Amended in Senate March 26, 2014

Senate Bill No. 1351

Introduced by Senator Hill

February 21, 2014

An act to add begin insert and repeal end insert Title 1.3E (commencing with Section 1748.70) begin delete to end delete begin insert of end insert Part 4 of Division 3 of the Civil Code, relating to begin delete credit and debit end delete begin insert payment end insert cards.

LEGISLATIVE COUNSEL’S DIGEST

SB 1351, as amended, Hill. begin delete Credit and debit end delete begin insert Payment end insert cards.

Existing law generally provides for the regulation of credit and debit cards, including, but not limited to, limitations on the methods for offering and denying a credit card, requirements for listing the name appearing on a credit card, and restrictions on a person’s liability for an unauthorized used of his or her credit or debit card.

This bill would require begin delete , starting October 1, 2015, a bank, credit union, or financial institution to issue a credit or debit card with microchip technology, as specified. The bill would also require, starting on the same date, a retailer to utilize a credit or debit card scanner that accepts a credit or debit card with either a magnetic stripe or microchip technology or any other similar technology, as specified. end delete begin insert retailers, starting October 1, 2015, except as specified, that accept a payment card, as defined, to provide a means of processing card-present payment card transactions involving payment cards equipped with embedded microchips capable of storing a personal identification number or any other technology that is generally accepted within the payments industry as being more secure than microchip technology for card-present fraud prevention. The bill would also require specified contracts entered into between a financial institution and a payment card network, as those terms are defined, to include a provision requiring that a new or replacement payment card issued to a cardholder with a California mailing address have an embedded microchip capable of storing a personal identification number or any other technology that is generally accepted within the payments industry as being more secure than microchip technology for card-present fraud prevention. end insert The bill would make legislative findings and declarations in this begin delete regard. end delete begin insert regard and would repeal these requirements on or before January 1, 2020, unless a later enacted statute, that is enacted before January 1, 2020, deletes or extends that date. end insert

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) Over 80 countries utilize microchip technology for credit
cards, including, but not limited to, Canada, Mexico, Brazil, and
countries throughout Europe and Asia.

(b) The United States is one of the few remaining countries that
relies almost exclusively on magnetic stripe technology for credit
and debit cards.

(c) Credit and debit cards with microchip technology are
preferred to magnetic stripe cards because identifying information
is encrypted on an embedded microchip, which is more difficult
to counterfeit than a magnetic stripe.

(d) Adoption of microchip technology in Britain has helped
reduce fraud from counterfeit cards by 70 percent from 2007 to
2012, inclusive, according to the UK Card Association.

(e) By contrast, breaches have more than doubled since 2007
at retailers in the United States, affecting more than 5,000 records,
according to a survey by the Ponemon Institute, begin insert a end insert research firm
located in Michigan.

(f) In 2012, United States merchants and banks suffered losses
of $11.3 billion due to credit card fraud, or five cents ($0.05) on
every one hundred dollars ($100) spent, according to the Nilson
Report, a payment-industry newsletter based in California.

(g) If credit and debit cards with microchip technology were
used in the United States, fraud losses could be reduced by 50
percent, according to estimates by Aite Group, an independent
research and advisory firm focused on business, technology, and
regulatory issues and their impact on the financial services industry.

(h) It has been widely reported that retailers, banks, financial
institutions, and credit unions are planning on voluntarily adopting
microchip technology beginning in October 2015.

SEC. 2.  

Title 1.3E (commencing with Section 1748.70) is
added to Part 4 of Division 3 of the Civil Code, to read:

 

Title 1.3E.  Microchip begin delete Credit And Debit end delete begin insert Payment end insert
Cards

 

begin delete

1748.70.  

A bank, credit union, or financial institution shall
issue a credit or debit card with microchip technology, as follows:

(a) To a new cardholder whenever issuing any credit or debit
card.

(b) To an existing cardholder only when issuing a new or
replacement credit or debit card in the ordinary course of business.

end delete begin insert

begin insert 1748.70. end insert   

(a) Except as specified in subdivision (b), on and
after January 1, 2015, any contract entered into between a
financial institution and a payment card network to govern the
circumstances under which the logo of the payment card network
is displayed on a payment card issued by that financial institution
shall include a provision requiring that any new or replacement
payment card issued on or after October 1, 2015, to a cardholder
with a California mailing address by that financial institution with
that payment card logo, have an embedded microchip capable of
storing a personal identification number or any other technology
that is generally accepted within the payments industry as being
more secure than microchip technology for card-present fraud
prevention.

(b) On and after January 1, 2017, any contract entered into
between a small financial institution and a payment card network
to govern the circumstances under which the logo of the payment
card network is displayed on a payment card issued by that
financial institution shall include a provision requiring that any
new or replacement payment card issued on or after October 1,
2017, to a cardholder with a California mailing address by that
financial institution with that payment card logo, have an
embedded microchip capable of storing a personal identification
number or any other technology that is generally accepted within
the payments industry as being more secure than microchip
technology for card-present fraud prevention.

end insert

1748.75.  

begin delete A end delete begin insert (a) end insert begin insert   end insert begin insert On and after October 1 , 2015, a end insert retailer begin delete shall
utilize a credit or debit card scanner that accepts a credit or debit
card with either a magnetic stripe or microchip technology or any
other technology that is generally accepted within the payments
industry as being equally or more secure than microchip technology
for card-present fraud prevention. end delete begin insert that accepts a payment card
shall provide a means of processing card-present payment card
transactions involving payment cards equipped with an embedded
microchip capable of storing a personal identification number or
any other technology that is generally accepted within the payments
industry as being more secure than microchip technology for
card-present fraud prevention. end insert

begin insert

(b) The requirements of subdivision (a) shall apply to small
retailers and gas station pump payment terminals on and after
October 1, 2017.

end insert

begin insert

begin insert 1748.80. end insert   

For purposes of this title, the following terms shall
have the following meanings:

(a) “Payment card” means a credit or debit card.

(b) “Payment card network” means an entity that facilitates
the payment process between credit or debit card users, retailers,
and credit or debit card issuers.

(c) “Retailer” means a person or entity that furnishes money,
goods, services, or anything else of value upon the presentation
of a payment card by a cardholder. “Retailer” shall not mean the
state, a county, city, city and county, or any other political
subdivision of the state.

(d) “Small financial institution” means a financial institution
with assets of $5 billion or less.

(e) “Small retailer” means a retailer with 10 or less employees.

end insert begin insert

begin insert 1748.85. end insert   

It is the intent of the Legislature that this chapter
provide consumer protection consistent with federal law.

end insert begin insert

begin insert 1748.90. end insert   

This title shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted statute,
that is enacted before January 1, 2020, deletes or extends that
date.

end insert begin delete

1748.80.  

This title shall become operative on October 1, 2015.

end delete