Banking and Finance Law Daily Wrap Up, CREDIT, DEBIT AND GIFT CARDS—2d Cir.: No concrete injury from number identifying card issuer on receipt, (Sep 20, 2017)

By Richard A. Roth, J.D.

While a merchant did violate the Fair and Accurate Credit Transactions Act by printing the first six numbers of a consumer’s credit card on a receipt, the violation would not have caused the consumer a concrete injury, according to the U.S. Court of Appeals for the Second Circuit. The number identified the card issuer, not the consumer and, as a result, the consumer did not have standing to sue the merchant (Katz v. The Donna Karan Co., L.L.C., Sept. 19, 2017, Katzman, R.).

FACTA bans merchants from printing more than the last five digits of a consumer’s credit card on a receipt. It was uncontested that, on two occasions, Donna Karan stores printed not only the last four digits but also the first six digits of the consumer’s card number on the receipts he was given. There was no argument that this was a technical violation of the law, the court said.

Concrete injury. However, a technical violation of a statute—often referred to as a "bare procedural violation’’—is not enough to allow a consumer to sue, the court said. In the wake of the Supreme Court’s decision in Spokeo, Inc. v. Robins, the consumer must show that the FACTA violation caused or at least created a material risk of harm to the consumer. Such a risk was not present.

Congress passed FACTA to protect consumers against the risk of identity theft if their personal information fell into the wrong hands, the court explained. However, Donna Karan was able to convince the U.S. district court judge, and the appellate court, that the first six numbers of a credit card account identify only the company that issued the card. The numbers do not reveal any information about the consumer and therefore do not make identity theft any more likely.

FACTA does not prohibit printing information about the card issuer on a credit card receipt, the appellate court pointed out. That made it reasonable to infer that printing such information did not increase the consumer’s risk. Unless there was at least a material risk of the identity theft that FACTA was intended to prevent, the consumer could not show a concrete injury that gave him standing to sue, the court concluded.

Procedural concerns. The appellate court also had to address the consumer’s argument that a motion to dismiss was not the right time to decide whether printing the first six digits of his account number could threaten harm. After all, every digit more than was permitted by FACTA provided information an identity thief could use to determine the full account number by what the court termed "computer-assisted guessing," he asserted.

The court conceded that considering Donna Karan’s information about the value of the six numbers (including a website the district judge consulted) did go beyond the allegations in the consumer’s complaint. The district court judge was required to make findings about the facts, and the consumer and Donna Karan disagreed about those facts. However, findings of fact sometimes are necessary to determine whether a consumer has standing to sue.

The district court judge’s findings about the import of the six digits were not clearly erroneous, the appellate court concluded. Other courts had decided that those digits identified only the card issuer, and a card issuer’s identifying number could be ascertained easily. Pointing out again that FACTA does not ban identifying a card issuer, the appellate court accepted the district court judge’s conclusion.

However, the appellate court did express concern over the use of a fact-finding method that was "more abbreviated than might be conventionally expected or desirable in many contexts." Judges should be careful to require evidence, expert evidence, and even hearings in the future before reaching a decision on standing.

The appellate court then noted that the consumer could have asked to submit his own evidence after Donna Karan raised the issue. He had chosen not to do so.

Dismissal. Yet one more issue was presented for the appellate court’s consideration. After deciding that the consumer did not have standing to sue, the district court judge had dismissed the suit with prejudice. A court cannot dismiss a suit with prejudice if the consumer’s inability to establish standing to sue means the court does not have subject matter jurisdiction, the appellate court pointed out. The dismissal had to be without prejudice.

The case is No. 15-464.

Attorneys: Shimshon Wexler (Law Offices of Shimshon Wexler, P.C.) for Yeshuda Katz. Greg M. Mashberg (Proskauer Rose, LLP) for Donna Karan International, Incorporated, The Donna Karan Co., L.L.C., and The Donna Karan Company Store, L.L.C.

Companies: Donna Karan International, Incorporated; The Donna Karan Co., L.L.C.; The Donna Karan Company Store, L.L.C.

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