Will California's gun law place a target on card networks?

George Frey/Bloomberg

The large U.S. card networks may be building a merchant code for firearm and ammunition purchases in California — a move which could draw fire from other states where conservative lawmakers have worked to block such codes.

Visa, Mastercard and American Express are moving ahead with the transaction codes, according to CBS News, which reported these payment codes would enable the card companies to comply with a California law allowing banks to flag suspicious gun purchases and share that information with authorities. The law takes effect in 2025.

The International Standards Organization created the codes to generally categorize a merchant's primary business as a gun seller. The payment companies had considered adding the codes in the but halted implementing the codes in March 2023 following resistance from lawmakers in conservative states. Republican state representatives in Wisconsin have introduced a bill that would ban gun-specific payment codes. Visa, Mastercard and American Express did not provide comments by deadline. Discover, which was not named in the CBS story, also did not provide comment.  

California's law likely means the card networks would have to have different compliance policies in different states. That's not unusual, but it does place the companies in the middle of a political fight during an election year, given California's size and its ability to influence federal policy and laws in other states. 

"Our increasingly fraught and fractious politics are playing out at the state level with hard blue states like California and red states imposing their policy preferences on our payment system," said Eric Grover, a principal at Intrepid Ventures. "National payment systems are going to have to navigate a patchwork of conflicting state-level requirements."

Payment networks and processors will be able to manage the differences, but it will increase the cost and complexity of running their businesses, Grover said. He predicted that policymakers in liberal states such as California and New York will increase tracking and the burden on payments for firearms. "Many pro-Second Amendment red states will ban or limit such tracking," Grover said. 

California's law could influence policy elsewhere. 

There has been a link between California's early actions on consumer protection regulations and subsequent actions by other states and the Consumer Financial Protection Bureau, according to said Stewart Watterson, a strategic advisor at Datos Insights. 

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California's Consumer Privacy Act, passed in 2018, is designed to give consumers more control over the way businesses use their data. Similar laws went into effect in Virginia, Utah and Connecticut in 2023, and in Colorado in 2021.

These laws have pressured payment processors to update policies that manage how consumer data is shared and stored, as well as improve opt-in provisions for consumers to enable data sharing. 

"Overall, California's early actions in consumer protection have set a precedent and spurred other states and federal agencies to follow suit in enhancing consumer privacy and financial regulations," Watterson said. 

California is also considering a bill that would affect earned wage access products, which provide early access to payroll. The bill would regulate EWA payments in a manner similar to traditional loans. 

California reached an agreement with earned wage access providers in 2021 under which the companies would share data with regulators, allow examinations and set limits on pricing, sparking several other states to follow suit.

California has been a trendsetter on both conservative and liberal issues, according to Robert Hockett, a law professor at Cornell University, noting tax reforms in California have spread to other states as well as minimum-wage hikes. 

"At least as interesting as the effects upon other states in this case, as it happens, might be reactions from Congress, whose Republican members are probably already primed due to the moves in the insurance industry on guns," Hockett said. In 2023, several jurisdictions — including San Jose, California — passed laws requiring gun-related insurance. 

There is the potential that California's market size could affect other states, but on certain issues, especially hot-button issues like gun sales, California's outsize influence may not be enough to sway other states to follow suit, said James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy & Research. 

"Regulations will simply follow political fault lines," Wester said, adding that in terms of financial and payment regulation more generally, New York tends to be more influential given its role as a banking capital. 

Large red states have also passed laws that either aimed for a national influence or indirectly created cross-state pressure. Texas, for example, in the past three years has passed laws that require banks to prove they do not ban gun or ammunition sellers in order to do business with the state. Texas also requires state agencies to not do business with banks that restrict the oil and gas business. 

"Regardless of which state leads on any particular issue, however, this move by California on this [gun] issue demonstrates the complexity of compliance that payment and financial services providers must deal with," Wester said.