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A reader recently asked me if retail merchants can require I.D. to process their credit card purchase. It sounds like a simple question, however the answer is yes, no, maybe, sometimes, and never.

To properly respond to this question, one that requires a very complicated answer, will take at least a dozen posts. This article will consider the legal aspect of the question; that is, state laws that prohibit merchants from asking the customer to provide personal identification information for a credit card transaction (1).

Before we discuss those state laws I need to mention that most laws that regulate business transactions are written by assholes who do not understand business nor the consequences of the laws they pass. Things are getting worse for the consumer, not better because of these massive, ill-thought-out regulations, especially since we pass tens of thousands of excessive, unnecessary, contradictory, confusing and stupid laws in our country every year.

In my state, New Jersey, we have a statute, N.J.S.A. 56:11-17, under the rubric Trade Names, Trade-marks and Unfair Trade Practices in which we read the following: "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."

The devil is in the details. Note the word "recordation," which correctly interpreted means merchants can ask the customer to show a driver's license but cannot write anything down from it.

Exceptions to the Law

But even if the law is interpreted otherwise, that the merchant cannot even ask for identification, there are exceptions: If the person has not signed the back of the credit card, then merchants are allowed to ask for proof that the person owns the card. However it is murky under almost all state laws, including New Jersey, what that merchant may or may not record on the credit card transaction receipt, such as the consumer's zip-code. A few years ago a New Jersey Superior Court Judge and U.S. District Court each disagreed about an alleged violation of the statute mentioned above.

A small aside: It is quite laughable to me that New Jersey finds recording a consumer's zipcode a violation of that consumer's privacy rights in credit card cases while recording that same zipcode is required by law for issuers of gift cards. In the latter case, New Jersey wants the escheat funds of expired cards used in New Jersey.

Also, asking for identification if the customer is purchasing alcohol, cigarettes, and certain pharmaceutical products is required, otherwise not doing so would violate other existing laws.

In some of my businesses, I tell my sales people to always ask for, but not record, personal identification, in credit card purchases - especially if the person acts suspiciously, is unlikely to be the bearer of the name on the card (if the credit card is made out to Alice O'Reilly and the customer appears neither female nor Irish), the signature is missing on the card, or the purchase price is very high.

Some clueless websites give out false information. For example, FSO Technologies dispenses this bit of misinformation:

There is no need for merchants to obtain phone numbers or other personal information from customers. Once they have correctly processed the bank card transaction (gotten an authorization number and made sure the signatures match), they are guaranteed to receive payment.

This is utter nonsense. There is no such thing as being guaranteed payment from the credit card companies. Even if the signatures match, even if the storekeeper has a video recording of the person making the transaction, even if a voice recording was taken from the customer acknowledging the transaction, even if all that, all the credit card purchaser need do is deny all knowledge of the transaction - the credit card company will side with the customer. The merchant's only recourse? Sue the customer. But if the merchant didn't take down the customer's information, who will he sue?

Signatures Do Not Matter

Let me tell you why signatures matching does not matter: most people do not sign their cards, so if a thief finds it, he can sign it himself and viola! the signatures match.

In addition, many credit card numbers are stolen. The name on the card is unimportant. With today's sophisticated technology, a thief can fabricate a card with any name on it, sign the bogus card and there you'll have a signature match as well. What criminals will rarely do is put their real name on it for fear some merchant like me will ask for ID and note his face and name so that later the thief can be apprehended.

As I noted in my article Credit Card Fraud and Leftist Traitors, credit card companies have little incentive to go after credit card fraud since merchants bear the brunt of such costs.

With credit cards, it is not 'Caveat Emptor' but rather "Caveat Venditor."