( in other words a driver’s license maybe used to verify identification but that’s all certainly not for the collection and storage of information which may be found on the card some of which may be highly sensitive. )

is it legal?
‘drivers license swiping is a relatively new phenomenon and has yet to be challenged.  There is a privacy law in the US called the Driver’s Privacy Protection Act of 1994 (DPPA) that could that could possibly be used to end to end swiping, depending on how you interpret it.  DPPA requires that all states protect the privacy of personal information contained in an individual’s motor vehicle record…” 

The drivers Privacy protection Act (DPPA) and the Privacy of our state motor vehicle record 
permissible uses of a driver’s motor vehicle record :

The DPPA limits the use of a driver’s motor vehical record to certain purposes: 
These purposes are defined in 18 USC s2721:
*Legitimate government agency functions. 
*Use in matters of motor vehicle safety, theft, emissions, product recalls 
*Motor vehicle market search and surveys. 
*”legitimate” business needs in transactions initiated by the individual to verify accuracy of personal information. 
* Use in connection with a civil, criminal, administrative or arbitral proceeding. 
* Research activities and statistical reports, so long as personal information is not disclosed or used to contact individuals. 
*Insurance activities 
*Notice for towed or impounded vehicles. 
*Use by licensed investigators or security service. 
*Use by private toll transportation facilities. 
*In response to requests for individual records if the state has obtained express consent from the individual. 
* For bulk marketing distribution if State has obtained express consent from the individual. 
* use by any requester where the register can show written consent of the individual. 
* for any other legitimate State use if it relates to motor vehicle or public safety. 

Title 18>Part I > chapter 123>S2721
s 2721.  Prohibition on release and use of certain personal information from State motor vehicle records 
(b) Permissible Uses. 
(3) for use in the normal course of business by a legitimate business or its agents, employees or contractors but only:
(A) to verify the accuracy of personal information submitted by the individual to the business or its agents, employees, or contractors and 
( if such information as so submitted is not correct or is no longer correct, to obtain the correct information but only for the purposes of preventing fraud by pursuing legal remedies against , or recovering on a debt or security interest against the individual. 

Title 18> Part I > chapter 123 > S 2725
S 2725.  Definitions
(1) motor vehicle record ? means any record that pertains to a motor vehicle operator ? permit, motor vehicle title, or vehicle registration  or identification card issued by a department of motor vehicles
(2) person means an individual organization or entity but does not include a state or agency there of
 (3) personal information? means information that identifies an individual including an individual photograph social security number, driver identification number, name address, ( but not the 5-digit zip code ) telephone number, and medical or disability information but does not include information on vehicular accidents driving violations, and drivers status 
(4) highly restricted personal information means an individual photograph or image social security number, medical or disability information
(5) Express consent ? means consent in writing including consent conveyed electronically that bears an electronic signature as defined in section  106 (5) of Public law 106 229.
 
2)  State laws 
“What states allow a retailer to electronically read the driver’s license and populate a data base with information from drivers license” 

Generally the states that have laws are more or less the same as the federal law, in that a driver’s license may be used to verify identification.  Further, address or telephone numbers can only be recorded when necessary for shipping. 

States that prohibit recording of Personal information:  the following states prohibit merchants from recording certain personal information in connection with credit card transactions: 
*California 
*Delaware
*Georgia 
* Maryland
* Massachusetts
*Minnesota
*Nevada
 *New Jersey 
* new York 
* Pennsylvania 
*Washington DC 
* Wisconsin 
  
United state drivers licenses
The data stored on magnetic stripes on American driver’s licenses is specified by the American Association of Motor Vehicle Administrators  (AAMVA) Not all states use a magnetic stripe on their  driver’s licenses.  For a list of those that do, see the AAMVA list of US License Technology.  the AAMVA site also contains a list of the Canadian jurisdictions  that use magnetic stripes on their driver’s licenses.