California Supreme Court To Rule On Legality Of Collecting Customer Information During Online Credit Card Purchases


Companies that accept online credit card payments should be keeping an ear very close to the ground for the California Supreme Court’s decision in Apple v. Superior Court (Krescent), expected within the next few weeks.  Depending on how the court rules, the case has the potential to spawn a flood of class actions against online retailers and change the way web payments are processed.

Krescent revolves around California’s Song-Beverly Credit Card Act (Cal. Civil Code § 1747.08), a law that generally prohibits retailers from “request[ing], or requir[ing] as a condition to accepting [a] credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information, [which the retailer] causes to be written, or otherwise records upon the credit card transaction form or otherwise.”  The act defines “personal identification information” (PII) as information concerning the cardholder other than information appearing on the credit card, including the cardholder’s address and telephone number.  In the landmark 2011 case Pineda v. Williams-Sonoma Stores, Inc., the California Supreme Court ruled that even ZIP codes alone constitute PII under the statute—a decision that led to the filing of hundreds of new lawsuits against merchants.

While the law has always applied to credit card transactions at “brick-and-mortar” retailers, the issue before the court in Krescent is whether it applies to online transactions as well.  If it does, then Internet merchants will, subject to limited exceptions, be prohibited from collecting information such as customer addresses and telephone numbers during online credit card purchases.

Suits similar to Krescent have been brought in the past, and Perkins Coie has successfully obtained dismissals of such cases for a number of clients.  Indeed, in Krescent, Apple has relied on many of the same arguments Perkins Coie has previously advanced for its clients, such as that the statute’s plain language limits its application to brick-and-mortar merchants and that online retailers need to collect certain PII to prevent fraud.  Plaintiffs, however, assert that personal information is not necessary to complete the transaction and allege that Internet companies are collecting personal information in order to aggregate marketing data.

An adverse ruling for Apple in Krescent may affect nearly every business that accepts credit cards for purchases in California, given that collecting customer addresses and telephone numbers is a ubiquitous and seemingly standard verification practice among e-merchants, and it could usher in a new wave of litigation similar to that following Pineda.  A favorable ruling for Apple, on the other hand, could in some respects signal the coming demise of the Song-Beverly Act’s utility, as mobile payment applications are predicted to overtake traditional credit card processing worldwide, even in traditional retail establishments, by as early as 2015. 

Check back for updates or consult a legal professional to learn more about how this ruling could affect your business operations online.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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