Senate Standing Committee on Banking and Financial Institutions

We have two bills on today's agenda and we don't have quorum yet. So we're going to go ahead and begin as a Subcommitee and we will begin with file item one AB 39. Assembly Member Grayson.

Thank you Madam Chair and Members of the Committee. I am pleased to present AB 39 which will help create a safer and more sustainable cryptocurrency market for California consumers and businesses. First, I do agree with the Committee's suggested amendments that are detailed in the analysis produced by Committee staff and I do accept those amendments and will commit to taking them in the next Committee. This Committee has heard plenty of testimony in recent months about harm caused by underregulated crypto market.

The Assembly and the Senate Banking Committees held an oversight hearing in February to hear what California is doing to regulate crypto. And one big takeaway from that hearing is that we need to do more. We need to give DFPI the tools it needs to promote responsible innovation in the crypto industry and AB 39 will give DFPI those tools. This Bill will help individual investors and the companies hoping to grow their operations here in California. And it also is similar to last year's AB 2269.

However, there are some key differences that make the program easier for both DFPI and crypto companies. These changes strengthen the proposal without compromising its consumer protections. For example, a company with a valid New York license can receive a conditional license here in California, which will help prevent delays for companies seeking licensure. With that, I would like to introduce through the chair Robert Harrell, who is testifying on behalf of Consumer Federation of California.

Thank you. We will go ahead and have you speak. Please feel free.

Thank you very much. Good afternoon, Madam Chair Members. Robert Herrell, Executive Director of the Consumer Federation of California. We're the sponsors of AB 39 and hopefully you'll see in a moment a few of the folks from our diverse coalition that supports it. A little bit of strange bedfellows if you will like to thank the author, like to thank you and your Committee. I know that a ton of work has gone into this. I won't belabor the point about the problems in the crypto industry.

They are numerous. They have been discussed quite a bit in the respective banking committees. I would just draw the Members attention to the comparisons as the author highlighted between last year's Bill that was vetoed by the Governor and this year's Bill. Almost all of those I would characterize as workability types of changes. And then also the amendments that the author just agreed to in the Committee today. Those go a long way.

We want something that can be workable, that can be implementable by DFPI in a reasonable fashion. But most importantly, consumer protection needs to be at the forefront. This is an area that has been ripe with problems. We need to have a licensing regime here, and we need to have a sort of financial cop on the beat, if you will. And so with that, I'm happy to answer any questions, but urge your aye vote. Thank you.

Great. Thank you. Do we have any other witnesses in support? In room 2100. Please come up.

Good afternoon. Rebecca Marcus, representing the Consumer Protection Policy Center at the University of San Diego School of Law. Thank you.

Good afternoon. Shari McHugh, representing the California Credit Union League. In support of the Bill.

Good afternoon. Jason Lane, California Bankers Association in strong support.

Thank you. Are you a tweener?

A Tweener?

Go for it.

Appreciate it. Good afternoon, chair Members. Cameron Demetre, on behalf of Dapper Labs and So Rare, two leading NFT companies. Non fungible Tokens, or NFTs, is an access technology. NFTs provide access to unique digital assets, which for Dapper Labs and So Rare are typically digital baseball cards, basketball, soccer, or other types of sports cards, which are produced and sold in partnership with sports leagues and players associations. Similarly, toy companies sell hot rods and figurine. NFTs concert venues sell NFT tickets. Artists sell digital NFT art.

Musicians sell NFT performances and curated playlists. All of these digital consumer products are stored on the blockchain, which make it easier for consumers to confirm their ownership and authenticity. We are in support if amended position on AB 39. We appreciate that digital financial assets, like digital financial products and services should be regulated by DFPI to protect consumers.

Our concern is that AB 39's reference to digital financial assets could be expansively interpreted to include all digital assets that have financial value and not simply digital assets that are currency or digital financial products and services. The FPI regulates mortgages but not homes. It regulates consumer loans, but not consumer products. We request that AB 39 be amended to define digital consumer asset such as baseball cards and concert tickets, and clarify the digital consumer assets will not be regulated by DFPI.

We shared several versions of draft amendments with staff, and we're happy to work with Committee Members to make it perfect. We respectfully request clarification to be reflected in the Bill. Thank you. Appreciate you working with the author.

Great, thank you. All right. Any witnesses in? Not Tweeners, but opposition.

Although I suppose I am still on the Tweener side a little bit. I apologize. So good afternoon, Committee Members and chair. My name is Charles Belle. I am the resident of San Francisco, California, and the Executive Director of the Blockchain Advocacy Coalition. The Blockchain Advocacy Coalition represents industry representatives and nonprofits that span the blockchain and virtual asset sector. We aim to establish clear and effective regulatory structures for the industry while protecting consumers and fostering innovation and economic empowerment.

