Target May Face Federal Suit Over Privacy Fumble

The FTC is probing the massive hack of credit card information.

Customers check out at the cash register in a Target store on December 19, 2013 in Miami, Florida. Target announced that about 40 million credit and debit card accounts of customers who made purchases by swiping their cards at terminals in its U.S. stores between November 27 and December 15 may have been stolen.
National Journal
Brendan Sasso
Add to Briefcase
Brendan Sasso
March 18, 2014, 12:48 p.m.

Tar­get could face fed­er­al charges for fail­ing to pro­tect its cus­tom­ers’ data from hack­ers.

The re­tail­er has been in con­tact with the Fed­er­al Trade Com­mis­sion, Molly Snyder, a Tar­get spokes­wo­man, told Na­tion­al Journ­al.

It’s un­clear wheth­er the FTC has is­sued any sub­poen­as or oth­er form­al de­mands for in­form­a­tion. The FTC de­clined to com­ment on wheth­er it has launched a form­al in­vest­ig­a­tion.

But former com­mis­sion of­fi­cials said the agency is al­most cer­tainly tak­ing a hard look at the in­cid­ent, which res­ul­ted in 40 mil­lion cred­it-card num­bers fall­ing in­to the hands of hack­ers.

“When you see a data breach of this size with clear harm to con­sumers, it’s clearly something that the FTC would be in­ter­ested in look­ing at,” said Jon Leibowitz, a former FTC chair­man who is now a part­ner at Dav­is Polk and Ward­well.

Dav­id Vladeck, a pro­fess­or at Geor­getown Law Cen­ter and a former head of the FTC’s Con­sumer Pro­tec­tion Bur­eau, said it “wouldn’t be sur­pris­ing” if the FTC is in­vest­ig­at­ing the case.

“This would be right in the FTC’s wheel­house,” he said. “It demon­strates why the FTC needs to be the cop on the beat here.”

Sen. Richard Blu­menth­al, a Con­necti­c­ut Demo­crat, urged the FTC to in­vest­ig­ate the Tar­get hack soon after it be­came pub­lic in Decem­ber.

“If Tar­get failed to ad­equately and ap­pro­pri­ately pro­tect its cus­tom­ers’ data, then the breach we saw this week was not just a breach of se­cur­ity; it was a breach of trust,” he wrote in a let­ter to the agency.

The former FTC of­fi­cials noted that just be­cause hack­ers man­aged to breach a com­pany’s sys­tem doesn’t mean the com­pany had in­ad­equate se­cur­ity prac­tices. Hack­ers are some­times able to pen­et­rate even the most se­cure sys­tems.

But re­cent re­ports have shown that Tar­get made a series of mis­steps lead­ing up to the hack. The com­pany gave a re­fri­ger­a­tion, heat­ing, and air-con­di­tion­ing sub­con­tract­or cre­den­tials to its sys­tem. The hack­ers stole those cre­den­tials from the vendor, and then they placed a vir­us in Tar­get’s re­gisters that al­lowed them to ob­tain pay­ment in­form­a­tion for every cred­it and deb­it card that was swiped.

On Nov. 30, a data-se­cur­ity firm hired by Tar­get aler­ted the com­pany about a pos­sible breach of its sys­tem, but the com­pany failed to act, ac­cord­ing to Bloomberg Busi­nes­s­week.

The FTC po­lices data se­cur­ity un­der its leg­al au­thor­ity over “un­fair” busi­ness prac­tices. Com­pan­ies have a re­spons­ib­il­ity to take “reas­on­able and ap­pro­pri­ate” steps to pro­tect the data they col­lect from con­sumers, ac­cord­ing to FTC law­yers.

The FTC has settled dozens of data-se­cur­ity cases in re­cent years with com­pan­ies in­clud­ing Twit­ter, Rite Aid, and CVS. But Wyndham, a glob­al hotel chain, is fight­ing charges that the FTC brought in 2012. The com­pany claims that the FTC’s leg­al power to go after com­pan­ies for “un­fair” prac­tices does not in­clude in­ad­equate data se­cur­ity.

A fed­er­al court in New Jer­sey is ex­pec­ted to rule on the case soon. If the court sides with Wyndham, it could strip the FTC of power to over­see data se­cur­ity.

But both Leibowitz and Vladeck said they ex­pect the agency to beat back the chal­lenge from Wyndham. If the FTC loses, Con­gress could step in to re­store the FTC’s power.

Con­gress is already con­sid­er­ing le­gis­la­tion that would ex­pand the FTC’s au­thor­ity to al­low it to fine com­pan­ies for in­ad­equate data se­cur­ity. Cur­rently, the agency can force a com­pany to change its prac­tices but can­not pun­ish com­pan­ies.

The former FTC of­fi­cials as well as Edith Ramirez, the cur­rent chair­wo­man of the FTC, ar­gue that Con­gress should give the agency fin­ing au­thor­ity for data se­cur­ity.

“We as a so­ci­ety ex­per­i­ence too many data breaches, and I think there’s an un­der-de­terrence in this field,” Vladeck said. “I think com­pan­ies need to get the mes­sage.”

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