BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
AB 2667 (Bloom)
As Amended June 15, 2014
Hearing Date: June 24, 2014
Fiscal: Yes
Urgency: No
RD
SUBJECT
Rental-purchase agreements: electronic devices: monitoring
technology
DESCRIPTION
Existing law, the Karnette Rental-Purchase Act, regulates
product rental-purchase agreements (i.e. rent-to-own
agreements). That Act requires rental-purchase agreements to
contain specified notices, including, among other things,
information on costs and terms of payment.
This bill would amend the Act to require a lessor to give clear
and prominent notice to a consumer and obtain their express
consent when selling an electronic device that has geophysical
location tracking technology installed by the lessor. The bill
would prohibit the lessor from using, selling, or sharing
geophysical location tracking technology for any purpose other
than the repossession of the electronic device when there is a
violation of the rental-purchase agreement, or when requested by
the consumer (e.g. if the product is stolen). The bill would
also prohibit a lessor from using or installing monitoring
technology on an electronic device for any purpose other than to
provide remote technical assistance when requested by the
consumer.
BACKGROUND
Rent-to-own (RTO) stores offer home appliances, furniture,
televisions, stereo equipment, and other appliances for rent
with the option to purchase. A consumer enters into an
agreement with an RTO dealer and makes weekly or monthly
(more)
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payments. After a specified number of payments, the dealer
transfers ownership of the item to the consumer. Prior to 1994,
RTO transactions were not specifically governed by any other
specific California law. This changed with the passage of AB
722 (Karnette, Ch. 1026, Stats. 1994), which enacted the
Karnette Rental-Purchase Act (Act) to rectify the lack of both
regulation of, and disclosures by, the RTO industry.
Accordingly, the Act requires every rental-purchase agreement,
as defined, to be in writing and to contain certain information
in a single document that sets forth all the agreements of the
lessor and the consumer with respect to the rights and
obligations of each party. Such information includes, for
example, a description of the personal property and the total
number and total amount of periodic payments necessary to
acquire the property. It also includes a notice to the consumer
of his or her rights and obligations under the agreement.
Additionally, the Act prohibits the inclusion of certain
provisions in these agreements and specifies the parameters of
the consumer's liability for loss of, or damage to, the property
and those of permissible security deposits. Any waiver or
modification of the Act's provisions is void and unenforceable
as contrary to public policy. (See Civ. Code Sec. 1812.622 et
seq.)
Of particular concern for the purposes of this bill is the issue
of consumer rights and necessary disclosures regarding spyware
technologies on electronic devices that are rented out by an RTO
retailer to a consumer. On this issue, the Karnette
Rental-Purchase Act is currently silent. This issue was brought
to the forefront in 2012, when the Federal Trade Commission
(FTC) took action against a national rent-to-own retailer for
using monitoring and tracking software to secretly collect data,
including photos of consumers who had rented home computers or
laptops through the device's "webcam." The resulting FTC order
now prohibits the company from using monitoring technology to
gather consumers' information from rental computers, or
receiving, storing or communicating such information, except to
provide technical support at a consumer's request. Additionally,
the terms of the settlement bar the company from gathering
information from any consumer product via geophysical location
tracking (GPS) technology without clearly notifying and
obtaining express consent from consumers at the time of rental.
Moreover, the settlement further prohibits the company from
installing or activating such technology on rental computers
that does not clearly notify consumers of its presence
immediately before each use, including via a prominent icon on
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the computer, and bars the company from deceptively gathering
information about consumers, and from using improperly obtained
information to collect debt, money, or property as part of a
rent-to-own transaction. (FTC Press Release, FTC Approves Final
Order Settling Charges that Aaron's Inc. Allowed Franchisees to
Spy on Consumers via Rental Computers (Mar. 11, 2014)
[as of Jun.
21, 2014].)
In light of the above, this bill, sponsored by the Consumer
Federation of California, now seeks to expand the Karnette
Rental-Purchase Act to restrict the use of monitoring and GPS
technology on rent-to-own electronic devices to help protect
consumers' privacy. Specifically, this bill would require that
consumers be given notification and provide their express
consent when being sold an electronic device that has had GPS
technology installed by the RTO lessor. While the bill protects
consumers from any unwarranted use, selling, or sharing of the
monitoring and GPS technology by the lessor, it also allows the
lessor to use "remote technical assistance" technology for the
sole purpose of repossession of the electronic device when there
has been a violation of the rental contract or at the request of
the consumer, such as when the product has been stolen.