We have greatly appreciated working with the author and the Committee. I want to thank them. Thank all of you for your willingness to work with a number of stakeholders to get this framework right. However, we still have some remaining concerns that we'd like to work with authors on moving forward. California has an opportunity to be a leader in Web Three. To get there, we need smart regulations that recognize the challenges and opportunities for Web Three in California.

The Blockchain Advocacy Coalition believes some provisions remain overly prescriptive, and we want to ensure the Bill does not undermine California's leadership in Web Three, because Web Three doesn't have to be built here just because Web Two was built here. Our first concern is that stablecoins deserve their own regulatory framework, not as an add on to this legislation. We are still in the early days of exploring applications for different types of stablecoins.

Governments around the world have recognized the unique value of stablecoins for use in payments, in everyday transactions, remittances, and as a store of value. There are efforts, for example, in the United States, the United Kingdom, and the EU to integrate stablecoins into the financial system. A better approach would be to allow DFPI to develop a framework to regulate these unique products where stakeholders from all viewpoints could collaborate and participate in the development to give them the time and consideration it deserves.

Our second concern is the effective ban on non fiat backed Stablecoin Hertz innovation. We understand that the Terra Luna fraud is the impetus behind the current algorithmic stablecoin ban in this Bill. This was a very unfortunate situation where there was unethical governance, and downright fraud undermined the coin's value. However, pushing stablecoin entities outside of California as a reaction will decrease the ability of California to set industry standards and regulations. This is the exact opposite of what we want.

We want stablecoin entities to be based in California, built with California values, with clear regulations that lead the nation. Our third concern is that AB 39 hurts social enterprise initiatives. Their prohibitive language of AB 39 makes it untenable for social enterprise organizations such as City Three, a nonprofit in Oakland, California, and a Member of the Blockchain Advocacy Coalition to operate. City Three. Committee Members have, for example, expressed a desire to explore collective local asset stewardship through fractionalized vehicles using land, local credit, and small business ownership.

Increasing access to capital for small businesses is critical for economic equity, and it's unreasonable to assume existing traditional financial systems are going to change greatly to make capital accessible.

I'm going to ask you just to wrap up your comments. Thank you.

So I'll skip to the conclusion that's okay, so in conclusion, we appreciate the changes made to AB 39, but continue to have remaining concerns on the one size fits all applicability of the licensure requirements. Given the vast amount of licenses this Bill will capture from nonprofits and noncustodial actors Committee orgs, we have concerns that TFPI will need a vast amount of resources and personnel to implement these costs be borne by the licensees and regulated entities.

Great. Thank you. Any other witnesses in opposition in the room? All right, seeing no other witnesses in opposition, we're going to go ahead and go to the phone lines. Operator, can you please prompt any witnesses wishing to testify via the teleconference service either in support or opposition of AB 39?

Thank you. As she stated, if you're in support or opposition to AB 39, please press 10 at this time. One followed by zero. We can get a quorum.

And while we wait, I do note that we have quorum. So we're going to go ahead and just call the role to establish quorum.

[Roll Call]

We've established quorum. Thank you. We can proceed with the teleconference.

Thank you, Madam Chair. And we're going to give the instructions one more time. Please press one followed by zero if you are in support or opposition to AB 39 and we have no participants queuing up at this time.

All right, thank you, Members. We're going to bring it back for any discussion, question, comments. Vice Chair Niello.

Thank you, Madam Chair. Assemblyman Grayson, how do you answer the comment or question about non fungible? Tokens would not seem to me that this legislation contemplates regulating that because I don't think it falls under digital financial asset business activity, but maybe I'm wrong. Well, thank you for that question, Senator, because your comment with the question actually answers the question. And the fact is that DFPI regulates financial products, not things. And the non fungible being things. We've had extensive conversations. We have looked and reviewed possible language.

The more language we look at, the more confusing it gets. And so we've done everything in our power to make sure that we create a policy that gives all the tools in the toolbox for DFPI to choose to only regulate what is under their purview as financial products. And then it is my understanding in my conversations with DFPI that these would not fall under their purview.

And so we're trying to make it so that DFPI and I'm sure that Mr. Herrell has maybe a comment on it, but we're doing everything we can to make sure that DFPI has the ability to create regulations that are hyper focused on cryptocurrency and upon financial products and not so much on things that are on blockchain that don't necessarily fall under their purview.

Very briefly, Senator, to your question, which is a good one and which many of us have spent quite a bit of time contemplating if you draw a line that's too bright, in a way, you almost wind up potentially creating a loophole that can be exploited.

And so I think the idea is that for DFPI to effectively able to do what they need to do, they need to have the latitude, once it crosses over into being a financial product or service, I think most of the things will not. But we know from history that they could at some point, and it could be kind of a new way to get there.

So that's I think the idea to let the regulator have the authority, I think given resource constraints, they're going to want something that clearly goes into financial, product or service before they go down that road. I hope that's helpful. Frankly, the mere fact that that question had to be answered with so many words is part and parcel of my concern about this legislation. I wish that the federal government would tackle this.

