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California Creates Consumer Privacy Act

| by Michael Stiefel Follow 6 Followers on Aug 31, 2018. Estimated reading time: 6 minutes |

California has enacted the California Consumer Privacy Act (CCPA) of 2018 which, starting on January 1, 2020, would grant consumers several rights with respect to information about them that businesses collect, store, sell, and share. Consumers are "natural persons" who are residents of California. This is the first legislation of its kind in the United States.

Overview

Consumers would have the right to request that a business disclose the information it has about them, the categories of sources from where it was collected, the business purposes for collecting or selling, and the categories of third parties with which it is shared. Business would have to delete personal information based on a verified request by a consumer. Consumers also have the right to know what information is collected ahead of time.

Generally, a consumer must opt-out to the collection of data.

The law prohibits discrimination against a consumer who makes such a request. The definition of discrimination includes a different quality of good or service except if it is related to the value of the consumer's data. How this applies to a business that offers free services in exchange for information collection is unclear.

Businesses must state their privacy policy and their policy regarding the use and sale of consumer information. Businesses are allowed to keep information for internal purposes. The law does not define what that means.

Definition of Personal Information

The CCPA defines personal information broadly, going beyond what is usually considered sensitive or financial information. ""Personal information" means information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household." These include, but are not limited to:

  • "Identifiers such as a real name, alias, postal address, unique personal identifier, online identifier Internet Protocol address, email address, account name, social security number, driver's license number, passport number, or other similar identifiers."
  • Commercial information, including records of personal property, products or services purchased, obtained, or considered, or other purchasing or consuming histories or tendencies.
  • Biometric information.
  • "Internet or other electronic network activity information, including, but not limited to, browsing history, search history, and information regarding a consumer’s interaction with an Internet Web site, application, or advertisement."
  • Geolocation data.
  • "Audio, electronic, visual, thermal, olfactory, or similar information."
  • "Professional or employment-related information."
  • "Educational information"
  • "Inferences drawn from any of the information identified in this subdivision to create a profile about a consumer reflecting the consumer’s preferences, characteristics, psychological trends, preferences, predispositions, behavior, attitudes, intelligence, abilities, and aptitudes."

It does not include publically available information.

Allowable Exceptions

Small businesses and non-profit organizations appear to be generally exempt, but could be covered if they engage in certain information gathering activities. Information must be supplied to comply with federal, state, or local laws, as well as, legal and regulatory subpoenas, summons or reasonable law enforcement investigations.

Business can use, retain, sell, or disclose de-identified or aggregated information.

Business can collect or sell personal information if every aspect of the transactions takes place wholly outside of California. Business cannot, however, store personal information on a device while a consumer is in California, and use it to collect data outside of California.

Penalties for Failure to Comply

The bill provides for enforcement by the Attorney General of California, as well as allowing private consumers to sue after a data breach. A data breach is defined as unauthorized access, theft, or disclosure of unencrypted or non-redacted information as a result of a business failing to maintain a reasonable security procedure. There is also a liability for loss of paper data. The Attorney General can enforce all provisions of the legislation.

The bill defines a method for distribution of proceeds of Attorney General actions. The bill would create the Consumer Privacy Fund in the General Fund with the moneys in the fund, upon appropriation by the Legislature, to be applied to support the purposes of the bill and its enforcement. The bill would provide for the deposit of penalty money into the fund.

The act does not define what a reasonable security procedure is. The California Attorney General has previously cited the twenty controls in the Center for Internet Security's Critical Security Controls  as defining the minimum level of information security for organizations that use personal information.

The legislation "would void a waiver of a consumer’s rights under its provisions." It is unclear if this would prohibit companies requiring their customers to sign binding arbitration agreements.

The bill would require the Attorney General to solicit public participation for the purpose of adopting regulations, as specified. The bill would authorize a business, service provider, or 3rd party to seek the Attorney General’s opinion on how to comply with its provisions.

Legislative History

The bill was reintroduced, passed, and signed by the Governor in one week.

The reason for this speed was to pre-empt a ballot initiative that would appear in the November 2018 election. The sponsors of the ballot stated they would withdraw the proposal from the ballot if the California Consumer Privacy Act was passed and signed by the Governor by June 29.

Dating from the progressive era, citizens of California can put on ballot a proposed law. If it passes, it becomes state law that cannot be amended by the state legislature. Amendments must be made by other initiatives.

Impact

While the legal protections are only available to citizens of California, in practice they will affect a large fraction of the United States. The state is the most populous in the United States, and its economy, if it were a separate country would be the 5th largest in the world, bigger than the UK or France. Hence, many businesses outside of the state would find it cumbersome to treat California and non-California residents differently with respect to privacy policies or opt-out provisions. Theoretically, even a non-California IP address could be used inside California, and a California resident could transact business temporarily outside of California.

Comparison with European Union's General Data Protection Regulation

Despite being superficially similar, they are very different. The California legislation's scope is much more restricted. Nonetheless, compliance with the General Data Protection Regulation (GDPR) will not make you automatically compliant with the CCPA.

The California legislation is restricted to consumer privacy rights and consumer disclosures. The GDPR not only regulates consumer disclosures, but it has procedures for data breaches, notifications to individuals and regulators, how to implement data security, as well as rules concerning cross-border data transfers. The GDPR grants rights such as rectification, not to be subject to a decision based on automated decision making, and possibly a right to be forgotten. The GDPR requires users to actively opt-in for consent. The CCPA generally requires only the ability to opt-out from the use of their personal data. The CCPA requires a toll-free number to be available, the GDPR does not. How companies comply with these conflicting requirements is unclear.

The GDPR does not disallow different pricing mechanisms depending on the degree of data consent. The CCPA is not completely clear on what allowable financial incentives business can offer their customers to encourage data collection. The definition of consumer data is much broader under the CCPA than the GDPR. The allowable exceptions to disclosure and deletion are different.

Implications

The legislation does not take effect for another year and a half. That would give plenty of time for the law to be amended, or for national legislation to be passed that would override the California law. The latter is a distinct possibility if multiple, conflicting state laws are passed. The industry may feel that it is able to get weaker, national legislation passed, especially with respect to eliminating consumer lawsuits. Industry groups and national legislators are also caught between what their customers now expect, and what they think their businesses need. As is usual with such legislation, the national government would either create a new agency, or have the Federal Trade Commission, write new regulations.

The other interesting aspect is that the large technology companies may want complicated, detailed regulations which only they have the time, money, and resources to implement. This would create a barrier to entry for competitors. There have been reports of small companies in Europe shutting down because the GDPR is too onerous.

 

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