CHANGES TO EXISTING LAW
Existing law provides that, among other rights, all people have
an inalienable right to pursue and obtain privacy. (Cal.
Const., art. I, Sec. 1.)
Existing case law permits a person to bring an action in tort
for an invasion of privacy and provides that in order to state a
claim for violation of the constitutional right to privacy, a
plaintiff must establish the following three elements: (1) a
legally protected privacy interest; (2) a reasonable expectation
of privacy in the circumstances; and (3) conduct by the
defendant that constitutes a serious invasion of privacy. (Hill
v. National Collegiate Athletic Assn. (1994) 7 Cal.4th 1.)
Existing law recognizes four types of activities considered to
be an invasion of privacy, giving rise to civil liability
including the public disclosure of private facts. (Id.)
Existing law , the Karnette Rental-Purchase Act, regulates
personal property rental transactions in which the renter has
the option to apply a portion of the rent toward purchase of the
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property. The Act governs the rental of property for personal,
household, or family purposes for an initial term of 4 months or
less. The rental-purchase agreement must be in writing and must
contain specified information, including a description of the
property, the total number and the total amount of periodic
payments necessary to acquire the property, and a notice to the
consumer of his or her rights and obligations under the
agreement. (Civ. Code Sec. 1812.622 et seq.)
This bill would require the lessor provide a clear and prominent
notice, as specified, 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 (GPS) technology
installed by the lessor, and at any time the geophysical
location tracking technology is activated or used by the lessor.
This bill would prohibit a lessor shall from using, selling, or
sharing GPS technology on an electronic device for any purpose
other than the repossession of the electronic device when there
is a violation of the rental-purchase agreement, pursuant to
law, or when requested by the consumer. This bill would also
prohibit a lessor from using or installing monitoring technology
on an electronic device for any purpose other than to provide
remote technical assistance when requested by the consumer, and
would prohibit a lessor from acquiring any data when providing
remote technical assistance beyond what is necessary to provide
assistance to the user and beyond what the user has consented
to. The bill would provide that any data acquired during the
period a consumer consented technical assistance shall not be
retained, used, or sold for any purpose.
This bill would require a lessor to provide clear and prominent
notice to a consumer and obtain express consent from the
consumer for the installation or use of any software that allows
the lessor to provide remote technical assistance and upon the
activation and deactivation of any remote technical assistance
when requested by the consumer.
This bill would require clear and prominent notification to be
displayed on an electronic device if geophysical location
tracking technology is activated or used by the lessor, except
that this notification requirement shall be suspended if the
consumer or lessor reports that the electronic device has been
stolen and has filed a police report stating that the electronic
device has been stolen.
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This bill would provide that, in textual communications, the
required disclosures are separate and apart from a 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. The bill would
similarly prescribe the appropriate delivery of disclosures for
communications that are disseminated orally or through audible
means, as well through video means or through interactive media
(including the Internet).
This bill would require a lessor to provide that any geophysical
location tracking technology that has been installed by the
lessor on an electronic device, or can be activated by the
lessor, expires upon the first instance the electronic device
connects to the Internet after completion of the purchase of the
electronic device.
This bill would provide that the provisions above shall not be
interpreted to require a lessor to enter into a rental-purchase
agreement with any consumer who does not provide express consent
to the provisions of above-described provisions of the
rental-purchase agreement.
This bill would define various terms, including:
"Monitoring technology" as any hardware, software, or
application utilized in conjunction with an electronic device
that can cause the device to capture, monitor, record, or
report information about user activities with or without the
user's knowledge.
"Express consent" as the affirmative agreement to any use or
installation of GPS technology or remote technical assistance.
Express consent does not include consent given when either
option is highlighted or preselected as a default setting.
COMMENT
1. Stated need for the bill
According to the author:
The rent-to-own (RTO) industry enters into contracts with
consumers for electronic devices pursuant to the Karnette
Rental-Purchase Act (Civil Code Section[s] 1812.620-1812.649).
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[Currently, there] are no restrictions to the use of
monitoring or geophysical location tracking (GPS) technology
on rented electronic devices in this Act.
This bill restricts the use of monitoring and GPS technology
on rent-to-own electronic devices to help protect consumer's
privacy.
