District Court Rules E-mail Order Confirmations Not Subject to FACTA

Posted on January 13, 2010 by Kevin Khurana

We have written several times about courts (and Congress) helping to define the scope and applicability of certain provisions of the Fair and Accurate Credit Transactions Act (“FACTA”) amendments to the Fair Credit Reporting Act. One provision that has been frequently litigated, 15 U.S.C. § 1681c(g), involves FACTA’s so-called truncation requirements for printed transaction receipts. On December 2, 2009, in Shlahtichman v. 1-800 Contacts, Inc., 2009 U.S. Dist. LEXIS 112379 (N.D. Ill. Dec. 2, 2009), Judge John W. Darrah of the Northern District of Illinois Eastern Division held that FACTA’s prohibition against the electronic printing of a debit or credit card’s expiration date on receipts was inapplicable to e-mail order confirmations (decision available here).

FACTA’s truncation requirements, 15 U.S.C. § 1681c(g), prohibit the “electronic printing” of any receipt at “the point of the sale or transaction” that contains the expiration date of a consumer’s credit or debit card or more than the last five digits of the credit or debit card account number. It is clear that this prohibition applies to hard copy receipts provided to consumers, but reported decisions regarding the applicability of FACTA to electronically displayed receipts are inconsistent in their holdings. Compare Grabein v. 1-800-Flowers.com, Inc., No. 07-22235 (S.D. Fla. Jan. 29, 2008) with Meehan v. Buffalo Wild Wings Inc., No. 07C4562 (N.D. Ill. Feb. 26, 2008). Nonetheless, many judges have held that FACTA does not apply to online receipts (see, for example, the Smith v. Zazzle.com case reported here). On December 2, Judge Darrah joined them.

In Shlahtichman, an electronic order confirmation containing plaintiff’s credit card expiration date was e-mailed to plaintiff after he placed an order through defendant’s website. The plaintiff alleged that this “receipt” violated FACTA’s truncation requirements. Judge Darrah, in coming to his conclusion, relied on the plain meaning of the word “print” and determined that under FACTA, an e-mail order confirmation is not an “electronically printed” receipt because “‘print’ is not commonly understood as a display on a computer screen.” Shlahtichman, 2009 U.S. Dist. LEXIS 112379, at *7 (citing Grabein v. Jupiterimages, 2008 WL 2704451, at *6 (S.D. Fla. 2008)). Judge Darrah also held that an e-mail order confirmation is not subject to FACTA because an e-mail is not provided “at the point of sale or transaction” due to the fact that an e-mail can be accessed from anywhere in the world. Id.
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Florida Cases Remind Retailers that Printing Expiration Dates after Enactment of the Receipt Clarification Act Violates FACTA

Posted on February 6, 2009 by Brendon Tavelli

The Fair and Accurate Credit Transactions Act (“FACTA”) amendments to the Fair Credit Reporting Act prohibit, among other things, the printing of expiration dates on receipts presented to credit or debit card holders.  Two recent cases from the U.S. District Court for the Southern District of Florida, Smith v. Zazzle.com, Inc. (see our blog post here) and Smith v. Under Armour, Inc., reject prior holdings that the term “print” is broad enough to encompass the information included when a seller electronically transmits a receipt.  These cases also make clear, as we stated in our June 18, 2008 post, that businesses printing expiration dates after the June 3, 2008 enactment of the Credit and Debit Card Receipt Clarification Act of 2007 (“Clarification Act”) are violating FACTA’s truncation requirements. In fact, the Zazzle.com case specifically mentions that the Clarification Act does not apply because the conduct complained of occurred after the Act’s enactment.

The Clarification Act, which shielded from a finding of willful noncompliance with FACTA any business that printed an expiration date on a cardholder receipt between December 4, 2004 and the enactment of the Clarification Act, did not completely eliminate the statutory requirement to not print expiration dates on cardholder receipts.  Accordingly, businesses that print expiration dates on such receipts after June 3, 2008, even when card numbers are properly truncated, may incur liability under FACTA.

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District Court Rules FACTA Inapplicable to Online Receipts

Posted on January 21, 2009 by Clifford Davidson

On December 8, 2008, in Smith v. Zazzle.com Inc., No. 08-22371-CIV-KING, 2008 U.S. Dist. LEXIS 101050 (S.D. Fla. Dec. 9, 2008) Judge James Lawrence King of the Southern District of Florida held FACTA’s credit card number truncation requirement inapplicable to receipts displayed on-screen or printed by online customers.  Judge King dismissed the case on this basis (the order is available here).  The order contradicts one last year in the same district, Grabein v. 1-800 Flowers Inc., No. 07–22235 (S.D. Fla. Jan. 29, 2008) (reported here), but is consistent with three other Southern District of Florida cases: Grabein v. Jupiterimages Corp., No. 07-22288 (S.D. Fla. July 7, 2008), Haslam v. Federated Dep't Stores Inc., No. 07-61871 (S.D. Fla. May 16, 2008) and Edwin King v. Movietickets.com, No. 07-22119 (S.D. Fla. Feb. 13, 2008).

