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Truncation Redux

April 2010, F&I and Showroom - Feature

by Michael Benoit

About two years ago, I used this page to talk about an often-overlooked amendment to the Fair Credit Reporting Act (FCRA) that has the potential to devastate businesses such as yours. This amendment requires merchants using machines to print credit-card transaction receipts to truncate — or shorten — the cardholder’s account number on the receipt. Today, the law allows for only the last five digits of the cardholder’s account to be printed. It also prohibits expiration dates from appearing on receipts. The two requirements are referred to as “truncation.”

As I predicted two years ago, plaintiffs’ lawyers have created a veritable cottage industry devoted to suing businesses that are often oblivious to the federal requirement. The penalties are egregious, with statutory damages of $1,000 per “un-truncated” receipt, plus attorneys’ fees and possible punitive damages. Just think about how many credit card transactions you complete in one day (and how much we attorneys cost) and the math gets pretty ugly pretty quickly.

We’re all pretty clear that the requirement applies to machine-printed credit card receipts. But our ever-vigilant plaintiffs’ bar is pushing the limits. In two rulings last September, one court concluded the truncation requirement doesn’t apply to company credit cards, and the other determined it does apply in Internet transactions.

Business Cards: Not Covered

Last September, John Pezl sued Amore Mio Inc. for violating the FCRA truncation requirement on the grounds that Amore Mio printed more than the last five digits of his credit card number on his receipt. Pezl moved for class certification and for summary judgment, and Amore Mio cross-claimed for summary judgment.

Pezl lost the class certification claim because he truthfully testified he had used his company credit card and that the transaction in question was for business purposes. The U.S. District Court for the Northern District of Illinois denied his class certification motion, stating in its ruling that the FCRA provides a private right of action for “consumers,” not “business entities.”

Pezl argued that he was suing under the Fair and Accurate Credit Transactions Act — the act that amended the FCRA and added the truncation requirement — not the FCRA. He charged that the FACTA expressly applies to all receipts printed for any cardholder.

The court rejected his argument, holding that the FACTA does not establish a private cause of action for anyone and that the right to sue for a violation of the FACTA resides in the FCRA. The court found that the credit card agreement clearly stated that the credit card was established for the company and that Pezl was a business cardmember authorized to use the card for business purposes only. Accordingly, the court granted Amore Mio’s motion for summary judgment on the grounds that the FCRA does not provide a private right of action to business entities.

Internet Transactions: Covered

In another case heard last September, Mary Romano sued Active Network Inc. for violating the truncation requirement because it gave her an online receipt that displayed more than the last five digits of her credit card number and the expiration date. Active Network moved to dismiss, arguing that the truncation requirement does not extend to Internet transactions.

The U.S. District Court for the Northern District of Illinois denied Active Network’s motion, holding that the language of the truncation requirement (i.e., the use of the word “print”) means publishing information, not just imprinting ink on a piece of paper. Noting that the purpose of the FACTA is to protect the security of credit or debit card information during transactions, the court felt it would be thwarted if the FACTA only protected in-person transactions.

Dealers: Covered    

The decisions in these cases can be applied to any business that accepts credit cards, so check your credit card receipt printers and your Website receipt process to make sure the receipts you give to consumers do not show — neither physically nor electronically — more than the last five digits of their credit card and the expiration date.

Michael Benoit is a partner in the Washington, D.C., office of Hudson Cook LLP. He is a frequent speaker and writer on a variety of consumer credit topics. Michael can be reached at michael.benoit@bobit.com. Nothing in this article is intended to be legal advice and should not be taken as such. All legal questions should be addressed to competent counsel.

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