April 15, 2008

FCRA REQUIREMENTS TO TRUNCATE CREDIT, DEBIT CARD
RECEIPTS MAY MEAN POTENTIAL LIABILITY

FOR FRANCHISORS AND FRANCHISEES

The Fair and Accurate Credit Transactions Act (FACTA) requires retailers, on electronically printed receipts provided to customers, to eliminate all but five numbers of the customer’s credit or debit card number and the expiration date of the card. If a receipt includes either more than the last five numbers of the customer’s card or the expiration date of the card, the receipt violates the Fair Credit Reporting Act (FCRA), U.S.C. §1681 et. seq.

During the past year, a substantial number of retailers, including franchisors and franchisees, have been surprised to learn the scope of the potential liability they may face if they provide their customers with illegal forms of receipts. That potential liability can be the actual damages sustained by a customer (e.g., if the illegal receipt can be shown to result in theft of the customer’s identity) or, more likely, statutory damages that range from $100 to $1,000 for each violation of the applicable federal law—that is, for each customer who received one or more illegal forms of receipt.

A customer that receives an illegal form of receipt does not need to prove actual damages if its claim qualifies for statutory damages (see below). Multiply the lowest per violation statutory damage amount of $100 by the number of customers even a small retailer serves over a one- or two-year period and the scope of the potential damages becomes clear.

When Congress enacted FACTA in 2003 to amend the FCRA, it gave retailers three years to make the necessary modifications to the software that operates their receipt printing equipment in order to come into compliance with the new requirements of the FCRA. The credit and debit card truncation requirements became effective on December 4, 2006.

It appears that a significant number of retailers, including some large chain retailers, failed to meet this deadline. In the past year, numerous lawsuits have been filed against retailers alleging violations of the form of receipt provisions of the FCRA. Virtually every one of these suits has been filed as a class action.

The credit/debit card receipt truncation obligations of the FCRA are of particular interest to franchisors. For our readers, we have prepared an overview of these obligations and of recent court decisions regarding them.

Please read it here.