BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2667
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          Date of Hearing:  April 22, 2014

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                Bob Wieckowski, Chair
                     AB 2667 (Bloom) - As Amended: March 27, 2014
                                           
                               As Proposed to be Amended
           
          SUBJECT  :  "RENT TO OWN" AGREEMENTS: ELECTRONIC DEVICES:  
          MONITORING TECHNOLOGY AND "SPY" SOFTWARE

           KEY ISSUE  :  SHOULD THOSE WHO LEASE ELECTRONIC DEVICES SUCH AS  
          LAP TOP COMPUTERS BE ABLE TO SECRETLY TRACK THE WHEREABOUTS OF  
          THEIR CUSTOMERS WITHOUT THEIR CUSTOMERS AT LEAST BEING GIVEN THE  
          CHOICE WHETHER TO BE TRACKED THROUGH CLEAR AND PROMINENT NOTICE  
          AND EXPRESS CONSENT?

                                      SYNOPSIS
          
          As noted by the author, rental-purchase agreements, typically  
          referred to as "rent to own" agreements, are increasingly  
          pervasive in today's marketplace, especially regarding rapidly  
          improving electronic devices such as lap top computers.   
          However, due to the lack of threshold consumer protections in  
          this area, it has become fertile ground for abuse.  This bill  
          seeks to set just a few basic (and many would assume given)  
          privacy floors by, among other things, requiring that before a  
          lessor of electronic devices can track the whereabouts of their  
          customers, they must provide the consumer notice and the  
          opportunity to consent.  Additionally, while the version of the  
          bill currently in print prohibits use of monitoring technology  
          in all cases with the exception of fraud, the bill as now  
          proposed to be amended includes provisions allowing the use of  
          tracking technology for providing remote technical assistance to  
          consumers and preventing loss through fraud, recognizing the  
          rent-to-own industry's legitimate uses for monitoring technology  
          in these distinct areas.

          In considering the reasonableness of this and other privacy  
          provisos in the measure, the Committee may wish to consider that  
          the Federal Trade Commission (FTC), which is the federal agency  
          tasked with deterring deceptive trade practices, has already  
          found such secret monitoring practices by rental companies to  
          violate federal law absent notice and consent.  Indeed, in the  
          2012 case that helped spur the author's and sponsor's concerns  








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          about these deceptive consumer practices, the FTC ordered seven  
          so-called "rent-to-own" companies and a software manufacturer to  
          cease using secret tracking technology on unsuspecting customers  
          after discovering that rent-to-own retailers were using  
          technology to spy on and photograph consumers.  In its complaint  
          the FTC alleged that the companies had used secretly installed  
          software-oftentimes with innocuous names such as "PC Rental  
          Agent"-to monitor consumers' information and track their  
          behavior.  The FTC's complaint went so far as to state that the  
          national rent-to-own retailer, Aaron's, Inc., and DesignerWare,  
          LLC, a software manufacturer, had secretly captured images of  
          customers in their homes while they were "engaged in intimate  
          activities."  Many of these companies settled, under the terms  
          that they would be prohibited from using monitoring technology  
          that captures keystrokes or screen shots and will not activate  
          the webcam and microphone on a customer's computer, except to  
          provide technical support requested by customers. 
          This measure is compatible with those federal approaches.  It  
          seeks to put a stop to this insidious practice and provide  
          additional safeguards under state law for use of geophysical  
          tracking and monitoring technology.  According to the author,  
          codifying the FTC's enforcement in California statute seeks to  
          reduce the chance Californians who enter into contracts for  
          rent-to-own electronic devices will have their whereabouts (and  
          even their private activities in their homes) secretly monitored  
          without their knowing and express consent.  Due to time  
          constraints, various clarifying amendments suggested by the  
          Committee and accepted by the author will be taken in the  
          Business & Professions Committee.  This analysis reflects these  
          amendments. 

