In just what credit card transactions may a merchant require personal information of a customer?

Seemingly, some years ago, legislation spelled out the answer.  After some revision over the years, that particular law today provides that, with few exceptions, no one who accepts credit cards for the transaction of business may, as a condition to accepting a credit card as payment, request or require a cardholder to write any personal identification information on the transaction form; write or record such information themselves; or utilize a credit card form containing preprinted spaces designated for the cardholder’s personal information.

Nevertheless, two nearly identical class-action lawsuits were filed, both in 2006 and only recently concluded, in which plaintiffs questioned the defendants’ interpretation of the same provision of that same statute.

In the first case, Catherine Peterman purchased merchandise from Linens ‘N Things, paying by credit card.  She returned the merchandise, providing her receipt and the credit card she had used, whereupon Linens ‘N Things presented her a preprinted form containing information about her purchase and spaces for her to add her name, address and phone number.

Peterman filed her suit based upon the company’s alleged violation of the portion of the Song-Beverly Credit Card Act that prohibits use of such preprinted forms, claiming damages for the class of $1,000 per violation.

In the second case, Dave Absher bought a locking gas cap from AutoZone, also paying for it by credit card.  He returned it within minutes because it did not fit his vehicle.  When he requested a refund to his credit card, he, too, was given a preprinted form with spaces in which he was required to insert his name, phone number and signature.

Absher filed his suit based upon AutoZone’s alleged violation of the same provision of the Song-Beverly Act, which prohibits utilizing the forms containing those preprinted spaces “in any credit card transaction.”

Peterman and Linens ‘N Things settled the lawsuit in mediation, with Linens ‘N Things agreeing to offer to anyone who had returned purchases paid for by credit card during a period of about a year and had been handed a form containing pre-printed spaces, a discount voucher for 45 percent off the purchase of one item valued at up to $100.  Linens ‘N Things also agreed to stop using the preprinted forms.

Absher’s case, though, went to trial and ultimately to an appellate court.  Although Absher felt that his return was a credit card transaction to which the law applied, the court did not.  In affirming the trial court’s decision, the appellate court reasoned that the entire statute must be considered together.  Thus, “in any credit card transaction” cannot be separated from previous sections that specifically refer to accepting a credit card “as payment. . .”  The court also noted that its reading of the statute allows merchants reasonable means to safeguard against potential abuses in merchandise returns.

It’s confusing, to the average consumer and many businesses, at least, when two cases whose facts are pretty much identical end up antithetically.  Had Linens ‘N things, now having agreed to offer up to $36 million in discounts and to discontinue use of such forms, proceeded to trial, they may have ended up at the finish line with Auto Zone.  (We can’t say, of course, whether members of the class will ever be able to realize their discounts now that the company has filed bankruptcy.)  And although the Auto Zone decision assures merchants that it’s safe to follow Auto Zone’s practices when they make refunds, the risk to them is great if they use the same practices when they accept credit cards as payment.

One thing that is now obvious is that had Mr. Absher (who had already been a victim of both gasoline theft and identity theft and now has to pay AutoZone’s costs of appeal) known then what he knows now, he’d have been much further ahead to have just walked away from the form presented to him and swallowed the cost of the gas cap.   

For more information about accepting checks and credit cards as payment for sales or services, ask for our report no. 121, A Merchant’s Guide to Check Identification and Credit Card Slip Laws.  Consumers may request report no. 34, the guide to the same laws for consumers.