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High Court Ruling Could Be Boon for Retailers

A Supreme Court ruling handed down Monday could be good news for more than 100 major retailers targeted by class-action lawsuits alleging that the companies failed to comply with a law designed to protect consumers from identity theft.

The retailers -- including Rite Aid, KB Toys, Regal Cinemas and In-N-Out Burger -- have been sued for allegedly violating an amendment to the Fair Credit Reporting Act (FCRA) that requires companies to remove full credit card numbers and expiration dates from printed customer receipts.

The new protections, added in the Fair and Accurate Transactions Act, went into effect in early December 2006. The provisions were meant to protect shoppers from identity thieves, who have been known to dig through trash dumps to steal receipts in search of credit-card information.

Very shortly after the law took effect, class-action lawyers pounced, charging that dozens of retailers had violated the FCRA by continuing to print receipts without redacting all or some of the data . Citing what they called questionable wording in the statute, attorneys for the retailers claimed their clients were operating under the position that compliance with the law meant redacting either the credit card number or the expiration date, but not necessarily both. (Judge for yourself - the statute reads: "No person that accepts credit cards or debit 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... .")

Companies found guilty of failing to observe this portion of the FCRA can be fined between $100 to $1,000 per violation, a potentially huge sum for retailers that print tens of thousands of receipts per day.

The plaintiffs filed most of their cases in California, where the Ninth Circuit Court of Appeals had issued a pair of decisions that signaled it was apt to be more lenient in deciding which actions (or inactions) constitute a "willful" violation of the FCRA. The Ninth Circuit sent that signal in Safeco Insurance v. Burr and Geico General Insurance v. Edo, saying the insurers violated the FCRA when they failed to tell customers anytime that low credit scores affected the rates they paid. The AP story on Monday's decision says that consumer groups point to the notification requirement in FCRA as "the cornerstone to cleansing credit reports of inaccurate information."

The Ninth Circuit held that defendants could be found liable for a willful violation of the FCRA absent proof that they either actually knew that they would be violating the statute or acted in reckless disregard of whether they were violating it.

The two insurance cases were appealed to the Supreme Court, which on Monday reversed the Ninth Circuit's opinions, sending them back to the lower courts for further deliberation. The High Court's majority opinion, written by Justice David Souter, effectively confined the Ninth Circuit's open-ended definition of what kinds of actions constitute reckless disregard. In order for a company to be found liable for a reckless violation, Souter wrote, its conduct must involve an unjustifiably high risk of harm that is either known to a company or is so obvious that it should have been known.

Charles A. Patrizia, a partner with the Washington office of law firm Paul Hastings, which is representing a number of the retailers targeted in the class-action suits, said the high court's ruling was a positive development for the defendants, but he doubted that the any of the plaintiffs would go so far as to drop their cases as a result of today's decision.

"So now the question becomes, even with the expiration date printed on the receipt and only part of the credit card number, is there an unjustifiably high risk that someone is going to figure out a way to guess those last missing digits and use it? That risk seems pretty low."

Mark Rasch, a former Justice Department prosecutor who now serves as a managing director at FTI Consulting, called Monday's decision good news for the retailers in the class-action cases, but said the jury was still out for its impact on consumer rights.

"While this decision doesn't mean companies can avoid liability simply by avoiding knowing about legal requirements, it means companies are free to be wrong, as long as they're not grossly wrong," Rasch said.

By Brian Krebs  |  June 5, 2007; 10:35 AM ET
Categories:  Fraud , From the Bunker  
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I have always hated the cards issued by stores such as Rite Aid and Safeway, because I think all products should cost the same for all customes--that charging more for cardless custommers is nothing more than a caste system. This is different from ID theft, however, and I did succumb to getting the "discount" cards because, like everyone else, I hate paying higher prices but realize that the card is nothing more than an advertising gimmick.

Posted by: Sue Dawson | June 6, 2007 10:22 AM | Report abuse

I thought we had fixed this issue of full credit card #'s a while ago. It is really obnoxious that companies would be so ignorant/lazy/unwilling to change when it has been proven that people will go to great lengths (ie digging through dumpsters) to get this information. In addition, what are the benefits to the company by putting full numbers on receipts anyway?

On the personal side, people also need to know how to protect themselves in case something like does happen and a third party does get a hold of your personal information. Here's an article on the basics of protecting your personal financial information.

Posted by: Nate | June 6, 2007 12:13 PM | Report abuse

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