A recent decision of the California Supreme Court is sending a chill through a common retail practice: requesting a customer’s ZIP code during a credit card transaction for research and marketing purposes. The decision, in Pineda v. Williams-Sonoma Stores, Inc., found that the practice of collecting ZIP codes violates a California statute, the Song-Beverly Credit Card Act, which forbids businesses from requesting “personal identification information” during a credit card transaction.

The February 2011 decision has launched a flurry of class-action litigation within the California court system as plaintiff’s law firms target large retailers and other businesses that do a large volume of credit card transactions within the state. According to one report, in the weeks following the decision, more than 20 such actions were filed against retailers including Wal-Mart Stores Inc., Target Corporation, Coach Inc., Nordstrom Inc., Macy’s Inc. and Best Buy Co. The plaintiff’s bar is doubtlessly motivated, in part, by the availability of statutory fees: companies that violate the statute are subject to fines of $250 for the first violation and as much as $1,000 for each subsequent violation, potentially exposing a retailer to millions of dollars in fines.

Pineda has far-reaching implications for retailers with operations in California, and possibly for non-California merchants that transact business with California residents or over the Internet.

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