Online Transactions for Downloadable Products Are Not Covered by the Song-Beverly Credit Card Act

[wehateporn]

From here http://www.cooley.com/california-sup...redit-card-act

"On February 4, 2013, in the case of Apple v. Superior Court (Krescent)1 the California Supreme Court reversed the Court of Appeal's denial of defendant Apple Inc.'s petition for writ of mandate for review of the trial court's order overruling Apple's demurrer. The lawsuit alleged that Apple had violated California Civil Code section 1747.08 (part of the Song-Beverly Credit Card Act of 1971) by requesting or requiring customers who use credit cards as tender to provide personal identification information ("PII"). In the opinion, the Supreme Court held that, "[u]pon careful consideration of the statute's text, structure, and purpose, ? section 1747.08 does not apply to online purchases in which the product is downloaded electronically." This opinion is in accordance with the conclusion reached in Saulic v. Symantec Corp.,2 a federal district court case that held that Section 1747.08 does not apply to online transactions, but was issued two years before the California Supreme Court issued its opinion in Pineda v. Williams-Sonoma Stores, Inc. In Pineda, the Supreme Court held that ZIP Codes were PII and triggered numerous class action lawsuits against retailers in California who had requested ZIP Codes from credit card-paying customers. Krescent is therefore good news for online merchants.

Overview of California Civil Code section 1747.08

Section 1747.08 is a two-decade old statute that prohibits businesses from requesting or requiring PII from customers as a condition to accepting a credit card as payment in full or in part for goods or services, and then recording such information. The statute also bans the use of forms that facilitate the obtaining of such information. The statute defines PII as "information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number." Exempted from the statute's reach, among other things, are requests for and recordations of PII "for a special purpose incidental but related to the individual credit card transaction, including, but not limited to, information relating to shipping, delivery, servicing, or installation of the purchased merchandise, or for special orders." Companies that violate the statute are subject to a civil penalty of up to two hundred fifty dollars ($250) for the first violation and one thousand dollars ($1,000) for each subsequent violation.
The lower court rulings in Krescent

The Krescent decision arose out of a case filed against Apple in Los Angeles Superior Court. The complaint alleged that Apple violated Section 1747.08 by requesting credit card-paying customers' telephone numbers and billing addresses when they establish an iTunes account. Because iTunes are directly downloaded to customers' computers, the plaintiff contended that Apple could not qualify for Section 1747.08's exception that allows companies to request information for shipping and other special purposes.

Apple moved to have the lawsuit dismissed at the pleading stage. Apple argued that Section 1747.08 does not apply to online credit card transactions. Additionally, Apple argued that the PII requested was necessary to prevent fraudulent transactions, and therefore, the information was sought as a special purpose incidental but related to the credit card transaction. The trial court rejected Apple's arguments, and overruled its demurrer.

Despite acknowledging the "definite appeal" of Apple's argument regarding the importance of fraud prevention in online credit card transactions, the Superior Court stated that it was not prepared to exempt online transactions from Section 1747.08 on that ground at the pleading stage. Further, the court noted that online retailers, similar to gasoline retailers, may be justified in requesting PII to verify credit card purchases, but "until the legislature specifically exempts online credit card transactions from the purview of the Act, the Court will not (and cannot) read such a provision into the statute."

The mid-level Court of Appeal summarily denied Apple's petition for interlocutory review of the trial court's order.
The majority opinion in Krescent

In a divided opinion authored by Justice Liu, the California Supreme Court reversed the Court of Appeal's judgment summarily denying Apple's petition for writ of mandate and held that Section 1747.08 does not apply to online purchases in which the product is downloaded electronically because such purchases do "not fit within the statutory scheme."

In reaching this decision, the Supreme Court noted that the plain language of Section 1747.08 is "not decisive" on this issue. Instead, it relied on legislative intent.

The opinion recognized that the Legislature did not intend to protect privacy at the expense of fraud prevention. Section 1747.08 was created to protect consumers, particularly from the "?misuse of personal identification information?.'" Thus, "[w]e hold only that the statutory scheme and legislative history make clear the Legislature's concern that there be some mechanism by which retailers can verify that a person using a credit card is authorized to do so. No such mechanism would exist in the context of online purchases of electronically downloadable products if the statute were read to apply to such transactions. Because the statutory scheme provides no means for online retailers selling electronically downloadable products to protect against credit card fraud, we conclude that the Legislature could not have intended section 1747.08 to apply to this type of transaction."

The Supreme Court also rejected the plaintiff's argument that the 2011 amendment exempting pay-at-the-pump transactions from Section 1747.08 shows that the statute applies to online transactions. The court noted, however, that "the problem the Legislature sought to address in 2011 was a narrow one: how to deal with lawsuits filed against traditional brick-and-mortar retailers, particularly gas stations, that had been collecting ZIP codes for years under the mistaken belief that they were not prohibited from doing so under section 1747.08."

In addition, the Supreme Court discussed how statutes like the California Online Privacy Protection Act of 2002 ("COPPA") "show[] that the Legislature knows how to make clear that it is regulating online privacy" and how COPPA and the federal Telephone Consumer Protection Act "refute[] our dissenting colleagues' assertion that today's decision will leave online retailers ?free to require personal identification information as a condition of credit card acceptance and to use such information for whatever purposes they wish.'"

Finally, the Supreme Court acknowledged that retail commerce has changed dramatically since the Legislature passed Section 1747.08 with the development of e-commerce. Indeed, "[s]uch technology was not even a twinkle in Steve Jobs's eye; at the time, Jobs had just begun to experiment with the concept of ?interpersonal computing.'"

In conclusion, the Supreme Court stated: "Because we cannot make a square peg fit in a round hole, we must conclude that online transactions involving electronically downloadable products fall outside the coverage of the statute." However, the majority also acknowledged that in light of its holding, "the Legislature may wish to revisit the issue of consumer privacy and fraud prevention in online credit card transactions."
The take home message

While class actions alleging privacy-related violations will likely continue to be filed on behalf of California and nationwide consumers, the Court's opinion in Krescent demonstrates that courts are not always willing to allow the plaintiffs' bar to stretch statutes to cover matters beyond that considered by the Legislature when it first enacted the statute."

http://www.cooley.com/california-sup...redit-card-act

[adultmobile]

Is there any 3 lines short version of this

[Itchy]

Originally Posted by adultmobile

Is there any 3 lines short version of this

In conclusion, the Supreme Court stated: "Because we cannot make a square peg fit in a round hole, we must conclude that online transactions involving electronically downloadable products fall outside the coverage of the statute." However, the majority also acknowledged that in light of its holding, "the Legislature may wish to revisit the issue of consumer privacy and fraud prevention in online credit card transactions."

[Barry-xlovecam]

AVS (Address Verification Service) is a VISA net response to a cardholder's request.

If you give a person credit, and that is what a credit card sale is -- it is not a cash transaction -- there are contingencies, you certainly have the right to now to whom you are giving credit to ...

At any rate, the California courts reversed the decision. And if a retailer asks for proof of identity at a POS terminal -- aren't they within their rights?

^^"Section 1747.08 is a two-decade old statute that prohibits businesses from requesting or requiring PII from customers as a condition to accepting a credit card as payment in full or in part for goods or services, and then recording such information.