Under the Fair and Accurate Credit Transactions Act (FACTA), the credit card number shown on the customer copy of an electronically generated credit card receipt must be truncated and the expiration date must be omitted. According to the statute, “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of sale or transaction.”

Since FACTA became fully effective on December 4, 2006, hundreds of class action cases have been filed against merchants across the country, with the restaurant industry being hit particularly hard. An ambiguity in the statute's language may be leading to many of these cases.
 
FACTA is arguably vague about whether both the credit card number and the expiration date must be truncated. That language may have led some merchants and their point of service providers—thinking they were in compliance—to truncate the credit card numbers on their customer credit card receipts while leaving the expiration dates intact. Many retailers and restaurant owners have now been accused in class action suits of violating FACTA for merely including an expiration date on credit card receipts—even when the credit card number is truncated in its entirety.

Despite FACTA’s unclear language, plaintiffs are alleging in boilerplate class action complaints that these merchants have "willfully" violated the statute, which exposes them to between $100 and $1,000 per violation, plus attorney fees, costs and punitive damages. The typical case involves thousands of credit card transactions since FACTA’s effective date, which means potential liability can reach many millions of dollars for noncompliant merchants found to have "willfully" violated the statute.

The courts have so far rejected most defense arguments to dismiss FACTA class action complaints at the pleading stage. Among other things, courts have held that a simple allegation that the merchant "knew or should have known" of the statute's requirements, along with allegations that the merchant was informed of FACTA’s requirements, is sufficient to survive a motion to dismiss. In addition, courts have rejected the argument that the statute is so vague that retailers and restaurant owners cannot be held in "willful" violation.

As a result, the cases are proceeding beyond the pleading stage to discovery and class certification issues, with mixed results depending on where the case is pending. For example, while California’s district courts have been reluctant to certify these cases as class actions, courts in the Northern District of Illinois have indicated a willingness to do so. Not surprisingly, some merchants are choosing to settle rather than risk uncertainty and continued exposure to liability and legal fees.

Perhaps recognizing the confusion the statute has created among business owners and the window it has opened for abusive class action lawsuits, U.S. Congressman Tim Mahoney (D-Florida) recently introduced H.R. 4008, known as the Credit and Debit Card Receipt Clarification Act. The bill essentially states that a merchant does not "willfully" violate FACTA by printing an expiration date on a customer receipt if the merchant has otherwise complied with the credit card number truncation requirement. As currently drafted, the act will apply retroactively to all existing lawsuits as of the date it is enacted.

Introduced and sent to committee on October 20, 2007, H.R. 4008 has bipartisan support. However, there is no guarantee that it will become law, and it is impossible to predict what the precise terms will be if the bill is enacted. For merchants who have not done so already, it is a good idea to perform an audit to ensure that all of your electronically printed credit card receipts contain no more than the last five digits of a customer’s credit card number and exclude the expiration date. You may also wish to contact your U.S. representative about the pending legislation to clarify FACTA.