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ZIP Code Collection – An Invasion of Privacy?

Zip Codes Can Reveal Customer Information, Leading To Privacy Concerns

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A February 2011 ruling against Williams-Sonoma by the California Supreme Court held that a consumer’s ZIP code was “personal identification information” that merchants are not permitted to demand from customers under a California consumer privacy law. The result was a rash of lawsuits against businesses such as Wal-Mart Stores Inc., Bed Bath & Beyond Inc., Crate & Barrel and Victoria’s Secret. Though some stores claim to use the ZIP code information to protect against credit card fraud (i.e., if the card was stolen, the user is less likely to know the ZIP code of the true owner), most businesses use the information for marketing purposes. Ultimately, the California Supreme Court held that merchants can still collect customer’s ZIP codes under limited circumstances such as gas station pumps where the information is requested for security reasons, and in transactions involving shipping. Retailers may also ask customers to produce a valid driver’s license for security reasons, but may not record the personal information contained on the license.

The California Supreme Court’s decision was premised upon California’s strict consumer privacy laws. However, the theory of ZIP codes representing personal or protected information has now spread to New Jersey. Superior Court Judge Stephan Hansbury refused to dismiss a lawsuit against Harmon Stores, Inc. for collecting ZIP code information from its credit card customers. The Court held that New Jersey’s Truth in Consumer Contract, Warranty and Notice Act allowed the plaintiffs to assert a claim for violation of N.J.S.A. 56:11-17, which provides:

No person which accepts a credit card for a consumer transaction shall require the credit card holder, as a condition of using a credit card in completing the consumer transaction, to provide for recordation on the credit card transaction form or any other form, any personal identification information that is not required by the issuer to complete the credit card transaction, including, but not limited to, the credit card holder’s address or telephone number, or both; provided, however, that the credit card holder’s telephone number may be required on a credit card transaction form if the credit card transaction is one for which the credit card issuer does not require authorization. (emphasis added)

It appears that the New Jersey Superior Court, like the California Supreme Court, considers ZIP code information to represent protected “personal identification information.” As a general matter, the ZIP code information is not required by the credit card company. As the New Jersey case is in its infancy, we do not yet know the results or full repercussions.

While it is likely that the Harmon Stores case will be appealed at some point (if it does not settle), its very existence creates new uncertainty amongst New Jersey consumers and merchants alike. For consumers, Judge Hansbury’s opinion suggests that the consumer can refuse to provide his or her ZIP code information when engaging in a live transaction (as opposed to online transactions or, like in California, when using an automated machine to charge a transaction). Of course, it is also possible that refusing to provide ZIP code information could simply result in the merchant demanding that you produce a driver’s license.
Merchants, on the other hand, should be sure to have a valid justification for seeking a customer’s ZIP code information in connection with any credit card transaction. Merely seeking it for marketing purposes will not suffice. Alternatively, merchants can be clear in seeking the ZIP code information that providing the information is completely voluntary. However, engaging in such a practice presents its own pitfalls and could create new confusion or a public relations nightmare.

As privacy-related litigation and consumer’s concerns about their privacy rights increase, one thing is becoming abundantly clear: now is the time for businesses to proactively use consumer privacy protection as a marketing tool to distinguish the business from its competitors.