          In addition to the bill's sponsor, Consumer Federation of  
          California, the Consumer Attorneys of California, Privacy Rights  
          Clearinghouse, and the American Civil Liberties Union support  
          the bill, stating that the bill, as proposed to be amended, is  
          narrowly drafted to address the inappropriate use of spy  
          software in the rent-to-own industry while still allowing for  
          the use of GPS tracking for fraud prevention.  There is no known  
          opposition to the bill as of the writing of this analysis,  
          though the recent amendment clarifications in the measure are  
          new.
             
           SUMMARY  :  Seeks to reflect recent federal regulatory actions and  
          make clear in California law pertaining to the state's "rent to  
          own" business sector that the secret use of geophysical location  








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          tracking and monitoring technologies on electronic devices is  
          generally prohibited, except with customer notice and consent,  
          and only in carefully bounded circumstances.  Specifically,  this  
          bill  among other things:

          1)Prohibits the use of geophysical location tracking technology  
            by lessors under rental-purchase agreements absent express  
            notice and consent, and then only for the purpose of providing  
            remote technical assistance and preventing fraud or loss.

          2)Requires that lessors in rental-purchase agreements give clear  
            and prominent notice when geophysical location tracking or  
            monitoring technology is installed or activated.

           EXISTING LAW  :

             1)   Implements the Karnette Rental-Purchase Act, which among  
               other things, requires lessors in rental-purchase  
               agreements provide price-tag disclosures, a sample  
               rental-purchase contract, and that any rental-purchase  
               advertisement states the total number of payments necessary  
               to acquire ownership.  (Civil Code Section 1812.620 et  
               seq.)

             2)   Provides that the lessor of a piece of personal property  
               must keep a copy of the agreement and evidence of the "cash  
               price" of the personal property leased for 2 years  
               following termination of the agreement. The "cash price" is  
               defined as the price at which retail sellers are selling  
               and consumers are buying the same or similar property for  
               cash in the same trade area as the lessor's place of  
               business.  (Civil Code Section 1812.623.)

             3)   Requires that a lessor in a rental purchase agreement,  
               upon request, provide the consumer with a copy of the  
               proposed rental-purchase agreement prior to its execution.   
               (Civil Code Section 1812.629(c).)

             4)   Provides that a consumer who is damaged by the lessor's  
               violation of the Karnette Rental-Purchase Act is entitled  
               to recover actual damages; twenty-five percent of the total  
               amount of payments required to obtain ownership, but not  
               less than $100 or more than $1,000; exemplary damages for  
               intentional or willful violations of the Act; reasonable  
               attorney's fees and court costs; and equitable relief as  








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               the court deems proper.  (Civil Code Section 1812.636(a).)
           
            FISCAL EFFECT  :  As currently in print this bill is keyed fiscal.

           COMMENTS  :  As noted by the author, rental-purchase agreements,  
          typically referred to as "rent to own" agreements, are  
          increasingly pervasive in today's marketplace, especially  
          regarding rapidly improving electronic devices such as lap top  
          computers.  However, due to the lack of threshold consumer  
          protections in this area, it has become fertile ground for  
          abuse.  This bill seeks to set just a few basic (and many would  
          assume given) privacy floors by, among other things, requiring  
          that before a lessor of electronic devices can track the  
          whereabouts of their customers, they must provide the consumer  
          notice and the opportunity to consent.  Additionally, while the  
          version of the bill currently in print prohibits use of  
          monitoring technology in all cases with the exception of fraud,  
          the bill as now proposed to be amended includes provisions  
          allowing the use of tracking technology for providing remote  
          technical assistance to consumers and preventing loss through  
          fraud, recognizing the rent-to-own industry's legitimate uses  
          for monitoring technology in these distinct areas.

          According to the author, this bill is needed to stem the abuse  
          of monitoring and geophysical location tracking technology in  
          electronic devices leased under rental-purchase agreements.  
          Under current law, lessors under rental-purchase agreements are  
          not prohibited from requesting security deposit fees to insure  
          against fraud or loss.  The author states that consumers have a  
          reasonable expectation that lessors will use security deposits  
          to insure against any losses that may occur in the course of the  
          rental-purchase transaction, and that they will not be secretly  
          spied upon as an unknown cost of participating in the  
          rent-to-own marketplace.

