Consumer Law

Credit Card Truncation Cases and Annihilating Damages

By Jeff Sovern

The credit card truncation cases raise an issue of what to do about potentially annihlating damages.  First, a review: in 2003, when Congress enacted FACTA, it added to the Fair Credit Reporting Act a new provision, §1681c(g), which prohibits retailers from printing on receipts more than the last five digits of a credit card or the card?s expiration date.  The statute gave most retailers three years to comply, but many did not take advantage of that window. In fact, when the statute went into effect, many retailers were surprised by class action suits seeking significant damages under the FCRA.  Last month, Congress passed the Credit and Debit Card Receipt Clarification Act, which added a provision to §1681n which prevents consumers from obtaining statutory damages for willful violations of the provision barring printing of the expiration date, but does not affect damages for printing the full card number.  So consumers who can show a willful violation can still recover statutory damages for receipts which included the full card number, and the statutory damages for a willful violation can be substantial: at least $100 and up to $1,000.  A retailer whose sales typically are much less than $100 might be put out of business by such an award in a class action.  To make matters worse, in many cases consumers won't even be damaged by the printing of a receipt with their credit card number.

So what are courts to do?  One option is to refuse to certify a class on the theory that, under Federal Civil Rule 23(b)(3), a class action is not superior to other available methods for the fair and efficient adjudication of the controversy.  That approach has a long history in consumer law.  To quote our casebook at page 785-86:

In the landmark case of Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412 (S.D.N.Y.1972), United States District Judge Frankel denied class certification in a TILA case because the potential $13 million award (130,000 credit card holders each receiving the $100 minimum penalty) ?would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act.?  Other courts followed Judge Frankel's lead, and TILA class actions were becoming scarce.

The casebook also notes at page 786 that Congress then stepped in:

Congress responded to the situation in 1974 by limiting liability in TILA class actions to the lesser of $100,000 (raised to $500,000 in 1976) or 1% of the creditor's net worth.  TILA § 130(a)(2)(B), 15 U.S.C.A. § 1640(a)(2)(B).  The amendment eliminated the potential for devastating liability, thus encouraging the judicial certification of more TILA class actions.  The 1980 TILA Simplification Act added language to the effect that the class action liability ceiling applied not only to a single class action, but also to any ?series of class action suits arising out of the same failure to comply by the same creditor.?  Id.  The Fair Debt Collection Practices Act contains a similar provision.  See FDCPA § 1692k(a)(2)(B).

That's all very well for actions under TILA and the FDCPA.  But the FCRA lacks a similar provision, as far as I can tell.  Because the FCRA, TILA, and FDCPA are all part of the same umbrella statute--the Consumer Credit Protection Act--one approach to statutory interpretation would take the position that Congress didn't intend courts to take into account the fact that a business could be annhilated by the class action damages in deciding whether to certify a class in an FCRA case because it could have added a similar provision to deal with the issue and chose not to.  But some courts have not agreed.  See, e.g., In re Trans Union Corp. Privacy Litigation, 211 F.R.D. 328 (N.D.Ill. 2002), appeal dismissed by Albert v. Trans Union Corp., 346 F.3d 734 (7th Cir. 2003) (taking into account potential for $19 billion in statutory damages in concluding that class action is not superior method for adjudicating Fair Credit Reporting Act case). The courts that have been dealing with this problem under the FACTA truncation provision have not come up with a universal approach.  Compare Troy v. Red Lantern Inc., --- F. Supp. 2d ---, 2007 Westlaw 4293014 (N.D. Il. 2007) (certifying class) with Najarian v. Avis Rent A Car System, 2007 WL 4682071 (C.D.Ca 2007) (denying class certification).

This is a tough one.  If courts refuse to certify classes, and the cases cannot be brought economically except as class actions, what remedy do plaintiffs have?  The retailers did have three years to comply.  On the other hand, retailers should not be put out of business for this kind of statutory violation, and if that's the result, it's not going to give consumer law a good name.  Congress needs to revisit this issue but in the meantime, it would be easy to understand if judges refused to certify classes in cases alleging willful violations without actual damages.

Full post as published by CL&P Blog on July 19, 2008 (boomark / email).