BILL ANALYSIS

 

 

 

C.S.H.B. 2837

By: Schaefer

Pensions, Investments & Financial Services

Committee Report (Substituted)

 

 

 

BACKGROUND AND PURPOSE

 

In September 2022, the International Organization for Standardization, based in Switzerland, approved a new merchant category code for firearm and ammunition merchants. In a letter provided to payment card networks, federal lawmakers stated that the new code for firearms retailers would be "…the first step towards facilitating the collection of valuable financial data that could help law enforcement in countering the financing of terrorism efforts," expressing a clear government expectation that networks will utilize the new code to conduct mass surveillance of constitutionally protected firearms and ammunition purchases in cooperation with law enforcement. Currently, firearm and ammunition purchases are listed as either sporting goods or miscellaneous items. The new code would shift away from the current coding of these purchases, leading banks, payment card networks, acquirers, and other entities involved in payment card processing to identify and separately track lawful payment card purchases at firearms retailers in Texas. The risk of surveillance of Second Amendment activity and unprecedented information sharing between financial institutions and the government will have a significant chilling effect on citizens wishing to exercise their federal and state constitutional rights to keep and bear arms in Texas. C.S.H.B. 2837, the Second Amendment Financial Privacy Act, seeks to address this issue by prohibiting the use of a merchant category code for a firearms retailer.

 

CRIMINAL JUSTICE IMPACT

 

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

 

RULEMAKING AUTHORITY

 

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

 

ANALYSIS

 

C.S.H.B. 2837 amends the Business & Commerce Code to prohibit a person or entity involved in facilitating or processing an electronic payment transaction, including a payment card issuer or payment card network, from assigning to a merchant or requiring a merchant to use a firearms code. For the purposes of the sale of firearms, ammunition for use in firearms, and firearms accessories, the bill prohibits a firearms retailer from providing a firearms code to a payment card issuer or payment card network and limits the retailer to using or being assigned a merchant category code for general merchandise retailers or sporting goods retailers. The bill establishes that any agreement or contractual provision to the contrary is void. The bill requires a payment card issuer or payment card network to notify the payment card holder in writing on every occasion that a firearms code is assigned to an electronic payment transaction on the payment card holder's account. The bill defines the following terms for purposes of the bill:

·         "electronic payment transaction" as a transaction in which a person uses a payment card or other payment code or device issued or approved through a payment card network to debit a deposit account or use a line of credit, whether authorization is based on a signature, personal identification number, or other means;

·         "firearms code" as any merchant category code approved by the International Organization for Standardization for a firearms retailer, including merchant category code 5723;

·         "firearms retailer" as any person or entity engaged in the sale of firearms, ammunition for use in firearms, or firearms accessories;

·         "payment card" as a credit card, debit card, check card, or other card that is issued to an authorized user to purchase or obtain goods, services, money, or any other thing of value;

·         "payment card issuer" as a lender, including a financial institution, or a merchant that receives applications and issues payment cards to individuals; and

·         "payment card network" as an entity that directly or through a licensed member, processor, or agent provides the proprietary services, infrastructure, and software that route information and data to conduct debit card or credit card transaction authorization, clearance, and settlement, and that an entity uses in order to accept as a form of payment a brand of debit card, credit card, or other device that may be used to carry out debit or credit transactions.

 

C.S.H.B. 2837 requires the attorney general, if the attorney general has reasonable cause to believe that a person or entity has engaged in, is engaging in, or is about to engage in a violation of the bill's provisions, to issue a civil investigative demand. The bill makes the procedures established for the issuance of a civil investigative demand under the Texas Free Enterprise and Antitrust Act of 1983 applicable to the same extent and manner to the issuance of a civil investigative demand under the bill's provisions. The bill authorizes the attorney general to request, pursuant to such a demand issued under the bill's provisions, that a person or entity disclose any data that is relevant to an investigation conducted by the attorney general. The attorney general is required to evaluate the data for compliance with the bill's requirements regarding the use or assignment of a firearms code.

