BILL ANALYSIS �
AB 2667
Page 1
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