United States: FACTA Litigation Update: Fair Credit Reporting Act Class Actions Seek Staggering Damages Awards

Since December 2006, plaintiffs’ class action firms in California and elsewhere have filed over 200 nationwide class actions in federal court against a broad spectrum of retailers and restaurants alleging violations of the Fair and Accurate Credit Transactions Act ("FACTA"). In addition to California federal courts, FACTA cases have been filed recently in federal courts in Pennsylvania, Illinois, New Jersey, Nevada, Maryland and Kansas. FACTA added sections to the federal Fair Credit Reporting Act ("FCRA," at 15 U.S.C. § 1681 et seq.) as of December 4, 2003. The lawsuits specifically allege "willful noncompliance" (15 U.S.C. § 1681n) for claimed violations of 15 U.S.C. § 1681c(g), the so-called "truncation" provision of FACTA. The timing of these suits coincides with the second and final phased-in effective date of FACTA’s truncation provision; i.e., a December 4, 2006 effective date for receipts electronically printed by cash registers and similar point-of-sale machines placed into service before January 1, 2005. Most of these suits—approximately 130—have been filed in the United States District Courts for the Central District of California (Los Angeles) and the Northern District of California (San Francisco). Pillsbury Winthrop Shaw Pittman LLP currently represents several defendants in FACTA cases filed in California and Pennsylvania.

Section 1681c(g) of FACTA prohibits businesses that accept credit or debit cards from including "more than the last 5 digits of the card number or the expiration date" on electronically printed receipts provided to the customer at the point of sale or transaction. According to the complaints, each electronically printed receipt containing more than the last five digits of a credit or debit card number or a card's expiration date violates § 1681c(g). Plaintiffs repeat boilerplate conclusions that the conduct was knowing and willful, and seek statutory damages of $100 (minimum) to $1,000 (maximum) for each violation alleged, plus punitive damages and attorneys’ fees. (Plaintiffs do not allege negligence (15 U.S.C. § 1681o), nor do they seek actual damages.)

Thus, a noncomplying retailer who generated, for example, one million electronically printed point-of-sale receipts during the most recent holiday season could, at least under plaintiffs’ theory, be subject to an award of what courts have described as "annihilating" statutory damages ranging from $100 million to $1 billion, plus punitive damages and attorney’s fees. Notably, FCRA does not cap the aggregate of statutory damages that can be awarded in a consumer class action. By contrast, similarly technical federal legislation such as the Truth-in-Lending Act (15 U.S.C. § 1601 et seq.) caps class action statutory damages awards at $500,000. In this regard, several recently-sued FACTA defendants have opposed plaintiffs' class certification motions on the ground that FCRA's minimum statutory damage award of $100 each for hundreds of thousands of class members would be a grossly unjust punishment unrelated to any damage to the purported class or to any benefit to the defendant.

The Federal Trade Commission ("FTC") only recently issued an "FTC Business Alert" setting forth its interpretation of section 1681c(g). In a May 2007 bulletin, the FTC announced that "it's time for companies to check their receipts and make sure they're complying with a law that's been in effect for all businesses since December 1, 2006." The FTC alert explained, "You may include no more than the last five digits of the card number, and you must delete the card's expiration date." See FTC Business Alert: Slip Showing? Federal Law Requires All Business to Truncate Credit Card Information on Receipts; published by the Federal Trade Commission, Bureau of Consumer Protection, Division of Consumer & Business Education; May 2007.¹

Though courts thus far have not been receptive to motions to dismiss, the first judge to rule on class certification denied the plaintiff's motion to certify a class. Specifically, on May 29, 2007, the Hon. Judge John F. Walter denied the plaintiff's motion for class certification in a section 1681c(g) FACTA case on the ground that "a class action would not be the superior method for the fair and efficient adjudication of the controversy." See Spikings v. Cost Plus, Inc., No. CV 06-8125-JFW (AJWx) (C.D. Cal. May 29, 2007) (order denying class certification).

In addition to class certification, a key legal issue in these FACTA actions is whether a defendant’s conduct constitutes willful noncompliance. Conduct that only arises to the level of negligence does not entitle a FCRA plaintiff to statutory or punitive damages. On January 16, 2007, the United States Supreme Court heard oral argument in Safeco v. Burr/GEICO v. Edo (consolidated) (on appeal from the Ninth Circuit) on the meaning of "willful noncompliance" under FCRA. Similar to the Third Circuit, the Ninth Circuit has held that "willful noncompliance" under 15 U.S.C. § 1681n can be established by a showing of "reckless disregard" for FCRA. Other circuits, however, hold that "willfulness" requires a showing that the defendant had actual knowledge of and intentionally violated FCRA. The Supreme Court is expected to issue its opinion in the Safeco/GEICO matter before the conclusion of its current term (around June 30, 2007). In the meantime, federal district courts located within the Ninth and Third Circuits are likely to continue to be the venue of choice for FACTA plaintiffs.

Pillsbury first issued a Client Alert on this subject in January 2007.²

FTC Business Alert: Slip Showing? Federal Law Requires All Business to Truncate Credit Card Information on Receipt; Federal Trade Commission, Bureau of Consumer Protection, Division of Consumer & Business Education; May 2007

New Litigation Update: Fair Credit Reporting Act Class Actions Seek Staggering Damages Awards, Pillsbury Winthrop Shaw Pittman LLP, 29-Jan-2007 (2-page PDF)