BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2009-2010 Regular Session SB 20 S Senator Simitian B As Introduced Hearing Date: February 24, 2009 2 Civil Code 0 SIK:jd SUBJECT Privacy: Security Breach Notification DESCRIPTION This bill would amend California's security breach notification law to provide that any agency, person, or business required to issue a notification under existing law must meet additional requirements regarding that notification. This bill would require that security breach notifications be written in plain language and contain certain specified information, including contact information regarding the breach, the types of information breached, and the date, estimated date, or date range of the breach. This bill would provide that a security breach notification may also include other specified information, at the discretion of the entity issuing the notification. Under this bill, any agency, person, or business that must provide a security breach notification under existing law to more than 500 California residents as a result of a single breach would be required to submit the notification electronically to the Attorney General. This bill would amend the substitute notice provisions of California's security breach notification law to require that an entity providing substitute notice also provide notice to the Office of Information Security and Privacy Protection. BACKGROUND In 2003, California's first-in-the nation security breach notification law went into effect. Since that time, 44 other states and the District of Columbia, Puerto Rico, and the Virgin (more) SB 20 (Simitian) Page 2 of ? Islands have enacted breach notification laws, following California's lead. California's statute requires state agencies and businesses to notify residents when the security of their personal information is breached. According to an ongoing chronology by the Privacy Rights Clearinghouse, more than 252 million records containing sensitive personal information have been involved in security breaches in the United States since January 2005. For the seventh year in a row, identity theft topped the Federal Trade Commission's (FTC) list of top 10 consumer complaints in 2006. Of the nearly 700,000 complaints filed with the FTC that year, 36% related to identity theft. And, among the 50 states, California ranked third in identity theft victims, after Arizona and Nevada. A December 2007 study from the Samuelson Law, Technology & Public Policy Clinic of University of California, Berkeley, Boalt Hall School of Law, found that security breach notification laws provide strong incentives for public and private organizations to engage in best practices with respect to the security of personal information. The study also made a number of recommendations to improve upon security breach notification laws, including that notifications should include basic information about the breach. This bill is intended to augment California's security breach notification law by implementing this recommendation. CHANGES TO EXISTING LAW 1. Existing law requires any agency, person, or business that owns or licenses computerized data that includes personal information to disclose a breach of the security of the system to any California resident whose unencrypted personal information was, or is reasonably believed to have been, acquired by an unauthorized person. The disclosure must be made in the most expedient time possible and without unreasonable delay, consistent with the legitimate needs of law enforcement, as specified. (Civil Code Sections 1798.29(a) and (c) and 1798.82(a) and (c).) Existing law requires any agency, person, or business that maintains computerized data that includes personal information that the agency, person, or business does not own to notify the owner or licensee of the information of any breach of the security of the data immediately following discovery if the personal information was, or is reasonably believed to have been, acquired by an unauthorized person. (Civil Code SB 20 (Simitian) Page 3 of ? Sections 1798.29(b) and 1798.82(b).) Existing law defines "personal information," for purposes of the breach notification statute, to include the individual's first name or first initial and last name in combination with any one or more of the following data elements, when either the name or the data elements are not encrypted: social security number; driver's license number or California Identification Card number; or account number, credit or debit card number, in combination with any required security code, access code, or password that would permit access to an individual's financial account; medical information; or health insurance information. "Personal information" does not include publicly available information that is lawfully made available to the general public from federal, state, or local government records. (Civil Code Sections 1798.29(e) and (f) and 1798.82(e) and (f).) This bill would provide that any agency, person, or business required to issue a security breach notification under existing law must also meet certain requirements regarding the notification including that it be written in plain language. This bill would also require that the notification include, at a minimum, the following information: The name and contact information of the reporting agency; A list of the types of personal information that were or are reasonably believed to have been the subject of the breach; The date, estimated date, or date range within which the breach occurred, if that information is possible to determine at the time the notice is provided; The date of the notice; Whether the notification was delayed because of an investigation by law enforcement; A general description of the breach incident; The estimated number of persons affected by the breach; and The toll-free telephone numbers and addresses of the major credit reporting agencies if the breach exposed a bank account or credit card number, a social security number, or a driver's license or California identification card number. This bill would provide that an agency, person, or business may also include the following information in a security SB 20 (Simitian) Page 4 of ? breach notification, at its discretion: Information regarding what the entity has done to protect individuals whose information has been breached; and Advice on steps that the individual may take to protect himself or herself. This bill would require any agency, person, or business that must provide a security breach notification pursuant to existing law to more than 500 California residents as a result of a single breach of the security system to submit the notification electronically to the Attorney General. 