Why You Shouldn’t Give Your ZIP Code at the Register

This week, in honor of National Consumer Protection Week, Credit.com is highlighting a number of issues to raise consumer awareness.  Today, Credit.com’s credit expert Beverly Harzog looks at an increasingly common practice at the cash register—and why you should just say no to it.

You swipe your credit card at the gas pump and up pops, “Enter your ZIP code.” You probably key in the five numbers without thinking, especially if the gas pump icon on your dashboard is lit up.

One of the reasons you’re asked for your ZIP code at the gas pump is because there’s no one there to check your signature on the back of your credit card. It’s not a face-to-face transaction, so this is similar to buying something on the Internet, which is considered a card-not-present transaction for verification purposes.

But now, even if we buy something with a credit card at the mall, we’re often asked for our ZIP codes. This practice recently grabbed the national spotlight. In 2008, Jessica Pineda charged an item to her credit card at Williams-Sonoma. The cashier asked Pineda for her ZIP code and she gave it. Pineda then began receiving catalogs from Williams-Sonoma.

[Resource: 12 Tips for Protecting Your Identity]

Pineda sued Williams-Sonoma, alleging that the retailer was able to determine her full address from her ZIP code and credit card number. A few weeks ago, California’s highest court found that Williams-Sonoma violated the state’s credit card law when the cashier asked for Pineda’s ZIP code, saying that since the ZIP code is part of the cardholder’s address, the retailer is prohibited from asking for it.

Meanwhile, lawsuits over the ZIP code issue are apparently just getting started. There are about 10 states that have credit card legislation that prevents merchants from asking consumers for personal identification information. And since gas stations are technically retailers, they might not be considered exceptions to the rule after all. There was a lawsuit filed last week against gas stations in California that requested ZIP codes.

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This whole situation raised a number of questions in my mind, including the role that card issuers play in all this. A Discover spokeswoman told me that matching the signature on the card to the one on the receipt is one of the steps that Discover requires of its merchants. But Discover does not ask merchants to ask consumers for their ZIP codes. So when a retailer asks for your ZIP code, it generally isn’t because the card issuers have requested it.

The easy conclusion is that merchants ask so they can send you these evil, unsolicited catalogs. Of course, that’s one reason. But a Wall Street Journal article pointed out that Visa offers an incentive to merchants if they ask for the customer’s ZIP code because it helps prevent fraud. So I did some digging to find out more about this.

Next: Incentives for Merchants »

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Incentives for Merchants

Visa supports the Address Verification Service (AVS) system, which allows merchants to compare a Visa cardholder’s billing address with the card issuer. In Visa’s “Card-Not-Present Merchant Guide to Greater Fraud Control,” it states that merchants who use the AVS system benefit in a number of ways, including the possibility of lowered transaction fees. This guide, by the way, was designed for Internet transactions, but brick-and-mortar retailers also use the system as a way to catch fraud.

So there’s the financial incentive for merchants. It’s not a big stretch to assume that once they’ve got your ZIP code, they can figure out your address and put you on their mailing list. Targeted marketing doesn’t get much better than this. You’re already a customer and now they can notify you of sales and new items to lure you back to the store.

I’m not one to get bent out of shape over unwanted mail. Isn’t that what trash cans are for? You can tackle the junk mail part of this problem by going to the Direct Marketing Association’s Mail Preference Service and opting out of most mail solicitations.

The issue here shouldn’t be about the inconvenience of getting junk mail. My main concern is what a store employee can do with my credit card number plus my ZIP code. The real issue is this: Giving your ZIP code to a cashier might increase your risk of identity theft.

So the next time a cashier asks for your ZIP code, you can politely refuse. The retailer still has to honor your credit card and complete the sale. There’s simply no reason to risk giving away information that makes it easier for someone to steal your identity.

[Identity Theft: Free Identity Risk Score and profile from Credit.com]