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February 2011

Retailers Beware: Asking For Customer ZIP Codes During Credit Card Transactions May Violate State Consumer-Protection Laws

The California Supreme Court's February 10, 2011 decision in Pineda v. Williams-Sonoma Stores, Inc.  No. S178241, held the Song-Beverly Credit Card Act of 1971 ("Song-Beverly") barred a retailer from demanding a customer's ZIP code as a condition of completing a credit card transaction.  The high court's unanimous decision, which says a ZIP code can be used as "personal identification information," overturned two lower court decisions tossing out the lawsuit.  This ruling has a significant impact on California retailers who require information of patrons and opens the floodgates for additional consumer lawsuits.

While purchasing merchandise at a Williams-Sonoma store with her credit card several years ago, Jessica Pineda was asked to provide her ZIP code.  The cashier asked for her ZIP code and did not inform Pineda of any consequences should she decline.  Pineda assumed she was obligated to provide her ZIP code and complied.

Pineda subsequently filed a putative class action against Williams-Sonoma in June 2008, alleging violation of Song-Beverly and invasion of privacy.  She alleged Williams-Sonoma used customer ZIP codes to obtain the home addresses of customers and then used the data to market products to customers or sold the information to other businesses.

Williams-Sonoma demurred and the trial court sustained without leave. Pineda appealed and the court of appeal affirmed, holding that Williams-Sonoma did not violate Song-Beverly in its credit-card transaction with Pineda.  In its holding, the appellate court relied on Party City Corp. v. Superior Court (2008) 169 Cal.App.4th 497 which held that a ZIP code, as a matter of law, is not personal identification information within the meaning of Civil Code §1747.08(b) because it is not facially individualized information.

The California Supreme Court reversed. Writing for the full court, Supreme Court Justice Carlos Moreno held the ZIP code is part of a customer's address, which California law explicitly categorized as off-limits:

"First, a ZIP code is readily understood to be part of an address; when one addresses a letter to another person, a ZIP code is always included.  The question then is whether the Legislature, by providing that "personal identification information" includes the "cardholder's address," intended to include components of the address.  The answer must be yes.  Otherwise, a business could ask not just for a cardholder's ZIP code, but also for the cardholder's street and city in addition to the ZIP code, so long as it did not also ask for the house number. Such a construction would render the statute's protections hollow."

In contrast to the appellate court, the Court  found that a customer's ZIP code does constitute personal identification information within the meaning of §1747.08. Section 1747.08(b) defines personal identification information as "information concerning the cardholder ... including, but not limited to, the cardholder's address and telephone number." "Concerning," as defined in a standard dictionary, is a broad term meaning " pertaining to; regarding; having relation to; [or] respecting ...." The court declared that a purchaser's ZIP code, which refers to the area where a cardholder works or lives, is information that pertains to or regards the cardholder.

The Supreme Court rejected the appellate court's conclusion that a complete address and telephone number, unlike a ZIP code, are specific to an individual. In the case of a cardholder's home address, for example, the information may pertain to a group of individuals living in the same household. Similarly, a home telephone number might well refer to more than one individual.  The Supreme Court instead opined that a cardholder's ZIP code is similar to his or her address or telephone number, in that a ZIP code is both unnecessary to the transaction and can be used, together with the cardholder's name, to locate his or her full address and use such information for its own purposes, as was alleged to have occurred in this case.

The Pineda ruling reversed two lower courts and rejected an argument by Williams-Sonoma that the Song-Beverly provision was unconstitutionally vague. The ruling also allowed the decision to be applied retroactively to past customer transactions.

It is unclear what impact this will have on retailers that require ZIP codes as a security precaution.  For example, gas stations may be exempt because they require ZIP codes entered at the pump but do not record the transaction nor store them in an electronic database for marketing purposes.   A question also remains whether merchants can ask for similar information when patrons are paying with cash, debit cards, and gift cards.

The Supreme Court remanded the case for further proceedings.

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