"Cybersecurity" Legislation Poses Threat to Small Business

Date: March 13, 2018

Efforts by Michigan banks and financial institutions to address the costs of reissuing cards and freezing accounts when cardholder information is compromised could include legislation to hold a small business responsible. While NFIB agrees that identity theft and fraud is a serious issue, we will not support any effort that leaves small business holding the bag for credit card security breaches over which they have little to no control.

Drafts of the legislation reviewed by NFIB set up a series of standards or practices that must be followed for a business to avoid being liable for damages when a bank or credit union must reissue credit cards due to a security breach. The standards and rules that must be followed would be created by a new state “cybersecurity” committee.

While NFIB agrees that identity theft and fraud is a serious issue, we will not support any effort that leaves small business holding the bag for credit card security breaches over which they have little to no control.

If the new rules are not followed then a financial institution would have a statutorily provided cause of action against any business that didn’t precisely follow the rules. In our view, it is unrealistic to expect small businesses to be liable for compliance with yet another set of rules and standards established by a committee of political appointees. A more practical approach to the problem is for a uniform federal cybersecurity standard, not a state by state patchwork of varying standards.

The responsibility and costs for enhanced cybersecurity are better resolved among the major credit card companies, processors, and financial institutions and should not include small business in an attempt to shift liability.

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