BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1509|
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THIRD READING
Bill No: AB 1509
Author: Machado (D)
Amended: 8/30/99 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 7-1, 8/17/99
AYES: Burton, Escutia, O'Connell, Peace, Sher, Wright,
Schiff
NOES: Haynes
NOT VOTING: Morrow
ASSEMBLY FLOOR : 55-19, 5/25/99 - See last page for vote
SUBJECT : Credit card disclosures regarding use of
marketing
information
SOURCE : Author
DIGEST : This bill amends 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, as specified.
ANALYSIS : Existing law, the Areias-Robbins Credit Card
Full Disclosure Act of 1986, 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
CONTINUED
AB 1509
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2
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
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 provides that the above provisions become
inoperative on April 1, 2000 and would sunset on January 1,
2001.
This bill specifies that the requirement of notice of a
cardholder's right to prohibit disclosure of marketing
information concerning the cardholder which discloses the
cardholder's identify is to be satisfied by furnishing
notice to the cardholder as follows:
AB 1509
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3
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 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.
3. At least once per calendar year, every cardholder is
entitled to receive an annual statement of billing
rights. This statement may be included in the monthly
statement.
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."
Prior legislation :
AB 1435 (Machado, 1997-98) died in Senate Appropriations
Committee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/31/99)
AB 1509
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4
Consumers Union
CALPIRG
Consumers Action
Privacy Rights Clearinghouse
California Firefighters
OPPOSITION : (Verified 8/31/99)
Household Financial Group
Discover Financial Services
ARGUMENTS IN SUPPORT : 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:
"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."
ARGUMENTS IN OPPOSITION : Discover Financial Services,
Inc. and Household Financial 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.
AB 1509
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5
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.)
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 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
AB 1509
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6
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.
ASSEMBLY FLOOR :
AYES: Alquist, Aroner, Bates, Bock, Calderon, Cardenas,
Cardoza, Cedillo, Corbett, Correa, Cox, Cunneen, Davis,
Dickerson, Ducheny, Dutra, Firebaugh, Florez, Floyd,
Frusetta, Gallegos, Granlund, Havice, Hertzberg, Honda,
House, Jackson, Keeley, Kuehl, Lempert, Longville,
Lowenthal, Machado, Maldonado, Margett, Mazzoni, Migden,
Nakano, Rod Pacheco, Pescetti, Reyes, Romero, Scott,
Shelley, Steinberg, Strom-Martin, Thomson, Torlakson,
Vincent, Washington, Wayne, Wesson, Wildman, Wright,
Villaraigosa
NOES: Aanestad, Ackerman, Ashburn, Baldwin, Battin, Baugh,
Brewer, Briggs, Kaloogian, Leach, Leonard, Maddox,
McClintock, Olberg, Robert Pacheco, Runner, Strickland,
Thompson, Zettel
NOT VOTING: Campbell, Knox, Oller, Papan, Soto, Wiggins
RJG:jk 8/31/99 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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