BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Adam B. Schiff, Chairman
1999-2000 Regular Session
AB 1509 A
Assemblymember Machado B
As Amended August 16, 1999
Hearing Date: August 17, 1999 1
Civil Code 5
JMR:cjt 0
9
SUBJECT
Credit Card Disclosures Regarding Use of Marketing
Information
DESCRIPTION
This bill would increase the notice requirements provided
by credit card issuers to cardholders, regarding the
cardholder's right to prohibit the disclosure of marketing
information by the credit card issuer.
CHANGES TO EXISTING LAW
Existing law provides that if a credit card issuer
discloses marketing information concerning a cardholder to
any person, the credit card issuer shall provide a written
notice to the cardholder that clearly and conspicuously
describes the cardholder's right to prohibit the disclosure
of information concerning the cardholder which discloses
the cardholder's identity.
Existing law also requires that the disclosure notice to
include a preprinted form by which the cardholder may
exercise this right or shall advise the cardholder of a
toll-free number which the cardholder may call to exercise
this right.
Existing law also provides that this disclosure notice is
satisfied if it is given to the cardholder (1) on or with
(more)
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the credit application, (2) with the credit card when it is
delivered to the cardholder, or (3) in any manner and at
any time, provided that it is furnished prior to the
disclosure of marketing information relating to the
cardholder.
Existing law provides that the disclosure notice does not
apply in the following communications of marketing
information by a credit card issuer:
(1) Communications to any party to, or merchant specified
in, the credit card agreement, or to any person whose
name appears on the credit card or on whose behalf the
credit card is issued.
(2) Communications to consumer credit reporting agencies.
(3) Communications to a corporate subsidiary or affiliate
of the card issuer.
(4) Communications to a third party when the third party is
responsible for conveying information from the card
issuer to any of its cardholders.
This bill would amend the disclosure notice required in
existing law to, among other things, require the notice
appear in 10-point type and require a toll-free number to
exercise the option in every case. Based on a complicated
schedule of dates, the bill also would require the notice
to be provided on more than one occasion, depending on when
the card is given and what notice has already been
provided. In particular:
(1) At least 60 days prior to the initial disclosure of
marketing information concerning a cardholder to any
person, the credit card issuer shall provide a written
notice to the cardholder that clearly and conspicuously
describes the cardholder's right to prohibit the
disclosure.
(2) For credit cards issued before April 1, 2000, "no
notice need be furnished to a cardholder as to whom
marketing information will not be disclosed or to whom
notice has been given prior to April 1, 2000, that was in
accordance with then-existing law."
(3) For all new credit cards issued on or after April 1,
2000, the written notice would have to be furnished to
the cardholder on the form containing the new credit card
when the credit card is delivered to the cardholder.
(4) For credit cards issued prior to April 1, 2000, for
which written notice is required, the written notice
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shall be furnished to the cardholder on a preprinted form
on or before December 31, 2000.
(5) On or after January 1, 2001, each credit card issuer
who discloses marketing information for consideration
shall clearly and conspicuously disclose at least once
per calendar year, to every cardholder entitled to
receive an annual statement of billings rights the
cardholder's right to prohibit the future disclosure of
marketing information, at intervals of not less than 6
months nor more than 16 months, provided that the end of
the 16-month interval falls within the next calendar year
from the date the prior notice was received.
This bill also would modify the definition of "marketing
information" to include
"a subsidiary or affiliate organization of the company that
collects the information," and would require the notice to
cardholders when the credit card issuer shares the
information with a corporate subsidiary or affiliate.
This bill also would provide that the cardholder's election
to prohibit disclosure of marketing information would be
effective only with respect to marketing information that
is disclosed to any party beginning 30 days after the card
issuer has received notice of the cardholder's election.
This bill also would modify the title of the affected act
by striking "Robbins."
COMMENT
1. Stated need for legislation
The author believes that the current procedure of
requiring only a single notice to the consumer of their
right to prohibit disclosure of their marketing
information is insufficient. In addition, the author
believes that when notification is provided, it is done
very inconspicuously, in light, small print, which is
very difficult to find, let alone read. According to the
author, use of a cardholder's marketing information
should be a privilege, not a right.
