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

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."