SACRAMENTO, Calif. -- In a move which some credit unionsupporters expected but hoped would not happen, California GovernorArnold Schwarzenegger has vetoed a landmark piece of legislationthat would have given credit unions recourse in the courts whendamaged by a merchant's card security breach.

The bill would have brought the industry's data securitystandards into state law and would have provide a way for creditunions to recoup the costs of reissuing cards and other expensestied to these breaches. But in his veto statement, the Governoralluded to the tie between industry standards and state law as aweakness in the legislation.

"This bill attempts to legislate in an area where themarketplace has already assigned responsibilities and liabilitiesthat provide for the protection of consumers," Schwarzeneggerwrote. "In addition, the Payment Card Industry has alreadyestablished minimum data security standards when storing,processing, or transmitting credit or debit cardholder information.This industry has the contractual ability to mandate the use ofthese standards, and is in a superior position to ensure that thesestandards keep up with changes in technology and the marketplace.This measure creates the potential for California law to be inconflict with private sector data security standards."

But Bob Arnould, the League's senior vice president forgovernment affairs explained that the bill's supporters had metwith the Governor's representatives several times and explainedthat there would be no conflict, but that the meeting hadapparently not been enough.

"We know that there has been a lot of pressure on the Governorfrom the merchants and to some extent the bankers," Arnould said.And he discouraged the idea that the legislature would override theveto noting that it had not done so in years.

Instead Arnould said the league would be building on the supportfor the bill that it had managed to create during this session.

"I don't think anyone in California may have really understoodthe problem before we started," he said, "but now legislators andjournalists and opinion makers all know about the problem and thechallenges 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 andlaid the groundwork for the effort that will move forward in thenext session."

Both Blanchard and Arnould noted that the Governor's vetomessage had signaled a real interest in signing a bill in thefuture and a warning to the merchants to make it happen.

"I encourage the author and the industry to work together on amore balanced legislative approach that addresses the concernsoutlined above," Schwarzenegger stated.

Arnould explained that CUs interpreted that comment as directedtoward merchants and retailers because the CUs had sought theircooperation from the beginning in drafting a bill but neverreceived it.

"From the beginning I think they anticipated defeating the billin the legislature, either in the House and then in the Senate andthen by veto," Arnould said. "I don't think they ever thought theywould have to compromise on it and so did not. We'll see if theGovernor's message has any impact next session."

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