Sunday, April 29, 2012

FYI: 7th Circuit Rules in Favor of Defendant in FACTA Truncation Case

The U.S. Court of Appeals for the Seventh Circuit recently held that printing the last four digits of a customer's credit card account number, rather than the last four digits of the customer's credit card number, which was different under the facts of the case, did not constitute a willful violation of the Fair and Accurate Credit Transactions Act.  A copy of the opinion is attached.  
The defendant's ("Defendant") private label credit cards listed both a nine-digit "account number" and a five-digit "card number."  Defendant printed the last four digits of the former number on customer receipts.  A credit card holder ("consumer") initiated a class action lawsuit, alleging that this practice violates the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681c(g) ("FACTA").  The lower court found in favor of the plaintiff, and Defendant appealed. 
As you may recall, FACTA provides that credit card receipts may not display more than the last five digits of a credit card number.  15 U.S.C. 1681c(g).  "Card number" is not defined in the statute. Those who "willfully fail[ ] to comply" with the statute are liable for both actual and punitive damages of not less than $100.  15 U.S.C. 1681n(a)(1)(A). 
The consumer argued that by printing a portion of the "account number" rather than a portion of the "card number," the defendant violated FACTA. 
The Seventh Circuit began by noting that the neither FACTA nor its legislative history define "card number."  However, it went on to observe that "we can't see why anyone should care how the term is defined.  A precise definition does not matter as long as the receipt contains too few digits to allow identify theft." 
The Court further observed that neither the consumer nor the class she purported to represent had alleged any damages as a result of identity theft, nor had they alleged that the defendant's actions had subjected them to the risk of identity theft. 
Calculating the potential award on a classwide basis, the Seventh Circuit noted "[a]n award of $100 to everyone who has used a [Defendant] Card at a [Defendant] station would exceed $1 billion, despite the absence of a penny's worth of injury."
The Seventh Circuit examined whether the defendant's actions might constitute a "willful" violation of FACTA.  It cited binding precedent indicating that only an "objectively unreasonable" reading of FACTA constitutes a "willful" violation.  Safeco Insurance Co. v Burr, 551 U.S. 47, 69 (2007). 
To determine whether the defendant's interpretation of FACTA might be objectively unreasonable, the Court scrutinized the language of the statute.  It noted that FACTA refers to both "card number" and "account number" in the section concerning the truncation of credit card numbers, and therefore concluded that "card number" as used in FACTA does not necessarily refer to the primary credit card account number.  Indeed, the Court noted that "card number" might plausibly be read to refer to any numbers appearing on a credit card. 
In light of the ambiguity in the statute, and the absence of any determinative regulatory or legislative history, the Court did not find persuasive the plaintiff's expert testimony regarding industry standards for printing credit card receipts.
Accordingly, the Seventh Circuit held that the defendant did not willfully violate FACTA, and reversed the decision of the lower court. 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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