Judge King’s opinion focused on the meaning of the word "print" in the following FACTA provision: "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 provided to the cardholder at the point of the sale or transaction." 15 U.S.C. § 1681c(g)(1). Judge King found, based on the ordinary meaning of the word "print," that Congress intended "print" to mean the "imprinting of something on paper or another tangible surface." Zazzle.com, 2008 U.S. Dist. LEXIS 101050 at **7-8.
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When Reckless Means Willful - High Court Issues Landmark Decision Under the Fair Credit Reporting Act

Posted on June 12, 2007 by Proskauer Rose LLP

Since December 4, 2006, consumers have filed dozens of class actions against retailers and other businesses across the country alleging “willful” violations of the Fair and Accurate Credit Transactions Act (“FACTA”) amendments to the Fair Credit Reporting Act (“FCRA”), prohibiting the printing of more than five digits, or the expiration date, of a credit card on receipts provided to the customer. Defendants in those cases have been waiting anxiously for the Supreme Court to rule in Safeco Insurance Co. of America, et al. v. Burr, et al. 551 U.S. _____ (2007), a factually inapposite matter in which the Court granted certiorari to determine whether “reckless disregard” suffices for willfulness under the statute. In a decision that raises as many questions as it answers, the Supreme Court held on June 4, 2007 that “reckless” failure to comply with FCRA can be considered willful. The Court’s opinion begs the question whether it was objectively reasonable for retailers to continue the printing of expiration dates on customer receipts after FACTA took full effect.

Defendants who "willfully" violate FCRA are subject to significant statutory damages of $100 to $1,000 for every instance of violation, as well as punitive damages. Safeco involved notice obligations to consumers regarding adverse action based on consumer reports, but the relevant provision of FCRA - §1681n(a) - imposes penalties for violation of other provisions of the statute, including the FACTA amendments mandating credit card truncation. Unfortunately, after Safeco, the boundaries of what constitutes "willful" remain unclear.

Safeco Insurance Co. and GEICO were involved in separate suits, both in the Ninth Circuit, that were consolidated to resolve a Circuit split as to whether Section 1681n(a) reaches "reckless disregard." The Ninth Circuit held that a defendant "willfully" fails to comply with FCRA if it acts with "reckless disregard" of a consumer’s rights.

The high Court was quick to point out that "willfully" is a "‘word of many meanings whose construction is often dependent on the context in which it appears’" (quoting Bryan v. United States, 524 U.S. 184, 191 (1998) (internal quotation marks omitted)). Although the Court did not furnish a clear-cut definition, it confirmed that reckless disregard - or "action entailing ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known’" - can be considered willful. The defendant’s actions must be objectively unreasonable. "[A] company subject to FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless." The Court did not find it necessary to identify the "negligence/recklessness line." However, it is clear that a defendant need not have actual knowledge of a violation to be found to have willfully violated the statute.

Both the Safeco and GEICO cases stemmed from an insurance company’s notice obligations to certain customers under Section 1681m. Under that provision, companies must inform a customer if "adverse action" is taken based in whole or in part on information contained in the customer’s consumer report. Since the initial rate offered by GEICO to the plaintiff/respondent was the one he would have received if his credit score had not been taken into account, the Court determined that GEICO had not violated the statute at all, let alone willfully. The Court found that Safeco Insurance Co. did violate FCRA by failing to notify certain individuals based on its erroneous determination that the statute did not apply to initial insurance applications.

However, the Court ruled that Safeco’s conduct fell short of action with "unjustifiably high risk" of violating the statute. Its interpretation of the statute, while "erroneous, was not objectively unreasonable," because Safeco’s position had a "foundation in the statutory text." Invoking authority holding that the determination of reasonableness for qualified immunity purposes is guided by legal rules that were "clearly established" at the time, the Court also acknowledged that, "[b]efore these cases, no court of appeals had spoken on the issue, and no authoritative guidance has yet come from" the Federal Trade Commission. The Court did not address the question of whether good-faith reliance on legal advice should render companies immune to claims under Section 1681n(a), but did "not foreclose the possibility."

Safeco’s Implications

The impact of this decision extends far beyond notification of adverse actions taken by insurance companies. Currently pending are the dozens of FACTA class action lawsuits alleging willful violations of FACTA’S prohibition on printing more than five digits, or the expiration date, of a credit card on receipts provided to the customer. It remains to be seen how those courts will apply the rule enunciated in Safeco. However, given (a) the dearth of legal authority or guidance on the proper interpretation of the FACTA provision at issue in those cases, Section 1681c(g) - a provision that did not even go into full effect until December 4, 2006; (b) the lack of any apparent connection between the printing of an expiration date and the risk of identity theft; and (c) the large number of businesses that plaintiffs have accused of violating the language of the statute, there exists ample ground for a court to find that a retailer’s decision to continue printing expiration dates on receipts after FACTA was not objectively unreasonable.
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