2. Existing law requires an agency, person, or business to provide breach notification using either written notice, electronic notice, or substitute notice. An entity may use substitute notice when it demonstrates that the cost of providing notice would exceed $250,000, or that the affected class of persons to be notified exceeds 500,000, or if the entity does not have sufficient contact information. Substitute notice must consist of: (a) email notice when the entity has an email address for the affected individuals; (b) conspicuous posting of the notice on the entity's Web site; and (c) notification to major statewide media. (Civil Code Sections 1798.29(g) and 1798.82(g).) This bill would additionally require notification to the Office of Information Security and Privacy Protection when an agency, person, or business uses substitute notice. COMMENT 1.Stated need for the bill The author writes: Although California has a security breach notification law (A.B. 700, Simitian/S.B. 1386, Peace - 2002), we do not require public agencies, businesses, or persons subject to that law to provide any standard set of information about the breach to consumers. As a result, security breach SB 20 (Simitian) Page 5 of ? notification letters often lack important information - such as the time of the breach or type of information that was breached - or are confusing to consumers. This leaves consumers uncertain about how to respond to the breach or protect themselves from identity theft, and leaves businesses and government entities that have experienced a breach unsure about what to put in the notices they send consumers. This bill would make relatively modest but helpful changes to the current security breach notification statutes to enhance consumer knowledge about, and understanding of, security breaches by requiring that the customer notification required by current law contain specified information. 2. Recent research on need for augmenting security breach notification law In December 2007, the Samuelson Law, Technology & Public Policy Clinic, University of California-Berkeley School of Law released a study entitled "Security Breach Notification Laws: Views from Chief Security Officers" (study). The study included a comprehensive review of the literature available on the world of information security and in-depth interviews with chief information security officers at a variety of business organizations nationwide. The study made a number of findings, including that breach notification laws: 1) provide organizations (public, private, and non-profit) strong incentives to invest in best practices with respect to information security; 2) contribute to awareness of the importance of information security throughout all levels of an organization; 3) increase cooperation among different departments within an organization with respect to information security; 4) have increased requirements that third party vendors, data collectors, and organizations comply with information security measures; 5) provide "lessons learned" across organizations, allowing organizations to learn from each others' breaches, and justifying investment in security; and 6) inform and educate consumers about the importance of being concerned and diligent about the security of their personal information. The study also identified a number of areas for improvement in security breach notification laws, including basic guidelines for the information included in such notifications. The author SB 20 (Simitian) Page 6 of ? asserts that this bill would implement this recommendation and thereby strengthen California's security breach law. 3. Standardized content of security breach notifications intended to fill gap in current law While existing law imposes requirements for notification of security breaches, it does not contain requirements for the content of those notifications. The author provided the committee with several examples of breach notification letters that lack certain basic information such as the type of information breached, when the breach occurred, or how to protect against identity theft. In some cases, the letters contained confusing technical or legal jargon. The study discussed in Comment 2 provides: Notifications can only provide value to consumers if they have useful information about the [breach] incident and know what steps can be taken to mitigate the harm. Notifications provide an opportunity for consumer education that ? has been bypassed by notification letters that focus more on obfuscated language and legal jargon than direct communication. ? Breach notification letters are difficult to read and understand; ? Notification laws ? should incorporate some basic guidelines regarding clarity of language, a description of the incident, and steps that consumers can take to protect themselves ?. The author contends that this bill's requirements for standardized content of breach notifications will help to fill the information gap in current law. The author also notes that ten other states- including Michigan, New Hampshire, New York, and North Carolina-have breach notification laws which contain similar requirements pertaining to standardized notice content. 