According to the author's submitted summary of the bill:
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"AB 1509 requires a credit card issuer to notify
cardholders of their right to prohibit the disclosure
of the marketing information, in written form, 60 days
prior to the initial disclosure of marketing
information. The disclosure is to be in at least
10-point type and include a toll-free telephone
number.
In addition to this notice, another notice must be
sent to the cardholder with the initial application
and with the credit card when it is delivered to the
cardholder. After the initial disclosure, the credit
card issuer would be required to notify the cardholder
at least once every calendar year about their right to
"opt-out" of having their marketing information sold
or shared."
2. Is this bill in need of amendments to clarify its scope
and requirements ?
The author's stated goal is simple and meritorious: to
increase the frequency in which cardholders receive
notice of their rights to prohibit disclosure, and to
increase the visibility of that notice. However, in an
attempt to cover all possible scenarios of time, the
author has created a bill which is convoluted and
ambiguous.
As set forth above, the bill has various effective dates
with different requirements depending on which date is
contemplated. This seems to be a result of delayed
implementation of various aspects of the bill. For
example, certain provisions would not be effective until
after April 1, 2000, while others would not take effect
until after January 1, 2001. However, until those dates,
various other "interim" requirements would seem to apply.
As currently drafted, the bill is difficult to decipher
and raises various issues, including:
Will the notice that is required "at least 60 days
prior to the initial disclosure" of information to
"any person," have to be given even after the yearly
disclosure has been given? After the disclosure with
a new credit card has been given? Or any time a new
marketer is added to the credit card issuer's list?
Or each time the credit card issuer sends out the
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marketing information? Or is this limited to a
one-time provision before the yearly notices are
required? (Page 3, lines 16-28.)
For credit cards issued before April 1, 2000, the
bill would provide that no notice need be furnished to
a cardholder as to whom notice has been given prior to
April 1, 2000, that was "in accordance with the
then-existing law?" If notice was given on March 1,
2000, does this provision refer to the law existing
prior to AB 1509, or the law in effect between January
1, 2000, and April 1, 2000? (Page 3, lines 28-33.)
Does the yearly requirement of notice after January
1, 2001, for "each credit card issuer who discloses
marketing information for consideration" apply to
cardholders whose information is not disclosed? (Page
4, lines 25-35.)
It seems unnecessary to include, and possibly
difficult to enforce, the complicated description of
what satisfies as "annual notice." (See page 4, lines
27-31, "at least once per calendar year, at intervals
of not less than six months nor more than 16 months,
provided that the end of the 16-month interval falls
within the next calendar year from the date the prior
notice was received.")
In sum, it appears that the bill is attempting to achieve
too much in too short a time. The bill would be far less
confusing if it contained one implementation date,
wherein all the proposed changes would take effect.
Committee staff strongly recommends that the bill be
amended to clarify and simplify the stated goals of the
author: to increase the frequency to increase the
frequency in which cardholders receive notice of their
rights to prohibit disclosure, and to increase the
visibility of that notice. In light of the existing
drafting problems, these goals may be lost on the
consumer.
3. To avoid unnecessary litigation over the application
of the bill, should it be amended to comply with the
existing federal preemption ?
Various banks, financial institutions and corporations
(VISA, Citibank, Discover Financial Services, Inc.,
California Bankers Association, Household Financial
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Group) have raised concerns regarding the provisions in
AB 1509 which impose limitations on the sharing of
consumer marketing information with affiliates and
corporate subsidiaries. These financial institutions
contend that these additional restrictions on the sharing
of information are preempted by federal statute.
There is a general preemption section of the federal Fair
Credit Reporting Act ("FCRA") that addresses inconsistent
state laws. That section provides:
Except as provided in subsections (b) and (c) of this
section, [the Act] does not annual, alter, affect, or
exempt any person subject to the provisions of this
subchapter from complying with the laws of any state
with respect to the collection, distribution, or use
of any information on consumers, except to the extent
that those laws are inconsistent with any provision of
this subchapter, and then only to the extent of the
inconsistency." (15 U.S.C. Section 1681t(a).
Emphasis added.)
This federal provision alone would most likely not result
in a conflict with
AB 1509. However, the preemptive power of the federal
statute was further expanded in 1996 to include
exceptions to the foregoing rule, which include that:
"No requirement or prohibition may be imposed under the
laws of any State . . . with respect to the exchange of
information among persons affiliated by common ownership
or common corporate control" until after January 1, 2004.
