Why Businesses Must Be Familiar With The Song-Beverly Credit Card Act

The Song-Beverly Credit Card Act was enacted in 1971 to regulate credit card transactions in California.  The Act created potentially confusing provisions for retailers and other merchants who accept credit card payments.  Even unintentional violations of these provisions can put merchants at risk of incurring significant statutory penalties.

One common way for retailers to violate the Act is to impose surcharges on customers for using credit cards instead of cash.  Retailer may offer discounts for the purpose of inducing payments by cash if notice of the discount is provided to consumers.  The distinction between a surcharge associated with the use of a credit card and a discount associated with a cash payment, however, can be somewhat confusing and may lead to an unintentional violation of the Act.

The Act also includes many other potentially confusing provisions that merchants should understand in order to avoid liability.  One such provision is Civil Code section 1747.08(a)(2), which prohibits businesses from requesting that customers provide personal identification information, such as email addresses, during credit card transactions.  Section 1747.08 is intended to protect consumer privacy and to prohibit merchants from obtaining personal identification information by giving customers the impression the information is required to process a credit card transaction.  However, it does not forbid merchants from obtaining such information voluntarily if the customer understands the information need not be disclosed in order to use a credit card.  The rule depends heavily on when the merchant asks the customer for his or her email address.  Simply asking for a customer’s email address while a credit card is being processed may constitute a violation of section 1747.08.

With respect to the Song-Beverly Credit Card Act, class action litigation is a major concern for retailers.  Opportunistic plaintiff attorneys are eager to represent classes of plaintiffs against merchants who violate the Act because the Act allows the imposition of statutory civil penalties as well as attorney fees for certain violations.  Repeat violations of section 1747.08 can result in civil penalties of $1,000 per violation.  Therefore, if a merchant has an information gathering policy that violates section 1747.08, that merchant may be subject to a $1,000 penalty for each credit card transaction in which it engages.

A recent decision by California’s First District Court of Appeal highlights the importance of a well documented code-compliant information gathering policy for purposes of abiding by the Act.  In Harrold v. Levi Strauss & Co., the plaintiff purchased merchandise at a Levi store.  Levi had a policy that complied with Civil Code section 1747.08 because it did not permit a clerk to request a customer’s email address before handing the purchased merchandise to the customer.  However, this particular plaintiff claimed the cashier involved in her transaction asked for her email address after she provided her credit card but before the purchased merchandise was handed to her.  She sought class certification to include all other customers involved in transactions that violated Levi’s policy and section 1747.08.  The Court acknowledged that Levi may have violated section 1747.08 with respect to the plaintiff’s transaction, but denied the plaintiff’s request for class certification because the Plaintiff was not able to show that Levi violated its own policy, and therefore section 1747.08, as to any other transactions.  As a result, the ability to show a well-established policy that complied with the Act helped Levi avoid a class action lawsuit.

As new technologies such as Apple Pay and Venmo create additional payment methods that can link to credit card accounts, an even greater percentage of transactions will likely fall within the scope of the Act.   It therefore is increasingly important for retailers and other merchants to be aware of the provisions of the Act.  LGC has defended numerous clients against alleged violations of the Act and can help your business avoid liability by establishing policies that comply with the Act.