 

C.S.H.B. 2837 requires the attorney general to give written notice to a person or entity identifying the specific provisions of the bill that are or were being violated not later than the 30th day before bringing an action to recover a civil penalty and restrain or enjoin a person or entity for violating the bill's provisions, as required by the bill. The bill prohibits the attorney general from bringing an action against a person or entity who does the following:

·         cures the identified violation within the 30-day period; and

·         provides the attorney general a written statement affirming that the person or entity has cured the violation, provided supporting documentation to show how the violation was cured, and made changes to internal policies to prevent the recurrence of any similar violation in the future.

The bill makes a person or entity who violates the bill's provisions and fails to cure the violation or breaches the written statement provided to the attorney general liable for a civil penalty in the amount of $10,000 for each violation. The attorney general may recover reasonable attorney's fees and other reasonable expenses incurred in investigating and bringing an action to recover that penalty and restrain or enjoin the person or entity violating the bill's provisions. The bill requires the attorney general to deposit a civil penalty collected under these provisions in the state treasury to the credit of the general revenue fund.

 

C.S.H.B. 2837 authorizes a person who has used a payment card to purchase a firearm, ammunition for use in a firearm, or a firearm accessory to bring an action against a payment card issuer or payment card network to obtain either of the following:

·         a declaratory judgment under the Uniform Declaratory Judgments Act that the payment card issuer or payment card network has violated the bill's provisions regarding the use or assignment of a firearms code; or

·         a judgment enjoining the payment card issuer or payment card network from violating those provisions.

The bill prohibits its provisions from being construed as providing a basis for, or being subject to, a private right of action for a violation of its provisions or any other law, except as provided by the bill. The bill further establishes that, except for this private right of action authorized by the bill, the attorney general has exclusive authority to enforce the bill's provisions.

 

C.S.H.B. 2837 establishes the following legislative findings:

·         the Second Amendment to the U.S. Constitution guarantees the people the right to keep and bear arms;

·         Section 23, Article I, of the Texas Constitution provides that "Every citizen shall have the right to keep and bear arms in the lawful defence of himself or the State";

·         in September 2022, the International Organization for Standardization approved a new merchant category code for firearm and ammunition merchants;

·         federal lawmakers expressed in a letter to payment card networks a clear government expectation that such networks will utilize the new code to conduct mass surveillance of constitutionally protected firearms and ammunition purchases in cooperation with law enforcement;

·         the new code will allow banks, payment card networks, acquirers, and other entities involved in payment card processing to identify and separately track lawful payment card purchases at firearms retailers in Texas, paving the way for unprecedented surveillance of Second Amendment activity and information sharing between financial institutions and the government;

·         this potential for cooperative surveillance and tracking of lawful firearms and ammunition purchases will have a significant chilling effect on citizens wishing to exercise their federal and state constitutional rights to keep and bear arms in Texas;

·         while federal law requires some financial institutions to report transactions that are highly indicative of money laundering or other unlawful activities, there is no federal or state law authorizing financial institutions to surveil and track lawful activities by customers in cooperation with law enforcement;

·         the creation or maintenance of records of purchases of firearms or ammunition or the tracking of sales made by a retailer of firearms or ammunition by a nongovernmental entity, including a financial institution, without a substantial and historical business need or a requirement imposed by law, may frustrate the right to keep and bear arms and violate the reasonable privacy rights of lawful purchasers of firearms or ammunition; and

·         based on the above stated findings, it is the intent of the legislature to prohibit the misuse of payment card processing systems to surveil, report, or otherwise discourage constitutionally protected firearm and ammunition purchases within Texas.

 

C.S.H.B. 2837 applies only to a purchase of a firearm, ammunition for use in a firearm, or a firearm accessory that takes place on or after the bill's effective date. If any provision of the bill or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this bill that can be given effect without the invalid provision or application, and to this end the provisions of this bill are declared to be severable.

 

EFFECTIVE DATE

 

September 1, 2023.

