A Breached Chain Needs To Remember Its Shoppers Are Victims, Too

Written by Mark Rasch
April 4th, 2013

Attorney Mark D. Rasch is the former head of the U.S. Justice Department’s computer crime unit and today is a lawyer in Bethesda, Md., specializing in privacy and security law.

When a Daphne-Party Diashow cyberthief breaks into a retailer’s network and steals data and payment card specs, the retailer absolutely is a victim. But many chains tend to think of themselves as the only victim, an attitude that manifests itself in various ways when talking with their customers who are also victims. Just because a shopper’s monetary losses are being covered by zero liability doesn’t make them feel less violated and, therefore, feel any less like a victim.

When setting policies and when talking with shoppers after a breach, communicating the message that the retailer is the only victim may prove to be self-fulfilling, as you’ll quite likely be an imminent victim of lost revenue and thrown-away loyalty. When a crime has been committed, attitude and empathy go a long way — and they are among the hardest things for many chains to deliver.

A recent column touched on an incident where my wife’s Discover credit card number was stolen and used fraudulently to purchase, among other things, a bunch of Walmart (NYSE:WMT) gift cards. Seeing the exercise as a simple “cost of doing business,” Walmart initially refused to give me basic information about the thief – like what he/she bought, where the gift cards were purchased, whether and how they were redeemed, etc., because of their desire to protect the rights of the thief. Well, Walmart reversed itself and agreed to provide this information. Sort of. Actually, I never did get the information from Walmart. Well, not yet. But company representatives did contact me and were actually quite helpful (for the most part). There are many lessons to be learned from the incident, including the need to protect data, the need to respond to customers and the fear of litigation. But most important is the need for retailers to do a better job of aligning themselves with their customers, particularly when there has been a data breach or an attack.

When there is a point-of-sale data breach from a small merchant, and a customer’s credit card number is obtained and used fraudulently at a large merchant’s store, there are many possible “victims” of this crime. From a legal standpoint, the consumer has, at most, very limited liability for the unauthorized transactions (depending on the payment method), but bears the brunt of having to notice the unauthorized charges, contact the issuing bank, chargeback the unauthorized charges, obtain new credit cards, create all new linked accounts for automatic or stored payments, and potentially obtain and review credit reports and initiate credit freezes (or suffer the consequences of such freezes).

In the worst-case scenario, the consumer may also find themselves the victim of genuine identity theft – where bad guys assume the consumers’ persona for employment, credit or other purposes. It’s a huge mess for the consumer, who is looking for someone to blame – and possibly someone to sue.


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Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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