Business Alert: Check Your Credit Card Receipts! New Wave of Litigation Under Fair and Accurate Credit Transactions Act

Attorneys: Guolee, Terrence F.

Businesses who accept credit card payments need to be aware of a new surge in lawsuits spreading across the country under the Fair and Accurate Credit Transactions Act ("FACTA"). In the past year, hundreds of cases have been filed against businesses in jurisdictions across the country, including Illinois. The targeted defendants largely are retail businesses issuing machine-printed credit card receipts with prohibited information on the receipts, allegedly violating FACTA. The alleged violations expose each defendant to potentially massive damage awards, including actual or statutory damages, punitive damages and lawyer fees.

What is The Fair Credit Transactions Act?

FACTA, enacted into law in 2003, added new sections to the Fair Credit Reporting Act, codified at 15 U.S.C. §1681 et seq., requiring businesses come into compliance by December 4, 2006. Now fully effective, FACTA requires businesses to limit the amount of information printed on credit card receipts, as follows:

Except as otherwise provided in this subsection, 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) (emphasis added).

To comply with Section 1681c(g)(1), electronically-printed credit card receipts should contain no more than the last five digits of the card number and should not include the card's expiration date. Even though the language of the statute could seemingly be read to mean that, alternatively, the receipt could contain the expiration date and not the last five digits of the card number, several Federal District Court judges have now held the statute's plain language clearly prohibits printing more than the last five digits of the card number and also prohibits printing the expiration date.

Of note is that this subsection only applies to "receipts that are electronically printed, and shall not apply to transactions in which the sole means of recording a credit card or debit card account number is by handwriting or by an imprint or copy of the card." 15 U.S.C. §1681(g)(2). Thus, older credit card machines are not covered by the act.

Penalties for Violations of FACTA Can Be Harsh

Pursuant to Section 1681n, a person who "willfully" fails to comply with these requirements is liable in an amount equal to the sum of:

Actual damages of not less than $100 or more than $1000
Punitive damages
Lawyer fees and costs
Conversely, Section 1681o provides that a person who "negligently" fails to comply is liable in an amount equal to the sum of:

Actual damages sustained
Lawyer fees and costs
Both the damages sections for willful and negligent violations (sections 1681n(C) and 1681o(B)) of the act, do set forth that upon a finding by the court that an unsuccessful pleading, motion, or other paper filed in connection with an action under this section was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party attorney's fees reasonable in relation to the work expended in responding to the pleading, motion, or other paper.

Lawsuits filed thus far mainly allege willful noncompliance, with many claims pled as class actions – despite that the FCRA does not expressly provide for maintenance of claims as class actions. On June 4, 2007, the Supreme Court held that "willfulness" could be established by a showing of recklessness, explaining that a showing of recklessness must be based on "an objective standard." Safeco Ins. Co. of Am. v. Burr, 127 S. Ct. 2201, 2208-10, 167 L. Ed. 2d 1045 (2007).

Per the Safeco decision, a defendant willfully violates the FCRA under §1681n if a defendant's violation was either done knowingly or recklessly. See, Safeco Ins. Co. of Am., 127 S. Ct. at 2208-10 (finding that liability under Section 1681n(a) for "willfully fail[ing] to comply" with FCRA covers both knowing and reckless violations of the statute and that "a company subject to the 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").

In the lawsuits seen to date, it is generally alleged that failure to come into compliance with the act itself fits within the "high risk of harm, objectively assessed, that is the essence of recklessness at common law." Id. However, the Court did not define the boundary separating a reckless action from one that is merely careless. It is likely, therefore, that this issue will be based on the facts of each case – resulting, unfortunately, in high legal fees possibly added to plaintiffs' claims against defendants.

Especially troubling is that each transaction potentially constitutes a separate violation of FACTA and, therefore, the damages can grow at an alarming rate. So, for example, a business that printed 10,000 receipts could face statutory damages of $1 million to $10 million, plus potential punitive damages and lawyer fees. Some courts, recognizing this disparity, especially in light of the lack of damages actually suffered by the claimants in most situations, have blocked efforts to certify class actions in a few recent cases. However, there is to date no binding appellate precedent supporting this defense and trial courts remain free to certify classes in even the most threatening cases.

Even for those businesses that mount a successful defense, legal fees and costs can be substantial and the fee shifting provisions, whereby a defendant can recover defense fees and costs from an unsuccessful plaintiff, require a specific finding of bad faith or harassment by plaintiff – unlike the automatic assessment of reasonable fees and costs a plaintiff is entitled to under the act. Moreover, while there are theories suggesting that claims could be tendered to insurance carriers based on potential readings of the "advertising injury" clauses of standard CGL policies, this issue is untested and likely to be heavily contested by insurance carriers. Indeed, the prevailing trend now is for carriers to reject coverage and force businesses to consider filing of coverage actions.

What Should You Do Now?

First, you should take the threat very seriously. Plaintiff class action attorneys are actively seeking claims throughout the nation – and particularly in Illinois. These efforts have been seen to include internet solicitation and by sending people out to "test" businesses by making purchases at the point of sale. Likewise, as news of the potential recovery spreads, regular consumers will be more likely to recognize they may have a potential claim and seek out representation or file their own claims.

Second, an internal audit of your business' billing transactions is a good start. Remember that even if you limit the digits printed on the receipt, printing the expiration date alone can still be a potential violation. Surveying credit card machines to assure compliance and correcting those failing to meet statutory standards is imperative. Even if you discover machines need to be modified in order to comply with the law, quick modification could be used to show that the failure was not willful, though plaintiffs may argue that post-compliance modification shows that your business could have and should have complied sooner. On the other hand, continued delay not only increases potential damages, but also makes it increasingly difficult to argue that any noncompliance was merely negligent.

What Should You Do If You Are Sued?

If you have been named as a FACTA defendant, or believe you are at risk of being sued, you need experienced lawyers who know the law, are experienced in defending statutory and class action claims and who can mount a vigorous defense on your behalf. There may be various potential defenses to claims such as contesting whether the purchaser was truly a "consumer" under the act, as well as efforts to expand cases into class actions depending on the facts of each individual claim. Likewise, various efforts can be made in order to prompt insurers to defend and indemnify FACTA claims – although it is expected that carriers will resist accepting exposure and there is yet no clear guidance on insurance coverage issues.

Lawyers at Querrey & Harrow have ample experience defending statutory class action claims, as well as experience in handling insurance coverage issues similar to that presented by the current wave of FACTA litigation.

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Terrence Guolee, a shareholder on our commercial liability litigation team, has successfully represented defendants and carriers in dozens of complex, multi-million dollar claims covering wide areas of facts and law, including FACTA claims and defense and coverage aspects of various statutory causes of action. If you have any questions regarding this article, or have questions regarding application of FACTA or insurance coverage questions presented by this developing area of litigation, please contact Terrence via 312-540-7544 or This email address is being protected from spambots. You need JavaScript enabled to view it..