Legislative Update: 2 New Plastic Card Protection Bills Pending (Alabama and Iowa)

Plastic Card Protection laws continue to be proposed in state legislatures. This time its Alabama and Iowa that are jumping into the fray with bills that incorporate the Payment Card Industry (“PCI”) Data Security Standard and/or provide financial institutions with the legal right to seek reimbursement for costs associated with payment card security breaches. However, the Iowa and Alabama bill provide some new wrinkles.

Alabama SB 382. Here are some of the wrinkles in the Alabama bill:

(1) Personal Information Deletion Requirement. Requires the deletion/destruction of personal information that is “longer necessary to be retained.”

(2) PCI Tie-In – PCI Section 3.2.. The bill prohibits the storage “in either encrypted or unencrypted form, subsequent to authorization, the card security code data, the PIN verification code data, the full contents of any track of a magnetic stripe or data chip, card-validation code, or value, or any other security information in a manner that permits access to an individual financial account.” This is essentially the same duty as section 3.2 of the PCI Standard. Note this language appears to go beyond payment card security since it relates to “any other security information that permits access to an individual financial account.” This language could possibly include passwords for online banking sites, online payment sites and other access codes tied to financial accounts (beyond credit card accounts).

(3) Financial Institutions Recovery of Reasonable Costs. Like other Plastic Card Protection laws, in the event the of a violation of the law and a security breach exposing personal information, the Alabama bill provides bank with the right to reimbursement for the reasonable costs of actions taken “to protect the personal information and account information of the customer or to continue to provide financial services to the customer,” including the costs to reissue cards, open/close accounts, contacting cardholders and refunds or credits made to customers.

(4) Private Cause of Action. In a new twist the bill specifically provides a private cause of action for financial institutions against those that “are responsible for the security breach.” The financial institution may receive not only actual damages, but also incidental and consequential damages, as well as court costs and reasonable attorney fees. Significantly, this language may help financial institutions recover damage elements that would be very difficult to recover under a traditional negligence claim.

Iowa S.S.B 3183. Here are some of the wrinkles in the Iowa bill:

(1) PCI Tie-In – Entire PCI Standard. The Iowa bill requires compliance with the entire PCI Standard by any entity that accepts a payment card in connection with transactions in the ordinary course of business. However, the bill also indicates that the Iowa attorney general must adopt rules necessary to implement the bill, including identifying the payment card industry standards to be applied.

(2) PCI Certification. Financial institutions initiating an action must request a certification of compliance from the party that suffered the security breach. The certification must be made by a payment card industry approved independent auditor. It appears that an action cannot be commenced against an entity that has not been found in violation of the PCI Standard.

(3) Financial Institutions Recovery of Reasonable Costs. The bill provides for the right to recover similar damage components as those in the Alabama bill.

(4) Attorney Fees for Prevailing Party. The bill provides that the prevailing party in an action will be entitled to recover attorney fees. However, if the prevailing party is an entity that has refused to certify PCI compliance it cannot recover attorney fees.

BOTTOMLINE: the legal liability will change radically if these bills get passed (like the Minnesota and Connecticut laws, as well as the bill in Washington State that has passed one house).