(15 U.S.C. Section 1681t, subdivisions (b)(2) and (d).)
The concerned financial institutions contend that this
federal statute preempts the additional requirements and
prohibitions on the exchange of information among
affiliated companies that is proposed in AB 1509. They
state that this position is supported by the Office of
the Comptroller of the Currency that issued an Advisory
Letter on March 29, 1999, stating:
While banks may be subject to federal or state laws in
other areas of consumer privacy, those state laws that
prohibit or limit the types of information affiliates
may share are expressly preempted by FCRA until the
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year 2004." (Comptroller of the Currency, AF 99-3,
March 29, 1999.)
The financial institutions argue that the FCRA
specifically allows a credit card issuer to share
consumer information with its affiliates and
subsidiaries, provided that the consumer is informed that
such information may be shared and is given the
opportunity to opt out of this sharing. In addition,
they contend that the FCRA provides that information
regarding transactions and experiences between a consumer
and a credit card issuer may be shared with affiliated
third parties without such disclosures. Since AB 1509
does not contain an exception for transactions and
experiences, and includes more formal notice requirements
prior to sharing, the financial institutions contend that
AB 1509 would be preempted by federal law and subject to
legal attack. To avoid costly litigation, the financial
institutions request that AB 1509 be amended to
acknowledge the FCRA preemption issue on sharing of
information among affiliates.
SHOULD THE BILL BE AMENDED TO INCLUDE A REFERENCE TO THE
FEDERAL PREEMPTION?
4. Additional requested substantive amendments
In addition to the federal preemption issue, concerns
have been raised about two other substantive issues,
including: (1) the form of the proposed notice; and (2)
the effective date of the cardholder's election to
prohibit disclosure.
As to the proposed requirement of subdivision (c) that
the notice to cardholders be provided only "on the form
containing the new credit card," the issue has been
raised as to whether this would provide any benefit to
the consumer, while unnecessarily hurting credit card
issuer flexibility. Some financial institutions have
asserted that it is their experience that consumers
usually do not retain the form on which the new credit
card arrived (commonly known as the "card carrier").
According to the financial institutions, rather than the
card carrier, cardholders are more likely to focus on the
contract and benefits portions of the mailing. At the
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same time, these financial institutions believe that
mandating that the notice be provided on the card carrier
arbitrarily reduces card issuer flexibility in
determining the most effective and efficient means for
providing the notice.
As to the 30-day period in subdivision (e), the financial
institutions argue that the time needs to be increased to
allow for opt-out requests that are received after the
cutoff date for batch processing changes in the file.
Apparently, many credit card companies process customer
opt outs on a batch basis that is similar to a billing
cycle. If a customer's opt out is received just prior to
the day the batch is run, it may be processed in the next
cycle, in excess of 30 days later. Opponents contend
that a 45-day period would be more appropriate.
5. Other suggested technical amendments
A number of other technical concerns have been raised
that the Committee may want to consider adopting:
Subdivisions (b) and (c) contain two conflicting
standards of the form in which the bill's required
notices must be provided to consumers . At various
points the required notice must be provided "clearly
and conspicuously," and at other points in the bill,
it expressly requires 10-point type. Opponents note
that the standard "clear and conspicuous" is widely
used in federal banking law, and a body of guidance
has arisen about the meaning of the term. This
guidance does not mandate use of 10-point type. To
avoid confusion, the requirements should be
appropriately combined.
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Subdivision (e)(1) does not contemplate a
cardholder opt out that is received via telephone .
Subdivision (e)(1) provides that a cardholder's opt
out becomes effective only with respect to marketing
information that is disclosed beginning 30 days after
the card issuer has received the cardholder's election
"at the designated address" on the notification forms
required under the bill. However, the bill also would
provide cardholders the opportunity to opt out via a
telephone. This section should be amended to include
the telephone option.
The last sentence of subdivision (e)(1) is unclear
and should be modified . It is unclear what is meant
by this sentence and it should be amended to avoid
confusion.
Support: Consumers Union; CALPIRG
Opposition: Household Financial Group
HISTORY
Source: Author
Related Pending Legislation: None Known
Prior Legislation: AB 1435 (Machado, 1997-98), died in
Senate Appropriations
Prior Vote: Asm. Floor 55-19; Asm. B. & F. 12-0
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