          The author notes that recent reports about, and federal actions  
          taken in, this growing industry have revealed serious concerns  
          about customer privacy invasions.  According to recent reports,  
          electronic devices such as lap top computers are increasingly  
          being leased under rental-purchase agreements, and lessors have  
          been installing invasive geophysical (GPS) location tracking and  
          monitoring technology on these devices.  The GPS technology,  
          though useful in obtaining devices in instances of fraud or  
          loss, has often reportedly been included without the consumer's  
          knowledge, and has not been shown to terminate after expiration  








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          of the lease period.  The monitoring technology meanwhile has  
          reportedly been used to determine who is using the device, and  
          in one instance even been used by a lessor to secretly remotely  
          activate a lap top webcam to photograph a customer in his  
          bedroom.

           FTC Reports That Rent-to-Own Retailers Were Caught "Red Handed"  
          Secretly Spying on Customers  :  In 2012, the Federal Trade  
          Commission (FTC) ordered seven rental companies and a software  
          manufacturer to cease using monitoring technology on  
          unsuspecting customers after discovering that rent-to-own  
          retailers were using technology to spy on and photograph  
          consumers.  In its complaint the FTC alleged that the companies  
          had violated provisions of the Federal Trade Commission Act  
          concerning Unfair and Deceptive Gathering and Disclosure of  
          Consumers' Personal Information by installing  
          software-oftentimes with innocuous names such as "PC Rental  
          Agent"-to monitor consumers' information and track their  
          behavior.  The FTC's complaint went so far as to state that the  
          national rent-to-own retailer, Aaron's, Inc., and DesignerWare,  
          LLC, a software manufacturer, had secretly captured images of  
          customers in their homes while they were "engaged in intimate  
          activities."

          The FTC Chairman, Jon Leibowitz, stated in a press release: "An  
          agreement to rent a computer doesn't give a company license to  
          access consumers' private emails, bank account information, and  
          medical records, or, even worse, webcam photos of people in the  
          privacy of their own homes."  Many of these companies settled,  
          under the terms that they would be prohibited from using  
          monitoring technology that captures keystrokes or screen shots  
          and will not activate the webcam and microphone on a customer's  
          computer, except to provide technical support requested by  
          customers.  There was however no reported fine for Aaron's, its  
          franchisees ColorTyme and Premier Rental Purchase, and  
          DesignerWare, for this seemingly outrageous abuse of customer  
          privacy.

           Consumer Privacy At Risk  :  As the author notes, the FTC  
          complaint revealed that Aaron's had collected "private,  
          confidential and personal details about consumers using rented  
          computers" including passwords, medical records, social security  
          numbers, bank and credit card statements and more.  And  
          DesignerWare had not only been able to remotely activate  
          software, but also "log[ged] the consumer user's keystrokes,  








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          capture[d] screenshots and [took] pictures with the computer's  
          webcam and [sent] the data to DesignerWare servers."  Though  
          DesignerWare itself apparently did not access the information,  
          by storing it and sharing it with rent-to-own retailers, not  
          only are consumers at risk of misuse by anyone in possession,  
          but are at risk of identity theft and other serious harms.   
          According to the bill's author and supporters, without consumer  
          notice and consent, these harms may go unrecognized until it is  
          far too late.  The companies in possession may no longer exist  
          (DesignerWare's internet website is no longer available) or the  
          harm may be too far removed to determine its source - or for  
          customers to be even aware of its existence.

           The Federal Trade Commission's Actions Do Not Appear to Provide  
          An Adequate Remedy for Customer Injuries  :  Prior to the FTC  
          order, a civil class action was brought against Aaron's, Inc.  
          itself (Byrd v. Aaron's, 2011 U.S. Dist. LEXIS 73908 (W.D. Pa.  
          June 16, 2011).)  In that case, Aaron's, Inc. reportedly used  
          the "detective mode" program to monitor and store data on a  
          computer rented to a married couple through its store.   
          Mistakenly believing that the couple had defaulted on their  
          payments, an Aaron's representative purportedly visited the  
          couple's home and showed the wife a photo of her husband using  
          the laptop just a few hours earlier, taken by the webcam.   
          However, the Court found that it was "purely conjecture that the  
          other members of the putative class will be subjected to remote  
          access of personal information." 

