SACRAMENTO, Calif. -- In a move which some credit union supporters expected but hoped would not happen, California Governor Arnold Schwarzenegger has vetoed a landmark piece of legislation that would have given credit unions recourse in the courts when damaged by a merchant's card security breach.
The bill would have brought the industry's data security standards into state law and would have provide a way for credit unions to recoup the costs of reissuing cards and other expenses tied to these breaches. But in his veto statement, the Governor alluded to the tie between industry standards and state law as a weakness in the legislation.
"This bill attempts to legislate in an area where the marketplace has already assigned responsibilities and liabilities that provide for the protection of consumers," Schwarzenegger wrote. "In addition, the Payment Card Industry has already established minimum data security standards when storing, processing, or transmitting credit or debit cardholder information. 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. This measure creates the potential for California law to be in conflict with private sector data security standards."
But Bob Arnould, the League's senior vice president for government affairs explained that the bill's supporters had met with the Governor's representatives several times and explained that there would be no conflict, but that the meeting had apparently not been enough.
"We know that there has been a lot of pressure on the Governor from the merchants and to some extent the bankers," Arnould said. And he discouraged the idea that the legislature would override the veto noting that it had not done so in years.
Instead Arnould said the league would be building on the support for the bill that it had managed to create during this session.
"I don't think anyone in California may have really understood the problem before we started," he said, "but now legislators and journalists and opinion makers all know about the problem and the challenges both card issuers and consumers face."
Larry Blanchard, senior vice president with CUNA Mutual agreed. "I think the legislative effort provided a very strong push and laid the groundwork for the effort that will move forward in the next session."
Both Blanchard and Arnould noted that the Governor's veto message had signaled a real interest in signing a bill in the future and a warning to the merchants to make it happen.
"I encourage the author and the industry to work together on a more balanced legislative approach that addresses the concerns outlined above," Schwarzenegger stated.
Arnould explained that CUs interpreted that comment as directed toward merchants and retailers because the CUs had sought their cooperation from the beginning in drafting a bill but never received it.
"From the beginning I think they anticipated defeating the bill in the legislature, either in the House and then in the Senate and then by veto," Arnould said. "I don't think they ever thought they would have to compromise on it and so did not. We'll see if the Governor's message has any impact next session."
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