Franchising & Distribution Law Blog

The California appellate court affirmed summary judgment for Chevron because the zip codes were collected at locations where there is a high risk of fraud, for the purpose of preventing fraud, and Chevron would purge the zip code information shortly after reconciling the credit card transactions. 

The court found that, under the California statute, Chevron’s zip code collection qualified as a special purpose under the statute – ensuring the credit card transaction was not fraudulent – and was, therefore, not a violation.

A previous California Supreme Court decision held that zip codes are personal identification information under California’s Song-Beverly Credit Card Act. And, in 2011, California amended the statute to permit collection of zip code information for fraud prevention.

Many retailers collect zip codes with their customers’ credit card transactions, sometimes for fraud prevention, sometimes because it is required by a credit card company, and sometimes for marketing purposes. Many recent lawsuits have challenged this practice, with claims being brought against Michaels Stores, Guitar Center, Williams-Sonoma, Bed Bath and Beyond, and others. For example, click here to read about the case recently filed against Urban Outfitters in the District of Columbia. Many times these lawsuits focus on a retailer’s use of the zip code information beyond fraud prevention – to market to that customer (e.g., sending marketing mail) or the retailer’s sale of the information to a third party.

The California case is just one recent court decision on this issue. Earlier this year, the Massachusetts Supreme Judicial Court held that a zip code is personal identification information, and held that identity theft was not required under the state’s consumer privacy laws for a lawsuit to be brought for collection of zip codes with credit card transactions where a retailer uses the information for its own business purposes. As this issue continues to develop, some states may, like California, respond with amendments that expressly allow for the collection of zip codes to prevent fraud. For many industries, including open loop gift card retailers, verification of the credit transaction to prevent fraud is essential.

Lawsuits related to retailers’ collection of zip codes will likely continue and may serve as a caution to some retailers. For counsel on collecting zip codes as part of credit card transactions and related issues, including consumer protection laws, contact our Franchise & Distribution Group. The California case is Flores v. Chevron U.S.A. Inc. (Cal. Ct. App. 2d Dist. 2013).