          In response to such shocking facts, the author states:

               AB 2667 will put the FTC order, to prohibit the use of  
               monitoring technologies, into California statute -  
               ensuring that all Californians who enter into  
               contracts for a rent-to-own electronic device are  
               protected from the privacy violations that this  
               technology exposes them to.

          The author further notes that the FTC limitation on redress for  
          such violations leaves consumers vulnerable to continued use of  
          'detective mode' and other monitoring technologies.   
          Specifically, the magistrate judge in the Byrd decision refused  
          to grant a preliminary injunction, reasoning that the plaintiff  
          class did not present proof of irreparable harm resulting from  
          use of the 'detective mode' program.









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          Accordingly, the author contends that the FTC actions, though  
          important, have not yet provided an adequate remedy for  
          consumers who have secretly been exposed to serious breaches of  
          their privacy by employees of rent-to-own companies and  
          third-party monitoring vendors.  This measure seeks to address  
          that substantial consumer-protection gap.

           AUTHOR'S AMENDMENTS  :  As currently in print, this bill addresses  
          geophysical location tracking and monitoring technology broadly,  
          allowing geophysical location tracking with notice and express  
          consent.  The author wishes to make clear what type of notice  
          and consent is required.  Additionally, the bill currently  
          prohibits use of monitoring technology in all cases with the  
          exception of fraud.  Recognizing that the rent-to-own industry  
          has legitimate uses for monitoring technology, such as providing  
          remote technical assistance and preventing loss, the author  
          wishes to amend the bill to include provisions allowing for  
          these legitimate uses.  Specifically, the author wishes to amend  
          the bill in this Committee as seen in the following mock up, and  
          which is reflected in this analysis' description of the bill:

          SECTION 1.
           Section 1812.622 of the Civil Code is amended to read:
          1812.622.
           As used in this title:
          (a) "Advertisement" means a commercial message in any medium  
          that directly or indirectly solicits or promotes one or more  
          specific rental-purchase transactions, excluding instore  
          merchandising aids. This definition does not limit or alter the  
          application of other laws, including Chapter 5 (commencing with  
          Section 17200) of Part 2 and Chapter 1 (commencing with Section  
          17500) of Part 3, of Division 7 of the Business and Professions  
          Code, to rental-purchase transactions.
          (b) "Consumer" means a natural person or persons who rent or  
          lease personal property from a lessor pursuant to a  
          rental-purchase agreement or to whom a lessor offers personal  
          property for use pursuant to a rental-purchase agreement.
          (c) "Lessor" means any person or entity that provides or offers  
          to provide personal property for use by consumers pursuant to a  
          rental-purchase agreement.
          (d) "Rental-purchase agreement," except as otherwise provided in  
          this subdivision, means an agreement between a lessor and a  
          consumer pursuant to which the lessor rents or leases, for  
          valuable consideration, personal property for use by a consumer  
          for personal, family, or household purposes for an initial term  