I think it much better belongs under that purview and the same thing for all states as opposed to California going its own way. The other concern is I'm not so sure that this is no offense, but that this is in the wheelhouse of the agency. Blockchain technology is relatively new. Most people don't understand it. Perhaps the vast majority of people don't understand it. And I'm not sure that this is the best avenue for regulation.

Once we pass the legislation, the Department takes it over and is freely able to develop regulations in any way that it wants. And right now, I don't know that. Again, no offense, but I don't know that the agency has the technical competence to fully understand blockchain technology and therefore be able to regulate it. So I understand the intent, and I agree with that. But my concerns I've stated. And so for that reason, I'm going to lay off. I do appreciate your perspective. Thank you.

Thank you. We have a motion by Senator Min. Any additional questions or comments from Members?

Madam Chair, we did have one participant queue up, if you'd like to take that.

Sure. We will go ahead and take that. Even though that time was over, we'll take it.

Okay. Please go ahead. Line 197. You know what? I spoke up for the wrong Bill. Sorry. My apologies, Madam Chair.

No worries. All right, so, bringing it back, I'd like to thank Assembly Member Grayson. You have been working on this for a couple of years now and leading the charge. And I think that what is clear to me is that the status quo hasn't worked for many Californians. There are Californians here that I think could use an agency to ensure that the products are products that don't cause more harm financially. And I think that that's what this does for so many things.

Probably all of us on this dais could think of a policy area where we would love the federal government to lead, and it's not happening. And so we find ourselves in different policy areas trying to determine what we do as a state and how we bring policy forward and in the hopes that it will either lead the way for our country or that it will align to the federal government when that happens.

I know that this is an issue that's been talked about, at least in this policy Committee for at least three or four years now in different ways. It's come to us in different forms and certainly different ideas. And I think we will continue to look at language folks, move forward. I know this Committee spent a lot of time looking at proposed amendments. And certainly I think that it's important that we don't have ambiguity in any proposed amendments that come forward.

And so I applaud you for your work. This hasn't been easy, and I do hope that there is success at the end of this process. So we have a motion, and we'll go ahead and allow you to close and then take the vote.

Madam Chair, thank you for your comments, and thank you to Committee Members and the question. I respectfully ask for an aye vote.

Thank you. Please call the roll.

AB 39 motion is due passed. But first, we refer to the Committee on Judiciary, Senator Limone aye. Limon aye. Nelo Bradford Caballero. Aye. Caballero aye. Men aye. Men aye. Nguyen Portantino.

All right, that has three votes. We'll leave the roll open. Thank you. Now we have Assemblymember Ting, who's been waiting. Thank you. All right. Assembly Member Ting, you have AB 1587 before us.

Thank you. Madam Chair, first, let me just thank you and the Committee staff for all their very thoughtful and thorough work on this Bill. We're happy to take the amendments in the next Committee. Should this get out of this Committee. AB 1587 simply requires implementation of new merchant category codes for firearms retailers. The International Organization for Standardization created an MCC for Firearm Retailers. Currently, firearms are generally categorized as sporting goods or other.

This code, this four digit code where we identify groceries, gas, could be very, very critical to help identify suspicious activities as well as firearm trafficking. The Bill is specific to only California businesses, and we know that other states have banned disputes, but financial entities will not be impacted by their prohibition by other states. With this Bill, we currently have Adam Skaggs from Giffords to testify as a witness.

Thank you. We'll go ahead. I have Mr. Skaggs come up.

Thank you to the chair, Vice Chair, Members of the Committee, and to the author for his leadership on this issue. I'm grateful for the opportunity to speak with you today. I'm Adam Skaggs, chief counsel and Vice President for Giffords Law Center. That's the legal arm of the gun safety organization led by former Congresswoman Gabby Giffords. Giffords enthusiastically supports Assemblymember Tings AB 1587 dealing with merchant category codes for firearm retailers.

If adopted, this Bill would represent an important advance for public safety, and I urge the Committee to support it. California, as you all know, is a national leader on fighting gun violence. The gun laws passed by this Legislature are the strongest in the nation. So I know Members of this Committee appreciate the seriousness of the issue.

And with the establishment of a merchant category code for firearms businesses, we now have the opportunity to utilize an important tool to prevent illegal gun trafficking and stop gun violence in California before it happens. AP 1587 will ensure that we have access to that tool. Now, I know I don't have time for a detailed discussion of MCCs, but in short, they're four digit numbers assigned by credit card companies to different kinds of merchants.

We've heard there are unique codes for gas stations, grocery stores, bike shops, stores that sell wigs, florists. The list goes on. AB 1587 would just ensure that a similar code is used by firearms dealers in California, just like other businesses use every single day in other contexts. MCCs and other data are used by financial institutions to identify potential criminal activity, including money laundering, financing terrorism, and human trafficking. The MCC for firearms dealers can be used to deter and detect illegal gun trafficking.

