What Made News?

The Ninth Circuit has affirmed the dismissal of a putative class action against Redbox, holding that its ZIP code collection practices fall within an exception to California’s Song-Beverly Credit Card Act of 1971 (Song-Beverly Act).

Details of the Case

Under the Song-Beverly Act, retailers are prohibited from collecting personal identification information in connection with a credit card purchase. Following a California Supreme Court decision, ZIP codes fall within the definition of “personal identification information.” There is, however, an exception to the Song-Beverly Act that allows for the collection of such information where the “credit card is being used as a deposit to secure payment in the event of default, loss, damage, or other similar occurrence.” Redbox was able to rely on this exception.

As background, Redbox — a movie and video game rental company that operates through kiosks — collects payment through credit and debit cards and requires customers to input a ZIP code. Customers are charged an initial fee for one day’s rental on the date of the rental transaction. When a customer returns the rental, Redbox then charges the customer’s previously recorded credit or debit card for each additional day the customer kept the rental, up to a maximum fee. According to the plaintiffs, Redbox violated the Song-Beverly Act by collecting ZIP codes during these transactions.

Despite the plaintiffs’ arguments, the Ninth Circuit did not agree that Redbox’s actions violated California law. Instead, the Court held that Redbox’s ZIP code practices fell within the exception to the Act for deposits. The Court rejected the argument that the term “deposit” refers only to advance payment. The Court noted that vendors may use credit cards to secure payment in a variety of ways, ranging from Redbox’s method of securing payment to placing a hold on part of a customer’s available credit without initially withdrawing any funds (a practice also known as “preauthorization” or an “authorization hold”).

What is the Takeaway?

The Ninth Circuit’s ruling clarifies that the Song-Beverly Act’s exception for deposits against default, damage, or loss applies to authorization holds, advance payments, and subsequent charges made to a previously recorded card number. This may provide companies that accept payment by credit card with greater flexibility in determining how they wish to secure payment from their customers in California. Despite this recent ruling, companies should still be cognizant of the point of sale data collection laws of every state in which they operate. While California is a leader in this area, there are state-by-state distinctions with which retailers must comply.