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          not exceeding four months that may be renewed or otherwise  
          extended, if under the terms of the agreement the consumer  
          acquires an option or other legally enforceable right to become  
          owner of the property. A rental-purchase agreement is a lease  
          subject to Title 1.5 (commencing with Section 1750) and Title  
          1.7 (commencing with Section 1790).
          "Rental-purchase agreement" shall not be construed to be, nor be  
          governed by, and shall not apply to, any of the following:
          (1) A retail installment sale, as defined in Section 1802.5.
          (2) A retail installment contract, as defined in Section 1802.6.
          (3) A retail installment account, as defined in Section 1802.7.
          (4) A lease or agreement that constitutes a security interest,  
          as defined in Section 1201 of the Commercial Code.
          (5) A consumer credit contract, as defined in Section 1799.90.
          (e) "Cash price" means the price of the personal property  
          described in the rental-purchase agreement that the consumer may  
          pay in cash to the lessor at the inception of the  
          rental-purchase agreement to acquire ownership of that personal  
          property.
          (f) "Cost of rental" means the difference between the total of  
          all periodic payments necessary to acquire ownership under the  
          rental-purchase agreement and the cash price of the rental  
          property that is subject to the rental-purchase agreement.
          (g) "Fee" means any payment, charge, fee, cost, or expense,  
          however denominated, other than a rental payment.
          (h) "Appliance" means and includes any refrigerator, freezer,  
          range including any cooktop or oven, microwave oven, washer,  
          dryer, dishwasher, or room air conditioner or air purifier.
          (i) "Electronic set" means and includes any television, radio,  
          camera, video game, or any type of device for the recording,  
          storage, copying, printing, transmission, display, or playback  
          of any sound or image, but does not include any item that is  
          part of a computer system.
          (j) "Computer system" means a computer processor and a video  
          monitor, printer, and peripheral items primarily designed for  
          use with a computer. Audio and video devices, which are commonly  
          used for entertainment and into which data may be downloaded  
          from a computer, are not part of a computer system.
          (k) "Lessor's cost" means the documented actual cost, including  
          actual freight charges, of the rental property to the lessor  
          from a wholesaler, distributor, supplier, or manufacturer and  
          net of any discounts, rebates, and incentives.
          (l) "Total of payments" means the total amount of periodic  
          payments necessary to acquire ownership of the property that is  
          the subject of the rental-purchase agreement if the consumer  








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          makes all regularly scheduled payments.
          (m) "Electronic device" means a desktop or laptop computer,  
          handheld device, tablet, smart phone, or other electronic  
          product or device that has a platform on which to download,  
          install, or run any software program, code, script, or other  
          content.
          (n) "Clear and prominent notice" means notice presented in an  
          understandable language and syntax, in the predominantly used  
          language for that communication, and that:
          (1) In textual communications, the required disclosures are  
           separate and apart from any "privacy policy," "data use policy,"  
          "terms of service," "end-user license agreement," "lease  
          agreement," or other similar document, and  of a type, size, and  
          location sufficiently noticeable for an ordinary consumer to  
          read and comprehend in print that contrasts highly with the  
          background on which they appear.
          (2) In communications disseminated orally or through audible  
          means, the required disclosures are delivered in a volume and  
          cadence sufficient for an ordinary consumer to hear and  
          comprehend.
          (3) In communications disseminated through video means, the  
          required disclosures are in writing in a form consistent with  
          paragraph (1) and appear on the screen for a duration sufficient  
          for an ordinary consumer to read and comprehend them, and in the  
          same language as the predominantly used language for that  
          communication.
          (4) In communications made through interactive media, including  
          the Internet, online services, and software, the required  
          disclosures are unavoidable and presented in a form consistent  
          with paragraph (1), in addition to any audio or video  
          presentation.
          (o) "Geophysical location tracking technology" means hardware,  
          software, or an application that collects and reports data or  
          information that identifies the precise geophysical location of  
          an item, including, technologies that report the GPS coordinates  
          of  an electronic device  a computer or other item, the WiFi  
                                                                       signals available to or actually used by  an electronic device  a  
          computer to access the Internet, the telecommunication towers or  
          connections available to or actually used by a computer, the  
          processing of any reported data or information through  
          geolocation lookup services, or any information derived from any  
          combination of the foregoing.
          (p) "Monitoring technology" means any hardware, software, or  
          application utilized in conjunction with a computer that can  
          cause the computer to capture, monitor, record, or report  








