The latest consumer class action fad, class actions alleging violations of the FCRA regarding information printed on credit and debit card receipts, has now spread to Chicago. The plaintiff class action bar has been filing class action cases, initially on the West Coast and soon after on the East Coast, under Section 1681c (g) of the Fair Credit Reporting Act (15 U.S.C. §1681c (g)) against major retailers and restaurants alleging that defendants are failing to comply with the FCRA’s requirement that businesses may only print the last five digits of a card number and may not print the card expiration date on an electronically printed receipt given to a consumer.
Section 1681c (g) of the FCRA—known by the acronym of the amending statute, FACTA (Fair and Accurate Credit Transactions Act)—became effective as to all transactions covered by the statute on December 4, 2006. The plaintiff class action bar wasted little time and multiple class action cases have already been filed in federal courts in California and other states against companies such as Victoria’s Secret, The Limited, Bath & Body Works, Harry & David, Estyle, Gaucho Grill, IKEA, Costco, In-N-Out Burger, El Pollo Loco, and California Pizza Kitchen, alleging violations of Section 1681c(g). Wildman Harrold is presently defending a major national retailer in one of the cases filed in California and New Jersey. This “fad” has now spread to Chicago. On April 18, 2007 a prominent Chicago plaintiff class action firm filed the first two FACTA credit card receipt class actions filed in the U.S. District Court for the Northern District of Illinois. These two cases were filed against national parking management corporations and alleged that credit or debit card receipts issued for payment of parking to the named plaintiff contained more than five digits of the card number or the card expiration date, in violation of Section 1681c(g). On April 20, 2007 the same plaintiff class action firm filed a third case against a north suburban restaurant and on April 25, 2007 this firm filed a fourth case against a Chicago grocery store. The “feeding frenzy” has apparently begun here as on April 26, 2007, five more cases were filed in the Northern District, this time by a New York firm in conjunction with a local Chicago attorney. We anticipate that additional cases will be filed in the coming weeks.
FACTA Prohibits Printing More Than the Last Five Digits of the Card Number and Prohibits Printing Expiration Date on Electronically Printed Receipts Issued to Consumers
In an effort to combat identity theft, as part of FACTA, Congress amended the FCRA to add Section 1681c (g) which requires businesses to truncate credit and debit card numbers and suppress printing of card expiration dates on electronically printed receipts issued to consumers. Specifically Section 1681c (g)(1) provides:
(1) In general. Except as otherwise provided in this subsection, no person that accepts credit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of sale or transaction.
15 U.S.C. §1681c (g)(1). Subsection (g)(2) provides that this provision applies only to receipts that are electronically printed and it does not apply to transactions where the sole means of recording the account number is by handwriting or an imprint of the card.
FACTA Provision Effective as to All Transactions Involving Electronically Printed Receipts as of December 4, 2006
While the FACTA amendments became effective December 4, 2003, Congress provided a delay in the effective date of Section 1681c (g) to allow businesses to prepare for compliance. Section 1681c (g) provides that it is not effective until December 4, 2006 for cash registers first put into use before January 1, 2005. As to cash registers which were put into use after January 1, 2005, these restrictions applied on the date the cash register was first put into use. The class actions filed to date generally are focused primarily on failure to follow the provisions of Section 1681c (g) as of December 4, 2006.
FACTA Provides for Statutory Damages of $100 to $1,000 Per Violation for Willful Violation of Section 1681c (g)
Under Section 1681o a plaintiff may bring an action for a violation of these FACTA provisions and recover actual damages for a negligent violation of the Act. 15 U.S.C. §1681o. Most of the cases filed to date do not allege actual damages, however, and rely upon the FACTA provision that allows a plaintiff to seek statutory damages of between $100 and $1,000 per violation under Section 1681n (15 U.S.C. §1681n), if the plaintiff proves the defendant willfully violated FACTA. One federal court in California has already rejected an argument that FACTA does not create a private right of action allowing an individual plaintiff to bring a claim against a defendant. See: Eskandari v. IKEA U.S., Inc., No. 06 CV 1248, 2007 U.S. Dist Lexis 23007 (C.D. CA March 12, 2007).
Should a class be certified, the potential exposure to a defendant is huge. Assuming statutory damages of $100 per violation, every 1,000 receipts issued in violation of Section 1681c (g) creates a potential exposure of $100,000. If the maximum statutory damages of $1,000 per violation is awarded, then the potential exposure is $1 million. There is no cap on damages awarded under FACTA.
Supreme Court Is Reviewing Willfulness Standard Under FCRA – Decision Expected This Term
The plaintiff class action bar is alleging that the conduct of defendants in these cases constituted a willful violation of Section 1681c (g) in an effort to recover the statutory damages of $100 to $1,000 per violation available under Section 1681n of the FCRA. Unless plaintiffs can prove a willful violation of FACTA, they cannot recover statutory damages, and their failure will have a significant impact on their ability to have a class certified. Thus a defendant can effectively prevail in these cases if it defeats plaintiff’s attempt to prove its conduct was willful.
The issue of what constitutes willful conduct under a different provision of the FCRA, to subject a defendant to statutory damages, is pending before the U.S. Supreme Court in Safeco v. Burr and GEICO v. Edo. These cases involve another favorite cause of action of the plaintiff class action bar, namely that defendants impermissibly access credit reports in connection with prescreened solicitations as the solicitations allegedly fail to make a firm offer of credit or insurance.1 The Supreme Court accepted these cases to review the decisions of the Ninth Circuit Court of Appeals holding that willfulness could be established by a showing of “reckless disregard” of the requirements of the FCRA. Other Courts of Appeal, including the Seventh Circuit, have adopted a more conservative interpretation holding that the defendant had to have knowledge of the violation and the intent to violate it. The U.S. Supreme Court heard argument in these cases on January 16, 2007 and it is expected a decision will be issued in these cases before the end of its term this summer.
Since the Ninth Circuit’s “willfulness standard” is more favorable, most of these cases have been filed in California and other circuits that apply the weaker Ninth Circuit standard. However, now that a prominent plaintiff class action firm has begun filing these cases in the U.S. District Court for the Northern District of Illinois we anticipate additional cases will be filed here.
Credit Card Companies Have Also Created Obligations and Can Impose Fines or Prohibit Use of Their Cards
Credit card companies, including VISA and MasterCard, have also created obligations on the part of merchants accepting their cards to truncate card numbers and suppress expiration dates in their agreements with merchants. According to one merchant internet blog the fines which VISA or MasterCard may impose on merchants who violate this regulation are as follows: 1st Violation – $5,000; 2nd Violation – $10,000; 3rd Violation – $25,000; 4th Violation – $50,000 and Willful or Egregious Violation – $500,000/month. Thus in addition to facing a FACTA class action and state and federal regulatory actions, a business may also be fined and potentially shut off by credit card companies for failing to comply with the truncation and suppression regulations.