Senator Jerry Hill's SB 1351

Jerry Hill Introduces Legislation to Require Credit Card Issuers and Retailers to Convert to Chip-Based Credit Card Technology to Fight Escalating Fraud

Senate Bill 1351 Would Require Implementation of Technology by Next Year

SACRAMENTO – Senator Jerry Hill, D-San Mateo and Santa Clara Counties, today introduced legislation that would require credit card issuers and retailers in California to adopt microchip-based credit card technology by Oct. 1 2015, to better protect consumers.

Retail fraud from counterfeit credit cards has more than doubled since 2007 in the United States, one of the last countries in the world that relies almost exclusively on magnetic strip identification technology for credit cards.

By comparison, chip-based credit cards – which carry the identification information as encrypted data in a microchip that can be read only by special scanners in stores – reduced counterfeit card fraud in Britain by 70 percent from 2007 to 2012, according to the U.K. Card Association.

Meanwhile, hackers have found it increasingly easy to copy identifying information on magnetic stripes and produce fake cards.

Under Hill’s Senate Bill 1351, beginning on Oct. 1, 2015, cards issued or renewed by banks or credit card companies would have to utilize chip technology while retailers would be required to have scanners capable of reading the new cards.

Implementation is timed to occur the same month credit card companies plan to hold merchants financially responsible for any fraud resulting from a point-of-sale transaction involving a magnetic strip credit card. Currently, banks that issue the cards are liable for such fraud.

“My legislation holds all stakeholders accountable to protect consumers from scam artists who use fake cards to game the system,” Hill said. “Unfortunately, this is only one piece of the credit card fraud puzzle and consumers still need to be on guard for online and other forms of remote fraud.”

Of the 5.6 billion credit and debit cards in circulation in the United States, only an estimated 15 million to 20 million are chip cards – issued mainly to people who travel overseas frequently. Only 14 percent of all payment terminals in the country are capable of reading chip cards, according to the research and investment firm Aite Group.

Conversion to chip cards in the United States has been slowed because the financial industry and retailers have not been able to agree on card-swipe fees and neither side has wanted to commit to the necessary expenditures until the other party does.

A typical card issuer will spend about $1.30 to buy a chip card, compared with 10 cents for a traditional magnetic strip card, according to Aite Group. But the cost would certainly be worth it. According to Nilson Report, a payment industry newsletter, merchants and banks in the United States lost $11.3 billion in 2012 due to credit card fraud.

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Nate Solov

Office of Senator Jerry Hill

916-651-4013

www.senate.ca.gov/hill