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FTC settles with CardSystems over data breach

Forced to tighten security measures and undergo audit

Combat fraud and increase customer satisfaction

A payment processor that exposed 40m credit cards to the risk of fraud when a hacker took advantages of security failures has agreed to settle Federal Trade Commission (FTC) charges. Independent security audits will now be required every other year for 20 years.

CardSystems Solutions and its successor Solidus Networks (which does business as Pay By Touch) are also obliged to implement a comprehensive information security programme.

The case hit the headlines in June last year after it was revealed that security vulnerabilities in the systems of Tucson-based CardSystems had allowed a hacker to infiltrate its network and access cardholder data, putting cards of all brands at the risk of fraud.

According to the FTC, CardSystems provided merchants with products and services used in "authorisation processing" – obtaining approval for credit and debit card purchases from the banks that issued the cards. In processing these transactions, CardSystems collected personal information from the magnetic strip of the card, including the card number, expiry date, and other data. CardSystems then stored this information on its computer network.

The watchdog charges that CardSystems failed to provide reasonable and appropriate security for this sensitive consumer information.

According to the complaint, CardSystems not only created unnecessary risks to the information by storing it, but it did not then adequately assess the vulnerability of its computer network to commonly known or reasonably foreseeable attacks.

The company did not implement simple, low-cost, and readily available defences to such attacks, nor did it use strong passwords to prevent a hacker from gaining control over computers on its computer network and access to personal information stored on the network.

In addition, the FTC says, CardSystems did not use readily available security measures to limit access between computers on its network and between its computers and the internet, nor did it employ sufficient measures to detect unauthorised access to personal information or to conduct security investigations.

"CardSystems kept information it had no reason to keep and then stored it in a way that put consumers' financial information at risk," FTC chairman Deborah Platt Majoras said. "Any company that keeps sensitive consumer information must take steps to ensure that the data is held in a secure manner."

The security breach resulted in millions of dollars in fraudulent purchases and caused banks to cancel and re-issue thousands of credit cards. On top of this, consumers experienced inconvenience, worry, and time loss dealing with the affected cards, according to the FTC.

See The FTC complaint.

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