Amendments to California’s security breach notification bill head to governor: key action points for businesses

by DLA Piper
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In what has become almost an annual ritual, California is poised to tweak its security breach notice law.  Last year, in language DLA Piper lawyers helped to draft on behalf of the State Privacy & Security Coalition, the legislature required notification of breaches of credentials for online accounts.  This year’s tweaks, which DLA Piper lawyers again helped to draft, are narrower.

Under the bill (A.B. 1710), if an organization experiencing a breach offers identity theft mitigation services, the proposed law would require that the organization offer at least 12 months of such assistance at no cost to the individual.  The bill passed the Senate on August 25, 2014; it is very likely to be signed by Governor Jerry Brown in the next month and is set to take effect on January 1, 2015. 

The bill also (i) extends data security requirements to businesses that “maintain” personal information (the current law only imposes that requirement for organizations that “own” or “license” personal information); and (ii) generally, subject to exceptions, prohibits the sale, advertisement for sale or offer to sell an individual’s Social Security number.

Credit monitoring service offers – if offered, must be offered for at least 12 months

Current California law (Cal. Civ. Code § 1798.80 et seq.) does not require an organization to offer credit monitoring or similar services if the organization was breached.  Some commenters have suggested that A.B. 1710 would change the status quo by obligating businesses to provide consumers with identity theft protection service.  As drafted, however, the bill provides that if a business is the source of the breach and if it decides to offer California residents “appropriate identity theft prevention and mitigation services,” it must offer at least 12 months of such services at no cost to the individual.  Businesses will also have to provide the information necessary for residents to take advantage of the services

In practice, this amendment to California’s breach notice law is unlikely to change breach response practices significantly.  Businesses that are required to provide breach notice and choose to offer credit monitoring or identity theft insurance almost always do so for free and for at least one year. 

The law’s chief effect is likely to be on businesses that contract with vendors to offer credit monitoring or similar services.  It will incentivize those businesses to consider placing contractual and procedural restrictions on the ways vendors are permitted to offer additional paid services to individuals who contact them to redeem free service offers made by the breached business.  Breached organizations will want to consider ensuring that any offer for additional, paid services is clearly made by the vendor alone and not by the business that suffered the breach.

Although the bill does not require offering credit monitoring services, these amendments may spur efforts in other states to require such services – even when the business is not the source of the breach.  Other states (for example, Rhode Island, with its H. 7519,  and Minnesota, with its H.F. 2253) have already considered requiring credit monitoring or other services.  We expect more bills like this to emerge in 2015. 

Security requirements imposed for a new class of organizations

In addition, A.B. 1710 would mandate that businesses that maintain personal information of California consumers “implement and maintain reasonable security procedures and practices” to protect personal information from “unauthorized access, destruction, use, modification, or disclosure.”  Currently, businesses that merely maintain personal information are not directly subject to these requirements under California law.  Instead, current law only imposes these security requirements on organizations that own or license personal information of California residents.  Those owners and licensees are also required to impose contractual security requirements on third parties with which they share personal information. 

This amendment is important for third-party service providers that obtain personal information from an owner or licensee of the personal information but are not yet contractually required to implement and maintain reasonable security procedures and practices.  Although third-party service providers that receive personal information about California residents should already be contractually bound to implement security practices, this change will require that service providers do so notwithstanding their contracts with owners or licensees.

New ban on sale of Social Security numbers, with exceptions

Finally, A.B. 1710 would also prohibit selling, marketing, advertising or offering to sell an individual’s Social Security number (SSN).  However, it exempts from this ban on sales of SSNs the release of the number if incidental to a larger transaction and necessary for a legitimate business purpose (e.g., to run a credit report, or as part of sale of a company).  It also exempts the release of an SSN where specifically authorized or specifically required by federal or state law, as well as the collection, use or release of an SSN as required by state or federal law and the use of an SSN for internal verification or administrative purposes.

This provision will bar most sales of SSNs to the public (e.g., over the Internet) and for marketing purposes, except for identity verification or administrative purposes. 

A.B. 1710 passed the Assembly on May 27 and the Senate on August 21.  The Assembly concurred in the Senate’s amendments on August 25.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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