Governor Vetoes California Data Protection Law

Gov. Arnold Schwarzenegger on Saturday vetoed one of the nation's most stringent proposed retail data breach security laws, saying that the bill would have "driven up the costs of compliance, particularly for small businesses."

The proposed California law—AB 779 (see full text of that now-vetoed bill)—would have required retailers to protect data in a manner more demanding than current Payment Card Industry Data Security Standard (PCI DSS) requires.

The bill included a ban on sensitive consumer data information except when the merchant has a payment data retention and disposal policy, "which limits the amount of payment related data and the time that data is retained to the amount."

But it also outright prohibited much data being stored at all after the purchase was authorized by banning a retailer from "storing sensitive authentication data subsequent to authorization, even if that data is encrypted."

According to Schwarzenegger's veto message explaining why he killed the bill, the governor left the door open to possible signing a reworked version of the bill. "I encourage the author and the industry to work together on a more balanced legislative approach," he said.

But the current version of the bill, Schwarzenegger said, "attempts to legislate in an area where the marketplace has already assigned responsibilities and liabilities that provide for the protection of consumers. In addition, the Payment Card Industry has already established minimum data security standards when storing, processing, or transmitting credit or debit cardholder information."

The governor argued that "the industry"—presumably a reference to credit card companies and the PCI Council—is in a better position to know what is realistic and reasonable for credit card security. Also, he said that signing such a bill could actually create a conflict.

"This industry has the contractual ability to mandate the use of these standards, and is in a superior position to ensure that these standards keep up with changes in technology and the marketplace," he said. "This measure creates the potential for California law to be in conflict with private sector data security standards."

Schwarzenegger also said that he objected to ambiguities in the bill's phrasing. "While I support many of the provisions of this bill, it fails to provide clear definition of which business or agency 'owns' or 'licenses' data," the governor said, "and when that business or agency relinquishes legal responsibility as the owner or licensee."

But the Democratic author of the bill suggested the Republican governor caved in to pressure from the retail community.

"Big business, hackers and ID thieves won today and consumers and common sense lost," said Assemblyman Dave Jones of Sacramento, the bill's author. "I'm shocked and disappointed that the governor thinks our personal information should be left out in the open for identity thieves and hackers to pilfer. If your slack security leads to a data breach then you ought to pay for what you caused. 'You broke it, you bought it,' as retailers like to say. How could anybody disagree with this, let alone the Governor?"

The bill had passed so easily through both chambes in California—it passed the 40-member state senate last month in a 30-6 vote and had earlier unanimously passed the assembly 73-0—it is theoretically possible bill supporters could try for a veto over-ride, which would need two-thirds majorities in each body. But as of Sunday, no one had publicly said they were going to try to do that.

The concerns about the cost of compliance for smaller retailers has scuttled other state attempts at mandating strong data security rules, including Connecticut, where an initial supporter of such a law backed off as being lobbied by smaller merchants.

Federal efforts to pursue national standards on retail data have also gone nowhere, with hearings on the TJX databreach—which has been seen as a catalyst for state and federal data protection legislative efforts—have been repeatedly postponed and are now tentatively scheduled for November. In January, TJX announced a data breach where the credit card data of some 46 million consumers fell into unauthorized hands, a move widely regarded as the worst retail data security breach ever reported.

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