Wednesday, February 16, 2011

Cal Sup Ct Says Recording ZIP Code Violates CA Song-Beverly Credit Card Act

The Supreme Court of California recently held that a business violates the California Song-Beverly Credit Card Act of 1971 (the "Credit Card Act"), which prohibits businesses from requesting that cardholders provide "personal identification information" during credit card transactions and then recording that information, when the business requests and records a customer's ZIP code during a credit card transaction.

A copy of the opinion is available online at:

The language of Section 1747.08 of the Credit Card Act provides that no business "that accepts credit cards.shall.request, or require as a condition to accepting [a] credit card as payment., the cardholder to provide personal identification information, which the [business] accepting the credit card [records] upon the credit card transaction form or otherwise." Section 1747.08 further defines personal identification information as "information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number."

Plaintiff credit card holder was asked for her ZIP code during a purchase at one of defendant retailer's stores. Plaintiff provided the requested information, which defendant recorded and then later cross-referenced with available databases to determine plaintiff's home address.

Plaintiff sued, asserting a violation of the Credit Card Act. The trial court ruled against the plaintiff, concluding that a ZIP code does not constitute "personal identification information" as that term is defined in Section 1747.08 of the Credit Card Act. The Court of Appeal affirmed, and the plaintiff appealed to the Supreme Court of California.

The Court considered the lower Court's conclusion that ZIP code information is not subject to Section 1747.08 because, although an address and telephone number are "specific in nature regarding an individual., a ZIP code pertains to the group of individuals who live within the ZIP code." Overruling and reversing the lower courts' decisions, the California Supreme Court noted that "a ZIP code is readily understood to be part of an address; when one addresses a letter to another person, a ZIP code is always included," and thus "the statute should be construed as encompassing not only a complete address, but also its components."

Further, even a complete address is unlikely to be specific to an individual, because multiple individuals often reside in the same household.

The Court also noted that all of the elements of Section 1747.08 "constitute information unnecessary to the sales transaction that, alone or together with other data such as a cardholder's name or credit card number, can be used for the retailer's business purposes." A broader interpretation of Section 1747.08 is preferred, ruled the Court, both because "courts should liberally construe remedial statutes in favor of their protective purpose" and because "[t]he Court of Appeal's interpretation.would permit retailers to obtain indirectly what they are clearly prohibited from obtaining directly, 'end-running' the statute's clear purpose." The Court also concluded that the terms chosen by the legislature "suggest. the Legislature did not want the category of information protected under the statute to be narrowly construed."

The Court then ruled that a broad interpretation is also consistent with subdivision D of Section 1747.08, which allows businesses to require a cardholder to provide reasonable forms of identification, such as a California state identification card, but specifically disallows the recording of that information. Because such identification would include information such as a ZIP code, the Court ruled, it would be inconsistent to otherwise allow the recording of information in a manner explicitly prohibited by subdivision D of the Section 1747.08.

The Court then examined the legislative history of Section 1747.08 and concluded that the legislature enacted its precursor "to address the misuse of personal identification information for, inter alia, marketing purposes" and concluded that the statute's "overriding purpose [is] to 'protect the personal privacy of consumers who pay for transactions with credit cards.'" The Court also observed that the Senate Committee on Judiciary analysis expressed the same motivating concerns.

The Court then examined subsequent amendments to Section 1747.08, which "permit.businesses to require cardholders provide identification so long as none of the information [is] recorded." Disregarding defendant's reliance on commentary by the State & Consumer Services Agency, which characterized these subsequent amendments as "a clarifying, nonsubstantive change," the Court ruled "that former subdivision (d) was considered merely clarifying and nonsubstantive suggests the Legislature understood former section 1747.08 to already prohibit the requesting and recording of any of the information, including ZIP codes, contained on driver's licenses and state identification cards."

Further, the Court noted, even "the 1990 version of former section 1747.08 forbade businesses from "requir[ing] the provide personal identification information." Given that the provision was later "broadened, forbidding businesses from "request[ing], or requir[ing] as a condition to accepting the credit card., the cardholder to provide personal identification information." the Court ruled, "[t]he obvious purpose of the 1991 amendment was to prevent retailers from requesting 'personal identification information and then matching it with the consumer's credit card number.'" Further, "[t]hat the Legislature so expanded the scope of former section 1747.08 is further evidence it intended a broad consumer protection statute."

Therefore, the Court concluded, "in light of the statutory language, as well as the legislative history and evident purpose of the statute, we hold that personal identification information, as that term is used in Section 1747.08, includes a cardholder's ZIP code."

The Court also rejected the business's contention that a broad interpretation of Section 1747.08 would "be unconstitutionally oppressive because it would result in penalties 'approach[ing] confiscation of [defendant's] entire business.'" The "statute does not mandate fixed penalties; rather it sets the maximum. at $250 for the first violation and $1,000 for subsequent violation[s]," the Court ruled, and thus "the amount of the penalties awarded rests within the sound discretion of the trial court."

Finally, the Court rejected the business's argument that the Court's ruling "should be prospectively applied only." Instead, the Court ruled, "[i]n our view, the statute provides constitutionally adequate notice of proscribed conduct." Further, because the filing of the plaintiff's complaint predated contrary precedent, "it therefore cannot be convincingly argued that the practice of asking customers for their ZIP codes was adopted in reliance on [contrary precedent]."