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It’s Enough to Make a Grown Man Cry: The Fair and Accurate Credit Transaction Act

or the last few months, we’ve been warning car dealers about a really serious danger posed by a measure enacted by Congress in 2003. That law, the Fair and Accurate Credit Transaction Act (FACTA), contained two provisions dealing with credit cards both were designed to fight identity theft.

One measure required merchants who accept credit cards (yes, that includes many car dealers) to display only the last five digits of the customer’s credit card number, or a “truncated” number, on the customer’s receipt. Another measure prohibited merchants from displaying the card expiration date on the customer’s receipt.

News about the truncation requirement spread more effectively than did news about the expiration date requirement, though, and before long, we began to notice class action lawsuits challenging merchants who had failed to get the word about expiration dates. The suits claimed statutory damages ranging from $100 to $1,000 per customer receipt. Under FACTA, there is no requirement that a consumer show that he or she has been damaged in any way; statutory damages are available just by showing that the consumer’s receipt isn’t truncated or that the receipt displays the expiration date.

Many of the suits were against small businesses, such as restaurants, but many were against larger chains, as well. Every car dealer that accepts credit cards became a potential target.

Responding to these suits, the businesses argued that a class action was not the best way for the lawsuits to proceed because of the potential that massive damages awards could bankrupt the businesses. While a few courts bought this argument, most did not, and certified the suits as class actions.

The truncation and expiration date parts of the FACTA legislation turned out to be the worst sort of “gotcha” legislation. An obscure (at least for those who are primarily in the retailing business) credit law imposes potentially massive damages against businesses when no one has been damaged. The resulting legal trap was a plaintiff lawyer’s dream.

And remember where these incredibly awful provisions came from? Yup, your good old elected representatives in Congress.

So imagine my reaction when I got a press release from a House committee announcing that the House had passed H.R. 4008, the Credit and Debit Card Receipt Clarification Act, authored by Florida Congressman Tim Mahoney, by a unanimous vote of 407 to zero. The bill would amend FACTA to “ensure that it is not abused by frivolous class-action lawsuits against businesses.”

Part of the House press release stated: “H.R. 4008, the Credit and Debit Receipt Clarification Act, addresses the unintended consequences of FACTA and makes clear that if a company truncated a consumer’s credit card number, but did not remove the expiration date, then the company did not willfully violate FACTA and cannot be sued for statutory damages. It is important to note that there is no evidence that the failure to redact an expiration date has ever resulted in a consumer being harmed and not one of the lawsuits currently filed alleges any actual harm to an individual’s account or identity. The technical correction, however, would preserve a consumer’s right to sue for negligence in the event someone experiences actual harm or account fraud as a result of having their expiration date printed on their receipt.”

I looked through the rest of the press release in vain for any sort of admission that Congress, by not doing its job, had created this mess and was responsible for the hundreds of class action lawsuits against businesses across the country.

Instead of crowing about their wonderful accomplishment in removing a threat that it created in the first place, wouldn’t you think that the members would at least say, “Our bad”?

As I finished writing this, I learned that the measure had just passed the Senate, as well.  They didn’t apologize either.

Vol 5, Issue 7

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