Since December 2006, more than 100 putative class action suits have been filed in federal court against a broad spectrum of retailers alleging violations of the Fair and Accurate Credit Transactions Act ("FACTA") of 2003 (15 U.s.C. § 1681 et seq.). The suits allege these companies "willfully" violated FACTA by generating electronic customer credit or debit card receipts containing prohibited information, and seek awards of what some courts have described as "annihilating" statutory damages in the $100 million to $1 billion range, plus punitive damages and attorneys’ fees.

FACTA class action suits have been filed against such companies as IKEA, Costco Wholesale, Victoria's Secret, Toys "R" Us, and Avis and Budget car rental companies. More suits are expected due to the sheer volume of potential claimants and the friendly reception of such suits by some federal courts. Plenty is at stake for large retail chains, which could face literally billions of dollars in liability if a wide-scale error has resulted in hundreds of thousands of noncomplying receipts.

Lawsuits Allege Willful Noncompliance With FACTA's Prohibition Against Listing Consumers' Identifying Information on Credit/Debit Card Receipts

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. The lawsuits allege that 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). The suits specifically allege willful noncompliance (15 U.S.C. § 1681n) for the claimed violations and seek statutory damages of $100 (minimum) to $1,000 (maximum) for each violation alleged, plus punitive damages and attorneys's fees. Typically in these cases, the defendant retailer had complied with the first provision of the statute by reducing the number of printed digits to five or less. Most of these target retailers failed, however, to "mask" the card's expiration date. Moreover, and as permitted under a literal reading of the statutory scheme, the plaintiffs in these cases concede they sustained no actual injury or harm.

Thus, a noncomplying retailer who generated, for example, 1 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 statutory damages ranging from $100 million to $1 billion. Notably, the Fair Credit Reporting Act (“FCRA”) does not cap the aggregate of statutory damages that can be awarded in a consumer class action. By contrast, similar 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.

Wave of Lawsuits Prompted by Recent Statutory Changes and Favorable Judicial Venues

The timing of the FACTA class action suits coincides with the second and final phased-in effective date of FACTA's so-called "truncation" provision (15 U.S.C. § 1681c(g)), which established 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 the suits have been filed in California and New Jersey, which are covered by the Ninth and Third Circuits, respectively. These circuits are seen as plaintiff-friendly venues for FACTA suits because they have adopted a more relaxed standard than other circuits of what constitutes willful violation of the statute. None of the recent California or New Jersey cases has been decided, but judges have denied defense motions to dismiss for failure to state a claim.

U.S. Supreme Court to Determine Standard for Establishing Willful Noncompliance

One of the key legal issues in the lawsuits is whether a defendant's conduct constitutes willful noncompliance with FACTA. Conduct that only rises to the level of negligence does not entitle a plaintiff to statutory or punitive damages. Earlier this year, on January 16, 2007, the U.S. Supreme Court heard oral argument in Safeco v. Burr/GEICO v. Edo (Nos. 03-35695, 04-35279) (consolidated) (on appeal from the Ninth Circuit) on the meaning of "willful noncompliance" under FACTA. Like the Third Circuit, the Ninth Circuit held that "willful noncompliance" under 15 U.S.C. § 1681n can be established by a constructive showing of "reckless disregard" for the statute. Other circuits hold that "willfulness" requires a showing that the defendant had actual knowledge of and intentionally violated the statute. The Supreme Court is expected to issue its opinion in the Safeco/GEICO matter before the end of its current term (around June 30, 2007). In the meantime, federal district courts located within the Third and Ninth Circuits are likely to be the venue of choice for FACTA plaintiffs.