And if the financial industry can help us to prevent human trafficking, there's no reason why it shouldn't also help deter and prevent illegal gun trafficking. We've reviewed federal prosecutions for illegal gun trafficking, and reviewing those indictments, you will see routine use of credit cards by traffickers in acquiring the guns that they then put on the illegal criminal market. And the possibility for a tool that will allow detection of that illegal trafficking activity is critically important for public safety.

Unfortunately, we don't have access to that now, because the credit card companies have paused implementation of the new code. AB 1587 would unpause that process. And that's why we think it's critically important, and that's why we urge the Committee to approve this important legislation. I appreciate and thank you for the opportunity to speak with you today, and we'll be happy to answer any questions if I can be helpful.

Great. Thank you. Any other witnesses in room 2100 in support, please come up.

Rebecca Marquez, representing the bill's, co sponsor of the Brady Campaign. Thank you.

Cynthia Shellett with Moms Demand Action for Gun Sense in America.

All right. Seeing no other witnesses in support in room 2100, we're going to ask for opposition to 2100 to please come forward. Thank you.

Good afternoon, Madam Chair, Members of the Committee for the Record, Dan Reed, western regional Director with the National Rifle Association. We're here in strong opposition. What AB 1587 does is it creates this public private policing scheme of somewhat private information on tracking purchases and creates a chilling effect, perhaps on someone's Second Amendment rights as they go out to purchase firearms, ammunition, et cetera. And it begs a lot of questions as far as what triggers suspicious activity.

At what point would a competitive shooter or California is home to an Olympian shooter who shoots up to 1000 rounds a day when they're out practicing? What type of activity is going to be incumbent upon these credit card payment processors to say, zero, this is suspicious, they haven't done anything wrong. They're going through the appropriate legal channels. They're going to a gun store, they're passing a background check for their firearms, for their ammunition. It's going into a registry. But we think this is suspicious.

And so you, Attorney General, should look into this activity for someone who's going through the lawful means. And so it's creating this very interesting partnership. And it also begs the question of who can access this information. Right. We've obviously seen the data leak of gun owner information this past June, or I guess it's a year ago now.

Also, there's a law in the books that mandates personal identifying information on gun owners get turned over to the UC Gun Violence Research Center as well as nonprofits affiliated with bona fide research institutes. So does that mean perhaps their credit card information and their buying habits are going to be part of this so called research onto gun owners? Again, law abiding people, if you look at it, if we're worried about trafficking, criminals are not dumb.

They're going to use cash, they're going to use checks, they're going to go through different means. And the people that are left being scrutinized heavily by private institutions is going to be these lawful folks. And so I think that this is bad policy. Obviously, it puts the card payment processors in a precarious situation of someone who may want to buy a firearm through a licensed dealer that's out of state. It has to be processed.

How do the card payment processors make sense when there are states that have prohibited this, such as Texas, Idaho, Mississippi, et cetera, or if someone's going has a California card? I think there's a lot of questions on what's going to trigger suspicious activity. How are cards supposed to handle interstate type transactions, et cetera. And I know it's late in the afternoon, so I'll leave some time for my colleague to speak a little bit, but we're in strong opposition to this. Thank you.

Thank you.

Madam Chair and Member Sam Paredes representing Gun Owners of California. This is the first time since 1980 that I've been lobbying on behalf of the Second Amendment that I'm going to read my testimony to keep it concise. And this is a very complicated issue. Gun Owners of California respectfully expresses their opposition to AB 1597, recently amended to require entities that process credit card payment transactions to assign category codes for the sale of firearms and ammunition.

As you are no doubt aware, the International Association or Organization of Standardization established category codes for businesses worldwide. They recently created new codes specific to firearms and ammunition. Right out of the gate. It is important to note that it is not the firearms dealer or retailers who assign the use of the ISO's merchant category codes, but rather the credit card processors themselves.

Thus, according to AB 1587, it is the processors who would be charged with a crime and fined if they do not treat transactions with the firearms and ammunition codes, not the dealers. It is our understanding as well that under the provisions of AB 1587, such a code would cover all transactions from the firearms and ammunition businesses.

Consequently, if someone were to make such a benign credit card purchase as a candy bar or a T shirt purchased at a firearms and ammunition vendor, their information and that sale would be cataloged as firearms and ammunition. Related recently, reports indicate that Visa, MasterCard, and American Express have expressed concerns regarding policies emphasizing that they cannot access individual item data and will continue to allow all lawful purchases.

Quote Our policy has been and will remain that our customers are able to make legal firearms purchases using our cards, said Brett Loper, Executive Vice President of Global Government Affairs for American Express. MasterCard went on the record that the company quote, appreciates the urgent need to reduce gun violence in the US. End quote. But the MCCs quote, were never intended to be utilized as a law enforcement tool. Quote we do not believe private companies should serve as moral arbiters. End quote.

