California Supreme Court Finds Trouble with Credit Cards and Zip Codes

If you slide your credit card in California to pay for a retail purchase, the Supreme Court of California has ruled that it is illegal for the retailer to ask for your zip code in conjunction with the transaction. Consumer advocates argued that retailers were collecting this information under false pretenses. Retailers countered that zip codes were collected to prevent credit card fraud. The issue is still open for debate in other states.

Marketing Purposes

Consumers say that big brand retailers are requiring them to provide their zip code when making credit card purchases. They say that the cashier is telling them that the zip code is needed to process the credit card. They believe that this is a lie and that in fact retailers are collecting the information for marketing purposes and that the data can be sold to other businesses.

Credit Card Fraud Prevention

Retailers, including Bed Bath & Beyond, Burlington Coat Factory, Gap and Kohl's, say they collect zip codes with credit card purchases to verify that the cardholder is who they say they are. It is a common practice when processing credit card payments for the card processor to enter zip codes, names and even complete billing addresses in order to ensure that the credit card information matches the billing information that is on record with the credit card issuer. This is why consumers must enter all of this information when making an online credit card purchase.

It creates a win-win situation. It protects the retailers from processing fraudulent purchase transactions and it prevents the cardholder from having fraudulent purchases show up on their credit card statements. The 150 class-action lawsuits that are hitting the California courts, however, scream of something other than a win-win scenario.

The Ruling

When the California Supreme Court ruled it was illegal for retailers to ask credit card users for their zip codes, it opened the floodgates for class-action litigation. Most legal professionals agree that the majority of the cases will be “unfounded” and get thrown out of court. Since marketing tactics often pit consumers up against retailers and businesses, it is not surprising that the argument is ensuing. The outcome, however, will leave one side without a cause.

Kristie Lorette

Kristie Lorette is an award winning credit specialist and an MBA graduate of Nova Southeastern University. Her lengthy tenure includes service at Merrill Lynch where she oversaw a $300 million dollar portfolio and 16 branches. At Merrill Lynch, Kristie specialized in consumer issues related to credit and mortgages. As a writer and researcher in personal finance, Kristie is also a contributor to Yahoo! Shine, Quizzle.com, Moneysmartlife.com and many other online and print publications.