacy and security.


Read more here about why the cost of data breaches is rising sharply.

Among the pending proposals is Rep. Tom Davis Federal Agency Data Breach Protection Act, which requires timely notice to those whose sensitive personal information could be compromised by a data breach of data at a federal agency. It also requires the White House to establish practices, procedures and standards for agencies to follow if sensitive data at a federal agency is lost or stolen and there is a reasonable risk of harm to individuals.

"Despite the volume of sensitive data held by agencies, currently no requirement exists that they notify citizens whose personal information may have been compromised," Davis, R-Va., wrote in July 27 letter to Rep. Henry Waxman, D-Calif., chairman of the House Committee on Oversight and Government Reform.

In the Senate, Feinstein has introduced the Notification of Risk to Personal Data Act. The bill would require a federal agency or business entity to notify an individual of a security breach involving personal data without unreasonable delay.

Davis and Feinsteins bills mirror similar legislation introduced since 2005.

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