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July 26, 2012 / Admin

California Supreme Court Prohibits Collection of ZIP Code

If you use a credit card, you’ve almost certainly been asked to provide your ZIP code when processing the transaction. Yesterday, the California Supreme Court ruled in Pineda v Williams Sonoma Stores, Inc. 2011 LEXIS 1355 (Feb. 10, 2011) that the collection of a ZIP code violates California Civil Code §1747.08, (Credit Card Act), thereby subjecting the retailer to maximum penalties of $250 for the first violation and $1000 for subsequent violations. The Supreme Court reversed a Court of Appeal finding otherwise.

Justice Moreno, writing for the Court, found that in light of the statute’s plain language, protective purpose, and legislative history, a ZIP code constitutes “personal identification information” as that phrase is used in section 1747.08. Thus, requesting and recording a cardholder’s ZIP code, without more, violates the Credit Card Act.

Justice Moreno sought to quell concerns of possible financial ruin expressed by the business community by noting that the Supreme Court had already held that section 1747.08, subdivision (e), “does not mandate fixed penalties; rather, it sets maximum penalties and that the amount of such penalties. Linder v. Thrifty Oil Co. 23 Cal.4th 429, 448. (2000). Moreover, many consumer class action settlements do not provide the payment of monetary penalties but rather provide for the award of a gift card to the consumer as compensation.

The Court also noted that Section 1747.08 contains some exceptions permitting the collection of ZIP code information, including when a credit card is being used as a deposit or for cash advances, when the entity accepting the card is contractually required to provide the information to complete the transaction or is obligated to record the information under federal law or regulation, or when the information is required for a purpose incidental to but related to the transaction, such as for shipping, delivery, servicing, or installation.

Finally, and very significantly, the Supreme Court rejected Williams-Sonoma’s request that its decision not be applied retroactively because Williams-Sonoma claimed it was operating under the assumption that its conduct was legal. The Supreme Court held that a single Court of Appeal decision could not provide a basis to depart from rule that opinions apply retrospectively.

Accordingly, this important decision protecting the privacy of California consumers brings life to more than a dozen class actions filed several years ago against various retailers who collected and recorded ZIP codes. It will likely spur more given the prevalence of the practice and the significant penalties for violating the statute.

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