Clothing retailers Urban Outfitters and Free People recently agreed to settle a class action lawsuit alleging that the retailers improperly collected ZIP codes from customers at checkout by giving class members a gift card.

Plaintiff Lauren Miller filed the lawsuits in state court alleging that the retailers violated Massachusetts state law by collecting customers’ ZIP codes during credit card purchases at Urban Outfitters and Free People stores, which the retailers then used to send unwanted marketing materials to customers’ homes. Massachusetts law prohibits businesses from requesting personal information from consumers during a credit card transaction that is not required by the credit card issuer and recording the information on the credit card transaction form. Mass. Gen. Law. c. 93 § 105(a). The Massachusetts Supreme Court recently confirmed that ZIP codes constitute “personal information” under the statute. Tyler v. Michaels Stores, Inc., Civ. No. 11-10920-WGY (D. Mass. Jan. 6, 2012).

Ms. Miller’s complaints were consolidated and removed to the US District Court for the District of Massachusetts. The parties held a mediation in July before retired Judge Allan van Gestel and reached a settlement agreement on December 15, 2014. Ms. Miller has requested court approval of the settlement agreement, under which the retailers agreed to give one sub-class of consumers a $20 gift card and another sub-class of consumers a $10 gift card. The first sub-class includes 34,980 consumers who received unwanted marketing materials after providing their ZIP codes for the first time during a credit card purchase at an Urban Outfitters or Free People retail store. The second sub-class includes 3,158 consumers who received unwanted marketing materials and who provided their ZIP codes during a telephone, internet, or mail order transaction prior to providing their ZIP codes in connection with a credit card purchase at an Urban Outfitters or Free People retail store. The gift cards are valid for six months and redeemable at either store.

The total value of the proposed settlement, based on the size of the two sub-classes, is approximately $731,180.00, excluding administrative expenses and attorneys’ fees.

Asking for consumer ZIP codes can pose serious risks for retailers. The facts of this case appear to show a clear violation of the Massachusetts law. The outcome may have been different, however, if the ZIP codes were collected after the credit card transactions were completed, or if collection of the ZIP codes was necessary for shipping, delivery, or installation of purchased merchandise or services.