Visa chimed in as well, stating, Asking private companies to decide what legal products or services can or cannot be bought and from what stores sets a dangerous precedent. GOC has testified on numerous occasions about our concerns regarding the imposition of new mandates on the Department of Justice. It has been abundantly clear many times by the Department's own admission, that given its present staff and budget, they are ill equipped to properly handle their existing mandated responsibilities in a timely and efficient manner. This is yet another such requirement that will have no bearing whatsoever on the prevention of criminal gun use. I'm wrapping up here, ma'am.

Thank you.

What potential chilling effects may this have on law abiding citizens and Second Amendment rights? What guarantees could the Department provide that individuals large legal purchases, such as a hunting trip and a commonplace visit to a range before, sometimes very large purchases, they wouldn't trigger an unwelcome and unwarranted visit?

GOC believes that the information accumulated by the use of ISO designations for firearms and ammunition vendors will provide no useful or additional data that would assist the DOJ or other law enforcement agencies in solving or preventing crimes of any sort. For these reasons, Gun Owners of California is strongly opposed to AB 1587, and I thank you.

Thank you. Any other witnesses in the room in opposition? Just name and affiliation, please. Seeing no other witnesses in opposition in the room, we'll go ahead to move to the witnesses waiting to testify via the teleconference service moderator. If you could please prompt the individuals waiting to testify in support or opposition to AB 1587, we will begin.

Thank you, Madam Chair. As she stated, if you're in support or opposition to AB 1587, please press one followed by zero. One followed by zero. And let's go to line 179.

Danny Offer with Every Town for Gun Safety, Moms Demand Action, as well as Students Demand Action in support of the Bill. Thanks.

Thank you.

Line 191. Please go ahead.

Thank you. Michael Finley with the National Shooting Sports Foundation. We're the trade Association for firearm manufacturers, retailers and ranges. We would be impacted by this directly. Lot of unintended consequences with this. We are in strong opposition, and quite frankly, a lot of dealers would have to have multiple. Thank you.

Just name and affiliation. Thank you.

Thank you. Line 201. Please go ahead.

Hi. My name is Rory Hanley. I'm a survivor of gun violence and armed robbery, and I'm in strong opposition of this Bill. Thank you.

Thank you.

Please go ahead. 189.

Hello. My name is Steve Rada. I'm a life Member of the National Rifle Association, California Rifle and Pistol Association, and US. Navy veteran. And on behalf of 400 plus gun owners in Lake and Mendocino counties, I strongly urge the Committee to oppose Assembly Bill 1587. Thank you.

Thank you. Please go ahead. Line 200.

Hi, good afternoon. Thank you for the opportunity. My name is Darren Bedwell. I'm a Member of the California Rifle and Pistol Association in Gun Owners of California, and I am calling to urge opposition to AB 1587. Thanks for your time.

Thank you.

Line 185. Please go ahead.

This is Tim McMahon. I'm the chair of the South Sacramento chapter of the California Rifle and Pistol Association and NRA Member in strong opposition.

Thank you.

Please go ahead. Line 197.

Thank you.

Line 197. 197, you're open.

Hi. This is Dan Scholes. I am a life Member of CRPA and NRA, and I am strong opposition of 1587.

Thank you.

Please go. Headline 203.

Good afternoon. My name is Mike Elliott, resident of Ventura County, Member of the CRPA and its Ventura County chapter and an NRA Member. I strongly oppose this Bill. Thank you.

Thank you.

Line 187. Please go ahead.

Rick Travis, Legislative Director for the California Rifle System Association, representing tens of thousands of hunters and competitive shooters, and we're unopposed to 1587. Thank you.

Thank you.

192. Please go ahead.

Good afternoon. My name is Pat Herton. I am a life Member of the NRA, life Member of the California Rifle and Pistol Association, Chairman of the Tama County Gun Owners, and a retired CHP sergeant. I am in strong opposition to AB 1587. Thank you.

Thank you.

188, you are open.

Hi. My name is Mike Branco. I'm a resident of Senator Men's district, a Member of the CRPA, and the National Shooting Sports Foundation, expressing my opposition to 1587.

Thank you.

Please go ahead. 204.

This is Paulette Studibaker, resident of Amador County, Member of the NRA, the California Rifle and Pistol Association, the M One Grand Collectors Association, and the Armed Women of America. And I oppose 1587.

Thank you.

196. Your line is open.

Good afternoon. I'm Dominic Beard from Richmond, California. I'm a University of California employee, CRPA Member, NRA Member, and strongest opposition. Thank you.

Thank you.

194. Please go ahead.

I'm Mark Rasmussen, Amador County resident. Strongly urgent. No vote on AB 1587.

Thank you.

Line 202, your line is open.