Under this bill, consumers would receive notification and give
consent when GPS technology has been installed on their
electronic device by the RTO lessor. While the bill protects
consumers from any unwarranted use of monitoring and GPS tech,
it also allows the lessor to use "remote technical assistance"
technology when requested by the consumer and provides the
lessor with flexibility for using GPS to track a device when
there is a violation of the rental contract or a report of a
stolen device.
[In doing so, this] bill codifies an FTC [Federal Trade
Commission] agreement ensuring that all RTO companies are
compliant with monitoring and GPS tracking restrictions
suggested by the FTC.
The Consumer Federation of California, the sponsor of this bill,
adds that this bill "puts important regulations in place to
protect consumers who use rent-to-own services from privacy
abuse. Pursuant to recent amendments, AB 2667 still allows for
the use of consumer requested support services while ensuring
that the consumer's privacy remains protected during support
sessions and limiting the information that can be accessed
during any 'desktop sharing' assistance. In addition, this bill
requires the rent-to-own lessor to notify the consumer when GPS
tracking technology is activate[d] on a device for any warranted
purposes currently allowed by law."
2. Ensuring consumer privacy
Staff notes that the right to privacy is a fundamental right
protected by Section 1 of Article I of the Constitution of
California. This bill builds upon that fundamental right to
privacy by requiring that a lessor give clear and prominent
notice to a consumer and obtain their express consent when
selling an electronic device that has GPS technology installed
by the lessor, and by limiting the lessor's ability to use,
sell, or share GPS technology, or to use or install monitory
technology on an electronic device, except for very limited
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purposes, as specified.
The author cites action taken by the Federal Trade Commission
(FTC) in 2012 against a national rent-to-own franchise that the
FTC found had violated the provisions of the FTC Act by using
monitoring and tracking software that allowed the RTO-company to
secretly collect data from consumers who had rented home
computers or laptops. Specifically, the FTC complaint revealed
that the company had collected "private, confidential, and
personal details about consumers using rented computers" such as
passwords, medical records, social security numbers, bank and
credit card statements and more. The company apparently even
collected images by secretly operating webcams to take photos of
the consumers in their homes, as well as of anyone else within
view of the cameras-including images of minor children, as well
as individuals not fully clothed. The resulting FTC final order
that was issued in March of this year (see Background) has
largely shaped the protections that are in this bill.
In support of this bill, the American Civil Liberties Union
(ACLU) notes that while RTO retailers are required to provide
written contracts to consumers specifying, among other things,
the cost or terms of the payment for the computer, there are no
regulations governing the use of spyware. The ACLU argues that
this bill is narrowly drafted to address such inappropriate use
of spy software in the RTO industry.
Specifically, to fill this gap in the law relating to the RTO
industry, AB 2667 would add a new section to the Karnette
Rental-Purchase Act to require that the lessor provide clear and
prominent notice to the 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 (GPS) technology
installed by the lessor, and at any time the GPS technology is
activated or used by the lessor. The bill would expressly
preclude a lessor from using, selling, or sharing GPS technology
on an electronic device for any purpose other than the
repossession of the electronic device when there is a violation
of the rental-purchase agreement, pursuant to law, or when
requested by the consumer-such as when the consumer needs
assistance with the device or there has been a theft of the
device. The bill also otherwise prohibits the lessor from using
or installing monitoring technology on an electronic device for
any purpose other than to provide remote technical assistance
when requested by the consumer. Additionally, while the bill
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requires a clear and prominent notification to be displayed on
an electronic device if GPS technology is activated or used by
the lessor (thereby alerting the consumer using the device), it
also includes a reasonable exception to this notification
requirement in those instances where the consumer or lessor
reports that the electronic device has been stolen and has filed
a police report stating that the electronic device has been
stolen. This will presumably allow for the GPS technology to be
used to track down the stolen device without alerting the thief.
Accordingly, AB 2667 appears to appropriately provide enhanced
privacy protections for consumers without interfering with
authorized and legitimate uses of the technology by the retailer
to assist the consumer.
Support : American Civil Liberties Union; Consumer Attorneys of
California
Opposition : None Known
HISTORY
Source : Consumer Federation of California
Related Pending Legislation : None Known
Prior Legislation : AB 722 (Karnette, Ch. 1026, Stats. 1994) See
Background.
Prior Vote :
Assembly Floor (Ayes 75, Noes 0)
Assembly Appropriations Committee (Ayes 17, Noes 0)
Assembly Business, Professions & Consumer Protection Committee
(Ayes 14, Noes 0)
Assembly Judiciary Committee (Ayes 10, Noes 0)
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