Friday, February 11, 2011

Companies requesting zip codes may be fined under new CA Supreme Court ruling

On Thursday the Supreme Court of California ruled that merchandising companies are no longer able to ask for customer ZIP codes who buy with credit cards. The ruling was set because the courts determined such requests are a violation of state consumer-protection law.

The decision made by the courts, which claims that an individual's ZIP code is considered "personal identification information," overturned two decisions made by lower courts that scrapped suit. The result setback California retailers and a lawyer for one national chain said the decision would likely lead to more lawsuits.

Thursday's ruling derived from a lawsuit established against Williams-Sonoma Inc. A clerk working for the company had asked a women for her ZIP code and she sued the retailer in arguing that the request violated not only her privacy, but also the credit card law.

"It's a terrible decision," said the president of the California Retailers Association, which filed a friend-of-the-court brief on William-Sonoma's side.

The president of the Association said it is too early to realize how disruptive the ruling will be to businesses that routinely require consumers to provide a ZIP code to authorize a transaction.

The defending retailer, William-Sonoma as well as several other retailers, claimed they ask for ZIP codes as a security precaution - an argument leveraged by many of the company's top lawyers.

Carlos Moreno, California Supreme Court Justice, claimed that the ZIP code is considered part of a consumer's address, which California law sees as off-limits to merchandisers.

"First, a ZIP code is readily understood to be part of an address; when one addresses a letter to another person, a ZIP code is always included," said Justice Moreno. "Otherwise, a business could ask not just for a cardholder's ZIP code, but also for the cardholder's street and city in addition to the ZIP code, so long as it did not also ask for the house number. Such a construction would render the statute's protections hollow."

During the trail, the Supreme Court showed evidence that Williams-Sonoma recorded the women's ZIP code in a digital cash register, which was submitted into the retailer's main customer database. The company then used software to align the customer's name and ZIP code with her undisclosed address, key data that can be used to market products and can be shared or sold to other companies. For that reason, the California Supreme Court determined that asking for a customer's ZIP code was in violation of California state law.

The result of this case supports and protects the privacy of California consumers, said a Boise business lawyer following the case.

The attorney added that gas stations that require ZIP codes be entered at the pump are exempt because such companies do not record the transaction.

The Supreme Court returned the case to the appeals court for further action, which could include an evaluation of the damages. Retailers who fail to adhere to the new legal standards can be fined up to $250 for the first violation and as much as $1,000 for additional infractions.

A representative of Michaels Stores, a craft supplies retailer, said that several lawsuits regarding the ZIP code issue are pending throughout the state. He foresees more suits will be submitted because of the Supreme Court ruling.

The court's ruling is going to have a tremendous impact on California retailers, said a St. Louis business lawyer tracking the case. He added that the decision still leaves the question open over whether retailers can request similar customer information when buyers are using cash or gift cards to purchase their goods.

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