Ruling: FACTA Does Not Extend to E-Commerce Confirmations

Feb 08, 2010 8:23 PM  By

Online merchants have dodged another bullet when it comes to the Fair and Accurate Credit Transactions Act (FACTA). In the recent case Shlahtichman v. 1-800 Contacts, Inc., a judge in the Northern District of Illinois ruled in December that FACTA does not apply to electronic displays or e-mail confirmations of Internet transactions.

Congress amended the Fair Credit Reporting Act in 2003 by enacting FACTA. Among other things, FACTA restricts the disclosure of consumers’ information on electronically printed receipts provided to cardholders at the point of sale or transaction.

Due to confusion of whether FACTA required truncating the credit or debit card number to the last five digits and masking the card’s expiration date, hundreds of class action lawsuits were filed–despite the lack of any actual injuries, such as credit card fraud or identity theft.

The epidemic of FACTA lawsuits became so rampant that in May 2008, Congress passed the Credit and Debit Card Receipt Clarification Act to protect merchants that had included expiration dates on receipts from civil FACTA liability. Undaunted, plaintiff’s class action lawyers turned to the Internet in hopes of finding more fertile ground for class action lawsuits.

In Shlahtichman, the plaintiff alleged that, after using his credit card to purchase contact lenses over the Internet in June 2009, he received at his home a computer-generated receipt that displayed the expiration date of his credit card. (The Clarification Act only insulates merchants from expiration date liability for receipts printed prior to June 3, 2008).

Although suffering no actual damages, the plaintiff sought, on behalf of himself and a class of similarly situated persons, $1,000 per receipt.

In dismissing the complaint for failure to state a claim, Judge John Darrah determined that an e-mail order confirmation is not an electronically printed receipt because the “plain meaning of ‘print’ is to transfer information to paper.” The court rejected the plaintiff’s argument that print is more commonly understood as displaying on a computer screen as “unpersuasive.”

What’s more, Judge Darrah reasoned that Congress’ purpose in enacting FACTA—to curb “low tech” means of identity theft, such as dumpster diving—was not consistent with the expansion of FACTA to e-commerce transactions. That’s because numerous federal laws already existed to protect e-mail and electronic documents.

Judge Darrah noted that if Congress intended for FACTA to apply to Internet transactions, “it would have made reference to e-mail order confirmations or internet commerce.”

The plaintiff’s complaint was also untenable because the e-mail order confirmation was not provided at the point of sale or transaction. The fact that a consumer can view an e-mail on his home computer does not mean the e-mail was directed to that computer at that location, the judge said.

The plaintiff’s lawyer recently filed a notice of appeal signifying his intent to have the U.S. Court of Appeals for the Seventh Circuit review the ruling.

Shlahtichman is the first decision from a federal judge in Illinois rejecting the unwarranted expansion of FACTA to e-commerce transactions. And while it’s good news for merchants, it underscores the need to be vigilant about transaction security and to be careful about the data that appears on receipts.

Don’t become prey to opportunistic plaintiffs’ lawyers. Be sure that all receipts—including brick-and-mortar channel paper receipts, e-mail confirmations and invoices—restrict the disclosure of consumers’ credit or debit information. As Shlahtichman shows, many consumers will be quick to sue on any perceived FACTA violations if the opportunity presents itself.

David S. Almeida is a commercial litigator in the Chicago law office of Drinker Biddle & Reath.