Amended in Senate April 22, 2014

Amended in Senate March 26, 2014

Senate Bill No. 1351

Introduced by Senator Hill

February 21, 2014

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

LEGISLATIVE COUNSEL’S DIGEST

SB 1351, as amended, Hill. Payment 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 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 begin insert (PIN) end insert or any other technology that is generally accepted within the payments industry as being more secure than microchip technology for card-present fraud prevention. begin insert The bill would require a retailer that issues a payment card that lacks a payment network logo to ensure that any new or replacement card issued on or after October 1, 2017, has an embedded microchip capable of storing a PIN 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 also require specified contracts entered into between a financial institution begin insert , as defined, end insert 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. The bill would make legislative findings and declarations in this 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.

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, a 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 begin delete five cents ($0.05) end delete begin insert $0.05 end insert
on every begin delete one hundred dollars ($100) end delete begin insert $100 end insert 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 Payment Cards

 

1748.70.  

(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.

begin insert

(c) A small financial institution that subsequently exceeds five
billion dollars ($5,000,000,000) in assets shall be provided with
one year from the date it first exceeds the five-billion-dollar
($5,000,000,000) threshold to comply with subdivision (a).

end insert

1748.75.  

(a) On and after begin delete October 1 , 2015, end delete begin insert October 1, 2015, end insert
a retailer that accepts a payment card begin insert in a card-present,
point-of-sale transaction end insert shall provide a means of processing
card-present begin insert , point-of-sale end insert 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.

begin insert

(b) A retailer that issues a payment card that lacks a payment
network logo shall ensure that any new or replacement payment
card issued on or after October 1, 2017, has an embedded
microchip capable of storing a PIN 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 delete

(b)

end delete

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

1748.80.  

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

begin insert

(a) “Financial institution” means a depository institution or
other entity that issues a payment card to a cardholder for use by
that cardholder to purchase goods, services, or anything else of
value. “Financial institution” can include a retailer.

end insert begin delete

(a)

end delete

begin insert (b) end insert  “Payment card” means a credit or debit card.

begin delete

(b)

end delete

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

begin delete

(c)

end delete

begin insert (d) end insert  “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.

begin delete

(d)

end delete

begin insert (e) end insert  “Small financial institution” means a financial institution
with assets of begin delete $5 billion end delete begin insert five billion dollars ($5,000,000,000) end insert or
less begin insert as of January 1, 2015 end insert .

begin delete

(e)

end delete

begin insert (f) end insert  “Small retailer” means a retailer with 10 or less employees.

1748.85.  

It is the intent of the Legislature that this begin delete chapter end delete begin insert title end insert
provide consumer protection consistent with federal law.

1748.90.  

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.