Consumer class actions under California’s Song-Beverly Credit Card Act have been shaped by significant case law developments over the last few years. Friday’s Ninth Circuit decision in Sinibaldi v. Redbox is a decisive victory for retailers of rented goods which will allow them wide latitude to collect personal information, such as zip codes, when using credit cards as a form of security.
The Song-Beverly Credit Card Act broadly prohibits the collection of personally identifying information (e.g., a cardholder’s address or phone number) during credit card transactions except in limited circumstances. Several new class action lawsuits for alleged violations of the law are filed every year in California. There are at least two reasons for this steady stream of class actions. First, the law does not receive as much public attention as some other California consumer protection laws. Second, as a remedial consumer protection statute, courts liberally construe the statute which has led to judicial decisions that broaden the scope and reach of the statute. In Florez v. Linens ‘N Things, the court held that the Act prohibited the collection of personally identifying information before a customer’s form of payment was even known because some customers then used a credit card for purchases. In Pineda v. Williams-Sonoma, the court held that zip codes alone (without accompanying street address information) constituted personally identifiable information. These decisions spawned hundreds of copycat lawsuits.
The law is not limitless, however, and from time to time decisions have been issued that draw constraints around the possible scope of liability. In Absher v. Autozone, the court held that return transactions are not “credit card transactions” under the Act even if the purchase at issue was originally made with a credit card. In Apple v. Superior Court, the court held that online sales of electronic content are exempt under the law’s “fraud prevention” exception. These decisions squelched identical pending and threatened litigation.
The Ninth Circuit’s decision in favor of Redbox will inure to the benefit of retailers beyond the self-service kiosk market space. Plaintiff challenged Redbox’s collection of zip codes at its kiosks, for which credit cards are the only accepted form of payment. As described in the court’s opinion, Redbox charges customers for a one-day rental at the time a video or gaming DVD is selected and thereafter charges customers for additional rental days until the DVD is returned or a maximum fee (roughly approximating the cost of the DVD) is reached. At issue was the exception under the Act for credit cards “being used as a deposit to secure payment in the event of default, loss, damage or other similar occurrence.”
Plaintiff argued that the “deposit” exception under the Act should be limited to transactions in which a fee is obtained in advance and then refunded when specified conditions are met (e.g., if the DVD is returned in one day). The dissent agreed that the Act’s exceptions should be narrowly construed and would have found that Redbox’s practice amounted to a series of subsequent rentals, culminating in a purchase when the maximum fee is reached, and is not covered by the exception related to default, loss or damage.
The majority of the court held that these interpretations were inconsistent with the plain language of the statute and would render the exception a nullity. The court held that a credit card could provide security in multiple ways. Without limitation, the court noted that a credit card could provide security, and thus fall squarely within the Act’s exception, if an amount is drawn in advance, if a pre-authorization is issued without funds being drawn, if a hold is put on a part of the credit limit, or if the credit card information is simply held on file.
The court found no logical reason to draw the fine distinctions advocated by plaintiff and in the dissent. The court’s decision could have broad application in other rental contexts, including for cars, hotel rooms, furniture, or recreational equipment.