This is Patricia Scarsdale, a Member of the NRA, the California Rifle and Pistol Association, and Gun Owners of California, and a lawful owner of guns in the State of California, and I strongly oppose AB 1587.

Thank you.

198. Please go ahead.

Hello. My name is Ken Greenwood, resident of El Dorado County, life Member, et cetera. Strongly opposition to this. This is just, unfortunately, a burden and a registration process. Thank you.

Please go ahead. Line 206.

This is Michael Crusto from Ohio. I am a Member of the Venture County Gun Owners Association, the California Rifle and Pistol Association, and the NRA. I'm in strong opposition of AB 1587.

Thank you.

199. Please go ahead.

James O'Brien, lifelong California resident, life Member of the NRA, Member of the CRPA, licensed California sportsman, and strong opposition of AB 1587.

Thank you, and Madam Chair, we did clear the queue.

All right, Members, we will now bring it back for comments and questions. Senator Min.

Thank you, Madam Chair. I want to thank the author for bringing this important Bill forward, and I'm proud to be a principal co author on this measure. Gun violence, as we know every day, is happening in this country at levels that are just absurd, frightening, and we should be doing everything we can to stop gun violence whenever possible. This seems like a very common sense Bill. And I listened to the testimony. I heard a lot of worst case scenarios. But we're talking about a merchant code.

And just to be clear, this could have prevented numerous mass shootings that we saw very recently, perhaps the Philadelphia shooting. We don't know yet whether that person purchased thousands of dollars worth of guns, ammunition, body armor. We do know that the shooter in the Pulse Nightclub in Orlando in 2016 spent thousands of dollars buying guns and lethal weapons on credit cards in the days leading up to the attacks. In 2012, the shooter in the movie theater in Aurora, Colorado, had the same thing happen.

We know that this can be potentially a preventative tool in aiding law enforcement, in trying to deter, perhaps apprehend people who are looking to do wrong. And that's what this Bill is about. And if you can't get behind bills that would just stop basic breaking of laws, gun trafficking, mass shooting to all the folks out there legally purchasing guns, I don't think this is going to impact you.

But if this can stop mass shootings, which I think it will, I don't see why you wouldn't do it. And as has been pointed out in testimony from the support witness, every other major business type already has a merchant code for this. AB 1587 would just provide an important guardrail to help flag suspicious purchases and stop future orders, future cases of gun violence when they might be detectable. So I would move the Bill when appropriate. I appreciate the work the author has done on this issue area and would encourage my colleagues to vote aye.

Thank you, Senator Min. We have a motion by Senator Min. Next, we have Vice Chair Niello.

Thank you, Madam Chair. Senate Member Ting. The retail code is assigned per retail outlet or per transaction. It's per outlet, my understanding. Per outlet. So, obviously, a store that sells just or primarily guns and ammunitions would get that code, but would also Cabela's, Dick Sports. They sell guns.

They don't get that code.

They don't. Were you going to add something to that?

If you'd like me to. I would echo the author, and the Bill defines businesses whose a majority of their sales are for firearms or ammunition. So a brick and mortar gun store that may sell some other merchandise, but their majority of their sales are firearms or ammunition would be assigned the code. A Walmart or another retailer that has a very varied product line would not.

And why have the retailers or, excuse me, the credit card companies paused the implementation of this?

I don't know. You'd have to ask them.

Beg pardon?

You'd have to ask them.

They've remained silent on it.

We've been talking to them in terms of their concerns with the Bill. We hope that we'll be able to work out differences, but I can't answer for them.

Okay. If there's a violation, the violation falls on the retail outlet, not on the purchaser, I suppose. Right?

Again, I'll let the Giffords attorney answer that specific question. But again, these codes are used for every single retail purchase in the country.

No, I get that, but you've established.

Mr. Vice Chair, if I could please answer it. You could feel free to ask another question, if you'd like. Again, this is a very simple Bill. I know that the Boogeyman scenario the second witness issued is a Boogeyman scenario. That's not how we do policy. This is a merchant code that the credit card companies sign, every single retail, every single retailer. When you and I go get food, a restaurant, we go to Target, we go to the grocery store, we use the credit card.

There's a code. So it's very simple. The International Association again, this is not a special code. The International Association came up with the code. All we're asking is that in California that we use that code. Again, suspicious activity is up to law enforcement and the credit card companies to determine. I'm sure you and I have both got notifications from Visa, American Express, Diners Club, whatever credit card we use, to say, sir, there's been suspicious activity. We just want you to notify that right.

So they have a process as to what that happens. I don't know all the ins and outs of that process. But again, they are fully prepared, and they are aware they have a process that they do that we are not dictating what that process is. They have their internal process. All we're asking is that they use the particular code that the International Standard Organization has provided.

Yeah, so just to respond, you had asked the question, Vice Chair, regarding if there's a violation, would the sanctions fall on the retailer or on the purchaser? And I'm not sure exactly what you mean by violation, and perhaps if I could clarify, this code would be assigned to a store. This code cannot and will not be used to block any sale.

