Final amendments to the measure, called Assembly Bill No. 779, were approved by the California State Assembly last week and it now awaits the signature of Governor Arnold Schwarzenegger. Observers have called this last step a formality: Governor Schwarzenegger is said to back the bill.
In passing the measure California would extend its national lead in security breach notification law to include some data protection elements. Back in 2003 the state was the first to introduce a law that required businesses to disclose data breaches that could expose individuals to identity theft. That law has since been adopted by most other US states. Last month a committee of the House of Lords called for a similar security breach notification law to be introduced in the UK.
The new bill amends an existing state law on the protection of personal data of a financial nature.
AB 779 forbids retailers from storing payment-related data unless the business has a data retention and disposal policy which limits the amount of data held. Sensitive authentication data, such as the data on a card's magnetic strip, must not be held after card authorisation, even if that data is encrypted, says the bill. Payment-related data must not be sent over the internet unless "encrypted using strong cryptography and security protocols or otherwise rendered indecipherable," it adds.
Businesses must also limit access to payment-related data to only those individuals whose job requires that access.
If required to notify a data breach under the state's existing legislation, a business must now give more comprehensive details of the breach.
If a business fails to comply with the new requirements it shall be liable to the owner or licensee of compromised information "for the reimbursement of all reasonable and actual costs of providing notice to consumers pursuant to the breach […] and for the reasonable and actual cost of card replacement as a result of the breach of the security of the system."
American banking industry sources have estimated the cost of notifying customers of a qualifying breach, and providing them with new cards, at between $12 and $15 per customer.
Dr Chris Pounder, a privacy law expert with Pinsent Masons, the law firm behind OUT-LAW.COM, said: "As with security breach notification laws, the recognition that there needs to be additional protection for individuals has been seen by politicians at the state level rather than at the federal level.
With the Bush administration coming to an end and the primaries due in the next few months, one can expect that the protection of individual privacy could well become an element in the various political campaigns of presidential hopefulls."
If the new bill is signed it will come into force on 1st July 2008 to give retailers time to put in place the required security controls.