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          information about user activities  without the user's knowledge.   
          by recording keystrokes, clicks, or other user-generated  
          actions, capturing screenshots of the information displayed on a  
          computer monitor or screen, or activating the camera or  
          microphone function of a computer to take photographs or record  
          audio or visual content through the computer's Internet Webcam  
          or microphone.
           (q) "Remote technical assistance" means the collaborative access  
          by the user and technician to connect to an electronic device  
          for the purpose of providing technical support to the user. 
          (r) "Express consent" mean a clear choice to either agree or not  
          agree to any geophysical location tracking technology or remote  
          technical assistance, and neither option may be highlighted or  
          preselected as a default setting.
          (s) "Fraud" means an action by the consumer that necessitates  
          the lessors recovery of the electronic device, limited to  
          nonpayment or other violation of the rental-purchase agreement.
           SEC. 2.
           Section 1812.650 is added to the Civil Code, to read:
          1812.650.
           (a) A lessor shall provide clear and prominent notice to a  
          consumer and obtain express consent from the consumer at the  
          time the lessor and the consumer enter into a rental-purchase  
          agreement for an electronic device if that device has  
          geophysical location tracking technology installed,  and at any  
          time the geophysical location tracking technology is activated  .  
          A lessor shall not install geophysical location tracking  
          technology on an electronic device without first providing clear  
          and prominent notice to the consumer and obtaining express  
          consent.
          (b) A lessor shall not use  , sell or share  geophysical location  
          tracking technology on an electronic device for any purpose  
          other than the prevention of fraud  or loss .
           (c) Clear and prominent notification must be displayed on an  
          electronic device if geophysical location tracking technology is  
          activated.
           (c) 
           (d) A lessor shall provide that any geophysical location  
          tracking technology that has been installed on an electronic  
          device, or can be active by the lessor, expires following the  
          lease period, or upon completion of purchase of the electronic  
          device.
          (e)  A lessor shall not use  or install  monitoring technology on  
          an electronic device for any purpose.
           (f) A lessor shall provide clear and prominent notice to a  








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          consumer and obtain express consent from the consumer for the  
          installation of any software that permits the use of remote  
          technical assistance and upon the activation and deactivation of  
          any remote technical assistance when requested by the consumer.
          (g) A lessor shall not acquire any data when providing remote  
          technical assistance beyond what is necessary to provide  
          assistance to the user and consented by the user.  Any data  
          acquired during the period of consumer consented technical  
          assistance shall not be retained, used or sold for any purpose.   

           
           ARGUMENTS IN SUPPORT  :  The Consumer Attorneys of California  
          state that:

               Although rent-to-own retailers are required to provide  
               written contracts to their customers specifying the  
               cost and repayment terms, there is no [requirement]  
               that the retailer notify the consumers of any personal  
               information that may be collected and shared. In  
               recent years, monitoring and geophysical location  
               technology has created serious privacy concerns.

               [The programs used] allowed these stores to use  
               location services to track and report the physical  
               location of the computer, take screen shots of the  
               computer user's activities, and also take secretive  
               photographs of anyone within view of the computer's  
               webcam. AB 2667 is crucial to protecting consumers'  
               privacy in these situations.

          The Privacy Rights Clearinghouse writes in strong support,  
          stating in part that:

               [This bill] is narrowly drafted to address the  
               inappropriate use of spy software in the rent-to-own  
               industry and still allow for the use of GPS tracking  
               for fraud prevention. At the same time, it ensures  
               that other unnecessary monitoring is eliminated.

          The American Civil Liberties Union also writes in support,  
          stating that:

               Under current law, rent-to-own companies are not  
               required the notify customers about their rented  
               computers' capacity to secretly monitor and track a  








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               user's keystrokes, physical location, and computer  
               activity, and take photographs and screenshots using  
               the computers web cam.

               This bill allows for the use of GPS tracking for fraud  
               prevention while ensuring that other, unnecessary  
               monitoring is eliminated?
           
          Prior Related Legislation  :  AB 722 (Karnette), Chapter 1026,  
          1994, enacted the Karnette Rental-Purchase Act that stipulated  
          parameters, conditions, and obligations for agreements between  
          rent-to-own dealers and consumers.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support  :

          Consumer Federation of California (sponsor)
          Consumer Attorneys of California
          Privacy Rights Clearinghouse
          American Civil Liberties Union

           Opposition  :

          None on file
           
          Analysis Prepared by  :  Drew Liebert and Vignesh Ganapathy / JUD.  
          / (916) 319-2334