AddThis

Return tracking and the consumer privacy issue

A recent string of media reports has focused on major retailers that track customers who return merchandise. While the plaintiffs’ bar and the media are seeking to transform return monitoring into a headline-grabbing consumer privacy issue, the practice is hardly new, it is certainly justified as an anti-fraud measure and any litigation or compliance risk should be mitigated by appropriate disclosures.

Faced with estimated losses in the tens of billions as a result of return fraud, retailers have responded with increasingly robust tracking procedures that allow the creation of “return profiles” for each customer returning merchandise to a particular retailer. Return profiles typically include consumers’ basic identifying information, as well as the frequency and volume of their returns at a specific retailer. If fraud or other misconduct such as “wardrobing” is suspected, the retailer may issue a warning to the customer or simply refuse to engage further in any return transaction.

There are no laws expressly restricting return tracking. With respect to return and exchange policies generally, they are left unregulated by most states. For the few states that currently regulate returns, the focal point is disclosure. For instance, California requires retailers to “conspicuously display” their return policy at each cash register, sales counter, public entrance and on its merchandise tags if the policy departs from the permitted norm.1  Florida has a similar law.2  New York, Massachusetts and Connecticut have mandated similar requirements for every retailer, regardless of return policy.3  In most of these jurisdictions, failure to follow these rules is considered an “unfair and deceptive trade practice,” bringing with it a private right of action.4  State crackdowns have extended to the Internet as well: For example, since 2003, California has required online retailers to disclose their return policies on their website, by email or directly in writing.5  In these states, retailers should review their return and exchange policies, and consider disclosing the practice of return tracking where appropriate.

With respect to states that do not regulate return and exchange policies at all, there may still be some risk. In those states, plaintiffs likely would argue that return tracking constitutes an “unfair and deceptive practice” under state law. Accordingly, though disclosure of the terms of a return and exchange is not expressly mandated, in those states too, retailers should consider whether disclosure of return tracking is appropriate.

The absence of express statutory proscriptions against return tracking, even with appropriate disclosures, may not discourage the oft-creative plaintiffs’ bar. For example, Best Buy recently was sued in a putative class action under the federal Driver’s Privacy Protection Act (“DPPA”) for its practice of monitoring customer returns by swiping the magnetic strip of customer drivers licenses. See Siegler v. Best Buy Co. of Minn., Inc., 2013 WL 2302322, No. 9:11-cv-81292-KLR (11th Cir. May 28, 2013). The DPPA grants a private cause of action against any person who knowingly obtains or discloses personal information from a “motor vehicle record.”

That novel theory was rejected, with the United States District Court judge holding, and the Eleventh Circuit Court of Appeals affirming, that Best Buy did not improperly collect its customers’ information because the DPPA only protects against disclosure of information obtained directly from state DMVs — not from an individual’s drivers license.

While Siegler represents a victory for retailers, the plaintiffs’ counsel were willing to fight the issue all of the way to the Court of Appeals. Only time will tell whether this is an isolated attack, or whether the plaintiffs’ bar will see return tracking as a new and lucrative “hot-button” privacy issue. Retailers should hope for the former but be prepared for the latter.

Donna L. Wilson is a partner and Brandon P. Reilly is an associate at the law firm Manatt, Phelps & Phillips. Both work in the Litigation Division and are based in the Los Angeles office. Manatt, Phelps & Phillips, LLP, is one of the nation's leading law firms, with offices strategically located in California (Los Angeles, Orange County, Palo Alto, San Francisco and Sacramento), New York (New York City and Albany) and Washington, D.C. The firm represents a sophisticated client base — including Fortune 500, middle-market and emerging companies — across a range of practice areas and industry sectors. For more information, visit www.manatt.com.
 

 

1. See Cal. Civ. Code § 1723(a) (The law requires no disclosure for businesses that offer full cash or credit refunds or equal exchanges, with proof of purchase, for at least seven days after purchase.).
2.See F.S.A. § 501.142.
3. See N.Y. General Business Law 218-A; 940 CMR 3.13(4)(a); CT ADC § 42-110b-16.
4.See, e.g., 940 CMR 3.13(4); Cal. Civ. Code § 1723(c)(2).
5.See Cal. Bus. & Prof. Code § 17538(d).

 

 

 

© 2014 Retailing Today. All Rights Reserved.