So if there's someone who is legally buying ammunition, legally buying a firearm, legally buying, I don't know, baseball hat or other clothes at that store, it cannot and it will not block any sales. So there's not a violation, per se in making any kind of a purchase. And if I could respond quickly to something that was raised by one of the other witnesses about concerns about privacy, two points on that.

First of all, the details of purchasing firearms that are shared with the State of California are vastly more detailed than any information that would be shared with anybody, in particular a credit card company under this legislation. So I think concerns about privacy that you may hear are vastly overstated, if not simply untrue.

And I also just want to make the point that there were concerns about somebody who's going on a hunting trip or is about to go to a sports shooting competition sort of stocking up on a large amount of ammunition, making a very large purchase. If you are a competitive shooter who is regularly buying large amounts of ammunition or other purchases at a gun store, there's going to be nothing atypical or suspicious about spending a large amount of money.

What we have seen, and I appreciate the author having mentioned the scenario of some mass shootings lately, like the Pulse shooting, where in a matter of days and weeks, the shooter there spent tens of thousands of dollars, amassed the arsenal that he used to perpetuate that atrocity. And what was unique about that was not the volume, not the amount of money that was spent, but the atypicality of the spending pattern.

So this shooter went out and took out a bunch of extra credit cards and then in a very atypical fashion for his usual spending pattern, racked up huge amounts of purchases at gun stores that he then obviously used what he bought to kill dozens and dozens of people at a nightclub.

And so I think when you think about how financial institutions use these data points and come up with algorithms to detect things like human trafficking and financing of terrorism, it's not just simply the fact of a purchase or the volume or the amount of a purchase. It's the way that that affect or the way that that relates to existing spending patterns. So those are the kinds of atypical variations from consumers ordinary use of credit.

And of course, a lot of the time, mass shooters rack up so much debt in such a short period of time because they don't plan to survive the mass shooting they're about to perpetrate. So they're not really worried about paying off those credit cards. So that's the sort of suspicious activity, not simply someone who regularly buys a lot of ammunition which is lawful and which is not suspicious.

The final point I'll make, I agree with Assemblymember Ting that I don't know exactly what has motivated Visa or MasterCard to press pause. But what I do think we can assume is that because other states have stepped in and know we refuse to allow the use of this life saving tool by these companies, the credit card companies have said publicly they need to sort of study what the regulatory environment is. They need to take time. And this legislation, as amended, will give them plenty of time.

I think to there are very reasonable deadlines imposed on the obligations that companies would have under this legislation. And we've worked with them. We've had dialogue with them. We've agreed to amend some of the deadlines. So I think this is a very, very modest piece of legislation that has the potential to prevent illegal conduct and prevent killings.

Thank you. Senator Niello, any more questions?

Yes, because and I apologize for jumping in and I listened to what you had to say and what the witness had to say and none of that answers my question. My question is this Bill has a penalty for the Attorney General, has the exclusive enforcement authority, and requires a court that determines that a person or entity has violated these provisions of this Bill with a civil penalty in the amount of $10,000. Does that apply to any other retail codes besides this one?

I believe for failure to use the code once it's mandatory that the code be used as opposed to a penalty for a purchaser's, let's say purchasing a particular .

So that's for any retail code or just this retail code.

This Bill As I understand it, pertains only to the use of this code.

Thank you. That's my point. And that's the question that I was trying to ask, which all of these words that you use, thank you very much, and you use thank you very much, didn't answer my question. You began to answer a second question that I had, and that is what's? Suspicious activity. But the potential penalty is only relative to the use of the retail code that identifies a gun and ammunition stores that sell those products.

Now, with regard to suspicious activity, I was going to ask what is suspicious activity? What would create the enforcement that you're looking for relative to weapons that might be purchased for the kind of activity that we do not want to see? People that do that I think are deranged, but they're not stupid. So if this Bill passes and the example was used, it would have prevented the purchase of firearms that were used in mass shootings. Do you think that a person who's contemplating that is going to then go use a credit card to purchase the products that he needs to perform his dastardly event?

The answer is yes, because Senator Demand used particular zampo in Orlando of the Pulse nightclub shooting. I'm sorry.

Does this exist in Florida?

Again, the shooting was a number of years ago, prior to 2022. September is when the international organization created the standard for this code.

I get that. Once this Bill is passed in California.

Let me answer it this way. If this Bill became law and was the law of the land in Florida, it could have been a tool to detect the Pulse nightclub shooter who did purchase tens of thousands of dollars worth of firearms in a very, very short time leading up to that Orlando nightclub shoot.

I would just suggest that that person probably wouldn't use a credit card. Now, maybe I'm crazy, but I'm questioning whether this really gets at the problem that you're trying to solve.

This is actually a very simple Bill.

