June 12, 2008

NEW LEGISLATION CURTAILS FACTA CREDIT,
DEBIT CARD RECEIPT CLASS ACTIONS

Hundreds of class action lawsuits have been filed against retailers for violations of federal law governing what information can be printed on credit or debit card receipts. Now, legislative action has essentially eliminated the risk of liability in most pending lawsuits.

As discussed in our April FranCast, the FACTA amendments to the Fair Credit Reporting Act (FCRA), enacted in December 2003, significantly expanded the prior scope of the FCRA from its earlier focus on credit bureaus and credit reports. One provision in the amendments required merchants to truncate credit and debit card receipts, ie display no more than the last five digits of the account number. 15 U.S.C. § 1681c(g).

Most retail industries were initially unaware that the law also prohibited the printing of the account’s expiration date. A majority of the cases filed since the December 2006 effective date of the FACTA provision involved only violations of the expiration date-masking requirement. These cases all allege that such violations were “willful” under 15 U.S.C. § 1681n, thereby entitling consumers to statutory damages of $100 to $1,000. A number of federal courts have certified the FACTA cases as class actions and denied defendants’ motions for summary judgment.

However, on June 3, 2008, President Bush signed into law the Credit and Debit Card Receipt Clarification Act of 2007, H.R. 4008, 110th Cong. (2007) (Clarification Act). This legislation was passed without a single dissenting vote in either the House of Representatives or the Senate.

The Clarification Act expressly provides that any person who printed an expiration date on a receipt at any time between December 4, 2004 and the enactment of the Clarification Act, but who otherwise complied with 15 U.S.C. § 1681c(g), ie truncated the account number, “shall not be in willful non-compliance with [§ 1681c(g)] by reason of printing such expiration date on the receipt.” Id. at § 3(a). The Clarification Act expressly states that the amendment applies to any action filed under FACTA, “without regard to whether such action is brought before or after the date of the enactment of this [Clarification] Act.” Id. at § 3(b).

The express basis for the legislation was a Congressional finding that the lawsuits did not allege any harm to a consumer’s identity (the legislative concern behind § 1681c(g)) and the expert opinion that truncation of the card number, even with the display of the expiration date, is sufficient to prevent identity theft.

Clarification Act Does Not Eliminate All Liability under FACTA

It is important to note that the Clarification Act does not eliminate the entire risk of liability posed by the FACTA amendments. It does not apply to any receipts printed after the recent enactment of the amendment. Therefore, retailers would still be subject to claims for a willful violation of FACTA if their receipts do not, from now on, mask the expiration date and contain no more than the last five digits of the account number. Also, the Clarification Act does not extinguish all past liability. Consumers still have the right to sue to recover actual damages, if any, suffered as the result of a negligent violation of FACTA. Moreover, retailers who printed more than five digits of the account number remain potentially liable for willful violations for receipts printed both before and after the passage of the Clarification Act.

Separately, retailers may also be liable for FACTA violations for receipts provided to customers via the Internet (either by displaying receipts on the customers’ computer screens or sending receipts via email). Some federal district courts which have considered whether FACTA applies to receipts displayed on computer screens found that FACTA applied to such receipts. See, eg, Harris v. Best Buy Co., Inc., Case No. 07 C 2259 (N.D. Ill. March 20, 2008). Other recent decisions, however, have reached the opposite conclusion and determined that FACTA applies only to receipts which are actually printed by the retailer, and not to receipts sent via email for printing by the consumer. See, eg, King v. Movietickets.com, Inc., Case No. 07 C 22119 (S.D. Fla. Feb. 13, 2008 & May 19, 2008). To date, no federal appellate court has addressed this issue. Therefore, retailers whose liability is not extinguished by the Clarification Act, or who provide non-compliant receipts after the passage of the Clarification Act, may face FACTA claims based upon receipts provided through the Internet.

Another recent development in this area is a decision by a federal court in the Northern District of Alabama, which held that the remedial scheme of FACTA is unconstitutional in that it denied defendant companies “due process.” The case is Julie Best Grimes v. Rave Motion Pictures Birmingham, L.L.C, et al., Civ. Action 07-AR-1397-S (Memorandum Opinion, May 28, 2008). The court held that the availability of statutory damages in cases of willful violations of “not less than $100 and not more than $1000” was unconstitutionally vague because it “provides no guidance for deciding between $100 and $1000, leaving it to the whim of the jury.” The court also found the availability of punitive damages in addition to statutory damages, without proof of any harm, was unconstitutional.