4.Notification to Attorney General where more than 500 California residents affected by a single breach This bill would require an agency, person, or business to submit a security breach notification electronically to the Attorney General when more than 500 California residents are affected by a single breach of the security system. The author indicates that similar provisions are contained in other state breach laws. For example, several state laws require notification to the Attorney General, credit reporting SB 20 (Simitian) Page 7 of ? agencies, and-in the case of New York-the Office of Cyber Security and Critical Infrastructure Coordination. By requiring notification to the Attorney General in cases where more than 500 California residents are affected by a single breach, this bill would allow the Attorney General to look at trends and investigate a major breach, if it deemed it to be necessary. In addition, the author's office indicates that the Attorney General currently receives some security breach notifications so additional notices will be consistent with current practice. 5. Stakeholder concerns While not opposed to this bill, the California Credit Union League (CCUL) raises concerns about the bill's requirement that security breach notifications include specified items of information. In particular, the CCUL points out that some items of information may not be known to an entity at the time the notification is provided. For example, if a breach occurred at the retailer level, the affected credit union might not know whether a law enforcement investigation delayed notification or the estimated number of persons affected. As a result, CCUL has requested that the author amend the bill to provide that the specified items of information must be included in the security breach notification "if available at the time the notice is provided." Committee staff notes that this language has the potential to undermine the purpose of the bill: providing uniform breach notifications. The author is considering this request and is currently in conversations with the CCUL. 6. Opposition arguments The California Business Properties Association, California Chamber of Commerce, California Financial Services Association, California Mortgage Bankers Association, Experian, Personal Insurance Federation of California, and State Privacy and Security Coalition oppose this measure, raising concerns about the specified items of information. They assert that the requirement that the breach notification contain the toll-free telephone numbers of major credit reporting agencies leads consumers to believe that a breach will result in identity theft, which is not necessarily the case according to the groups. The organizations also question whether it is necessary that a consumer receive notification about the estimated number of people affected by a breach. SB 20 (Simitian) Page 8 of ? Finally, they argue that this bill's requirement that the Office of Information Security and Privacy Protection be notified when substitute notice is used is unnecessary and, if notice to a government agency is necessary, then it should go to the Attorney General. State Farm argues that disclosing the date, estimated date, or date range of the breach will provide a hacker with important information about the security of a computer system and will confirm to the hacker that his or her approach used at that time was successful. State Farm also asserts that reporting the number of persons affected by a breach provides a hacker with information about the size of the breached database which, it argues, allows a hacker to focus his or her efforts on larger databases. 7. Suggested technical amendments On Page 2, line 34, delete ", as defined in subdivision (g)," On page 6, line 1, delete ", as defined in subdivision (g)," Support: Consumer Federation of California Opposition: Association of California Insurance Companies; California Bankers Association; California Business Properties Association; California Chamber of Commerce; California Financial Services Association; California Mortgage Bankers Association; Experian; Personal Insurance Federation of California; State Farm; State Privacy and Security Coalition ; Tech America HISTORY Source: Author Related Pending Legislation: None Known Prior Legislation: SB 364 (Simitian of 2008) would have required that breach notifications be written in plain language and contain specified information, such as the name of the entity that maintained the computerized data at the time of the breach and a description of the categories of personal information that was breached. This bill was SB 20 (Simitian) Page 9 of ? vetoed. AB 1656 (Jones of 2008) would have, among other things, required a person, business, or agency who maintains personal information to include specified items in a breach notification to the owner or licensee of the information. The bill would also have required that the specified items be disclosed to affected California residents if the owner or licensee of the information is also the issuer of the credit or debit card. This bill was vetoed. AB 779 (Jones of 2007) would have, among a number of other things, provided that the Office of Privacy Protection (OPP, now OISPP) be notified if substitute notice was used. The bill would also have required any agency, person, or business that owns, licenses, or maintains personal information related to various payment devices to notify the owner, licensee, or California resident of a security data breach. The notification would have been required to contain certain specified standard information, including, among other things, when the breach occurred and the categories of personal information breached. This bill was vetoed. AB 2505 (Nunez of 2006) would have provided that the OPP be notified if substitute notice was used. This bill died on the Senate Floor. SB 852 (Bowen of 2006) would have required a security breach notification whether or not the data breached was computerized and would have required notice to the OPP. This bill died in the Assembly Business and Professions Committee. **************