How much does a security breach actually cost?
And who pays for it?
The final thing you can do if your credit card data has been compromised is to cancel all your credit cards, and get new ones. The cost of this is typically borne by you (in nuisance) and by your credit card issuing bank, and is estimated at from $3.00 to $35.00 for a simple reissuance to a reissuance plus credit fraud plus credit reports. Multiply that time 40 million numbers, and you can see why a lawsuit was filed. In general, the idea behind a civil tort system is to place the costs on the party best able to avoid the risk. In other words - you broke it, you bought it.
So, who bears the risk of loss for a stolen credit card number? Well, under what is called Regulation E, (for debit cards) or the Fair Credit Reporting Act (for credit cards) the cardholder's risk ranges from $50 to $500 (depending on the timeliness of notification) but is typically zero, as the card issuers want to keep their customers happy. If it is merely a credit card number that is compromised, the true risk of loss falls on the merchant that accepts the number over the phone, or the internet or possibly even accepts a cloned physical card. That is why the California bedding company is listed as a member of the class suing card systems.
In law school, the rule of thumb for litigation was essentially this: if it moves, sue it. If it doesn't move: move it and then sue it. So everybody here is potentially at risk. The merchants are both plaintiffs (they have the risk for unauthorized cards being used at the store) and the defendants (they failed to protect the data processed by CardSystems.) The issuing banks (the name on your credit card) and VISA or MasterCard themselves run the risk that customers will be afraid to use credit cards because of fear of ID theft. The processors, these anonymous aggregators of massive amounts or transactional data, run risks to merchants, consumers, VISA and MasterCard, regulators, and issuing banks - particularly if it is found that they failed to comply both with the standards for security set by VISA and MasterCard, and the federal Gramm Leach Bliley Act for safeguarding financial information.
So we can expect an awful lot of finger pointing in the months and years ahead. We can also expect that the members of the class in the California lawsuit, even if the suit is successful, will get a mere pittance - a token amount. The only people who are sure to make out will be the lawyers. Avoiding that eventuality should certainly be a good enough reason to provide better security in the first place.
SecurityFocus columnist Mark D. Rasch, J.D., is a former head of the Justice Department's computer crime unit, and now serves as Senior Vice President and Chief Security Counsel at Solutionary Inc.
The Sun exposes UK ID theft racket at Indian call centre
Unauthorised research opened door to MasterCard breach
MasterCard fingers partner in 40m card security breach
Fraud expert becomes victim of credit card crime
UK ID scheme rides again, as biggest ID fraud of them all
Backup tapes are backdoor for ID thieves