I don't disagree with that.

So again, we don't presuppose or tell the credit card companies what is suspicious activity. We just give you some examples. We also don't tell law enforcement that's their job and the credit card companies have their job. This Bill is very simple, saying that now that there's a code for these types of transactions. It's asking the credit card companies to use them. That's it.

Thank you.

May I respond very quickly to your question.

Just 1 second. I think that we have other Members and I'm not sure there was a desire to respond.

Senator, since my example was brought up, I will just point out there have been a few comments made, including from the dias that these people wouldn't buy them. Well, I think most people, consumers actually aren't aware of the specificity of merchant codes. I don't really pay a lot of attention to the codes I use. I think that many mass shooters are not typically the most sophisticated consumers.

I also would point out it's not particularly easy to take out thousands of dollars in credit at a moment's notice. And if you are using your credit cards, maxing out credit cards to buy a bunch of guns, where are you going to go? A bank? Are you going to withdraw it from your bank account? Perhaps. But credit cards make it easier. I believe this Bill, I didn't say by the way, it would have definitely prevented a mass shooting.

I said it very likely could have prevented a mass shooting. I think that it very likely could if past prevent future mass shootings. Because again, we know that credit cards are part of our consumer landscape. Today we use credit cards to purchase just about everything. If you purchase dinner tonight, I'm going to guess it's with the credit card, right? And you're probably not thinking about the merchant code there.

And unfortunately there are bad people out there that use credit cards for bad things and this Bill would simply add a code to that. So that is why I respectfully again ask for a support vote. If this saves one, prevents one mass shooting from happening, and I think it'll prevent a lot more than that. I think this Bill is worth doing.

Thank you, Members. Any other comments or questions? Thank you, Assembly Member Ting for bringing this forward. I am familiar with these codes simply because one of my credit cards annually gives me a synopsis of how I spent money in the year. And so these codes have been used for quite a number of items sometimes. I don't think they're always so accurate. When they say I did it in retail in some space, I'm like, well, that doesn't really count. That was a needed thing more.

But I think that this is really also substantive because these codes are part of a process. And in recent history I've actually not heard of these codes being controversial until this code came about. This was a way for our credit card companies to understand what the spending trends are of every consumer. It is a safety measure as well to also understand whether a consumer all of a sudden has something that looks a little bit odd and they determine it. Sometimes it's technology buys, right?

Like at best Buy or something, right, that's coded differently. And that doesn't come up. And you certainly don't see something in the tens of thousands. So I just want to recognize that it's not been until this code that I've heard, at least in recent history, that I've heard so much controversy about it. And so we as a state are actually not the ones that are determining the desire to have a code. This was an organization, an entity with a national standard.

And we as a state, this Bill would allow us to use the code. But again, we did not make the determination to create this code that was made by a group of professionals that look at the space and create codes in many different areas. So I think that this is needless to say that there is a lot of thought and discussion related to this particular code.

I think today's hearing is probably an example of the type of conversation that's happening across our state and nationally around this. But I do just want to recognize that from the lens of banking and finance, these codes are not new. There are ones that are created on a regular basis and they're used to determine really the consumer's history and track the way that we spend, which is being done independent of this. So with that, we do have a motion by Senator Min, and I am going to allow you to close.

I think that was a great close. I'll take it as my close respectfully ask an aye vote on AB 1587.

Thank you, Assembly Member Ting. We have a motion by Senator Min and the motion is due pass. But first, amend and re refer to the Committee on Judiciary. Sorry, not amend and re refer to the Committee on Judiciary. If we could please call the roll.

AB 1587 motion is due passed. But first be referred to the Committee on Judiciary. [Roll Call]

All right, the Bill has four votes. We'll leave the roll open. Thank you very much. And now we will ask any absent Members to come over to the Committee, but we are going to go ahead and open the roll for file item one. AB 39. Grayson.

AB 39. Senator Limon voting aye Niello on which you abstain. 39.

All right, thank you. That has four votes. All right, so we're going to go ahead and take a recess just while we wait for the absent Member. All right, we're going to go ahead and call the absent Members for file item one.

AB 39. Grayson. Senator Nguyen Wynn. Aye. Portantino.

Thank you. All right, that Bill has five votes. We'll go ahead and put that Bill back on call and go ahead and recess one more time. Reconvene. And we're going to go ahead and lift the call for AB 39. Grayson.

AB 39 is due pass, but first be referred to the Committee on Judiciary. Senator Lamone voting aye. Portantino aye. Portantino aye.

All right, so AB 39 has six votes. It moves forward. The next Bill is AB 1587.

Ting AB 1587. Do pass, but first be referred to the Committee on Judiciary. Senator Lamone voting aye. Portantino aye. Portantino aye.

All right, so AB 1587 has five votes in support and two in opposition. That does move forward to judicial Committee. With that, we will go ahead and adjourn our Committee on Banking and Finance. All.