Consumer class actions challenging the collection of ZIP codes continue to pose threats to companies.

The wave of litigation began in 2009 when the California Supreme Court decided Pineda v. Williams-Sonoma. In that case the court determined that the state’s Song-Beverly Credit Card Act (“Song-Beverly Act”) prohibits the collection of ZIP codes, which fall under the definition of “personal information” protected by the statute.

Dozens of consumer class actions were filed in the wake of the decision and other states with similar consumer protection laws faced comparable suits, including Massachusetts.

ZIP code litigation continues to work its way through the court system. Nike recently lost a motion for summary judgment in a trio of Song-Beverly consolidated class actions filed in California federal court. In seeking summary judgment, Nike relied on its extensive employee training and point-of-sale software. It argued that the Song-Beverly Act is not violated if a customer provides a ZIP code voluntarily for a purpose unrelated to processing the credit card transaction, and it presented “irrefutable evidence” of its policies and procedures such that customers could not have reasonably perceived the request for a ZIP code as a condition to completing a credit card transaction.

For example, signs were posted in Nike stores that read, “Nike will ask for your ZIP code during all purchases and returns. This information is used for marketing and consumer research only. Providing your ZIP code is voluntary and not required to complete your transaction. Under the specific terms for our posted return policy, additional information will be required when processing a return.”

Nike provided declarations of eight sales managers and store employees attesting that they were trained not to request a ZIP code until a credit card transaction is complete and proffered evidence that a transaction had to be complete before the point-of-sale software requested a ZIP code.

Despite the evidence, U.S. District Court Judge Susan Illston denied the motion and said disputes of material fact remained in the suit. She noted that the software system would prompt a cashier to request a ZIP code after the customer’s receipt had started to print, making it possible for a cashier to request a ZIP code prior to handing the receipt and merchandise to the customer, which could confuse some consumers.

In a second suit, OfficeMax reached a preliminary settlement agreement in a pair of consolidated class actions alleging that the retailer illegally requested and recorded ZIP codes during credit card transactions.

Although the company admitted no wrongdoing and asserted multiple defenses – including evidence that the same day Pineda was handed down, it immediately informed all California stores to stop requesting ZIP codes at the point of sale – OfficeMax agreed to a $600,000 settlement fund for the class.

Class members can receive up to $15 in merchandise vouchers. A $10 voucher is available to those who submit a claim notice. Without having to go through the claims process, 120,000 customers who make purchases at an OfficeMax store during a set time period will also receive a $5 voucher.

The $600,000 fund does not include a limit on claims for the $10 vouchers nor does it cover attorneys’ fees for the class. Pursuant to the deal, class counsel will petition the court for a fee ranging between $200,000 and $500,000.

To read the court’s order in Gormley v. Nike, click here.

To read the preliminary settlement motion in Dardarian v. OfficeMax, click here.

Why it matters: The cases demonstrate that companies must exercise caution when collecting ZIP codes from consumers who use their credit cards during a transaction and should consider if the intended purpose is worth the risk of litigation. Although Nike and OfficeMax both took immediate action following the Pineda decision – a company’s ZIP code collection practices could still be challenged.