Much FACTA Legal Activity This Week, All In Retail’s Favor

Written by Evan Schuman
May 30th, 2008

For those retailers worrying about the legal threats associated with the Fair and Accurate Credit Transactions Act (FACTA), in particular the rule that says they can’t give a customer a receipt displaying the payment card number, other than the last few digits of the payment card nor can it show the expiration date, they can rest a lot easier this week. That’s thanks to a ruling on Wednesday (May 28) from a federal judge and the passage of a bill this week softening the law.

The new proposed law—which passed both the House and Senate this week and is awaiting President Bush’s signature—essentially removes the expiration date requirement of the law. So assuming the president signs it into law, the bill just got a lot easier to navigate.

The core bill has run into quite a few legal setbacks over the last year and this week got another dose of judicial frowning.

On Wednesday (May 28), U.S. District Court Judge William Acker ruled in favor of retailers in some FACTA cases involving Hooters, La Paz Restaurante, Express Oil Change and Rave Motion Pictures.

The judge’s ruling said the $100-$1,000 fines for every incident would be excessive punishment for retailers whose actions could not be shown to have cost anyone any money.

"As a matter of simple arithmetic, when the financial condition of each defendant is considered in conjunction with the expected number of FACTA violations, a class recovery would put each defendant out of business," the judge wrote. "Annihilation is assured if each member of the class gets what FACTA purports to guarantee him."

Acker found much of the FACTA receipt provisions to be beyond what Congress had the authority to do. "Without undertaking to write a law review article, or to write briefs for the anticipated appellees, this court, with some hesitation, but with little doubt, has reached the conclusion that the above-quoted provisions of FACTA, as applied to these defendants, are unconstitutional."

The judge’s argument is that once a retailer is found to issue non-compliant receipts, a customer could deliberately come back repeatedly, solely to increase the amount of the fine.

"If the same customer returns to the same establishment five times in five hours and uses his credit card each time, there will be five FACTA violations, each of which will trigger a strict liability recovery of not less than $100 and not more than $1,000," the judge wrote. "The possibility for a misuse of credit cards by customers reaches astronomical proportions more than the possibility of misuse of credit card information by thieves."

Acker specifically takes exception—in an unorthodox interpretation—that giving the jury the option of fining anywhere from $100 to $1,000 is too much discretion. It’s unusual, because courts generally allow jurors to make some decisions, subject to the approval of the court.

In this case, though, Acker disagreed.

"Courts and juries cannot be called upon to make up the rules as they go. Courts cannot be expected to tell a jury, ‘Just do what you think is right’ so long as you do not award less than $100 or more than $1,000," the judge wrote. "’Doing what is right’ does not meet the standard of ‘due process.’ Many a jury has done what it thought was right and it was wrong. As an enforcer of the Seventh Amendment, this court must insist upon a jury’s having a chance at fairly performing its adjudicative function and not simply flying by the seat of its pants. This court could not in good conscience tell a jury to award ‘not less than $100 and not more than $1,000’ and then wait for the jury’s puzzled look."

The danger, in the court’s view, is some retailers being treated very differently than others. "If a jury is allowed to wander indiscriminately between $100 and $1,000 for each willful FACTA violation, one jury can decide that a particular violation calls for $100, while another jury can
decide that precisely the same violation by the same vendor is worth $1,000, while other juries can, willy nilly, award something in between."

The judge then added a zinger at the legislative branch: "Congress is, of course, presumed to know what it is doing, a presumption here in jeopardy."


Comments are closed.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.