 

COMPARISON OF INTRODUCED AND SUBSTITUTE

 

While C.S.H.B. 2837 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

 

While both the introduced and the substitute prohibit the use of a merchant category code for firearms and set out provisions relating to the attorney general's duties in enforcing the bill, the introduced and substitute differ in their approaches in the following manner:

·         the introduced prohibited a financial institution or its agent from requiring the usage of a firearms code in a way that distinguishes a firearms retailer physically located in Texas from Texas general merchandise retailers or sporting goods retailers, whereas the substitute prohibits a person or entity involved in facilitating or processing an electronic payment transaction, including a payment card issuer or payment card network, from assigning to a merchant or requiring a merchant to use a firearms code and limits a firearms retailer to using or being assigned a merchant category code for general merchandise retailers or sporting goods retailers;

·         the substitute also includes a prohibition against a firearms retailer providing a firearms code to a payment card issuer or payment card network, a provision voiding certain agreements or contractual provisions contrary to this prohibition and the limitation, and a notification requirement for a payment card issuer or payment card network when a firearms code is assigned to an electronic payment transaction, none of which were included in the introduced;

·         the substitute omits the provision in the introduced that prohibited a state governmental agency or local government, special district, or other political subdivision or official, agent, or employee of the state or other governmental entity or any other person, public or private, other than the owner or owner's representative from knowingly and wilfully keeping or causing to be kept any list, record, or registry of privately owned firearms or of the owners of those firearms except for those records kept during the regular course of a criminal investigation and prosecution or otherwise required by law;

·         the substitute omits the provision in the introduced that prohibited a financial institution from discriminating against a firearms retailer by taking the following actions:

o   declining a lawful payment card transaction based solely on the assignment or non-assignment of a firearms code to the merchant or transaction;

o   limiting or declining to do business with a customer, potential customer, or merchant, or charging a higher transaction or interchange fee to any merchant or for a lawful transaction based on the assignment or non-assignment of a firearms code; or

o   otherwise taking any action against a customer or merchant that is intended to suppress lawful commerce involving firearms, firearm accessories or components, or ammunition, which action is based solely or in part on the customer's or merchant's business involving firearms, firearm accessories or components, or ammunition;

·         the substitute omits the provision in the introduced that prohibited a financial institution from disclosing a financial record, including a firearms code that was collected in violation of the bill's provisions;

·         the substitute revises and clarifies provisions in the introduced establishing the authority and related duties and procedures of the attorney general in investigating an alleged violation of the bill and in bringing an action to recover civil penalties and enjoin an individual violating the bill;

·         whereas the introduced authorized a firearms retailer physically located in Texas whose business was the subject of an alleged violation or a customer who transacted at a firearms retailer physically located in Texas whose business was the subject of an alleged violation to petition the attorney general to investigate an alleged violation against the retailer or to file an action in court to enjoin the use of a firearms code in violation of the bill, the substitute provides for a private right of action for a person who has used a payment card to make an applicable purchase to obtain a declaratory judgment that the payment card issuer or payment card network has violated the bill or a judgment enjoining the issuer or network from violating the bill;

·         the substitute omits the provision in the introduced regarding a defense to a civil action filed under the bill;

·         the substitute revises the definition of "firearms retailer" from any person or entity engaged in the lawful business of selling or trading firearms or ammunition to be used in firearms, as in the introduced, to any person or entity engaged in the sale of firearms, ammunition for use in firearms, or firearms accessories;

·         the substitute broadens the definition of "firearms code" from the merchant category code 5723 approved in September of 2022 by the International Organization for Standardization for firearms retailers, as in the introduced, to any merchant category code approved by that organization for a firearms retailer, including that specific code; and

·         whereas the introduced included definitions for "customer," "disclosure," financial institution," "financial record," and "government entity," the substitute does not include those definitions but includes definitions for "electronic payment transaction," "payment card," "payment card issuer," and "payment card network," none of which were included in the introduced.

 

The substitute includes a severability clause that was not included in the introduced.

 

Whereas the introduced applied only to a violation on or after the bill's effective date, the substitute applies only to a purchase of a firearm, ammunition for use in a firearm, or a firearm accessory that takes place on or after that date.