Banks To Appeal TJX Decision

Written by Evan Schuman
December 7th, 2007

The pairing of a judge’s decision late Thursday with a Visa deal announced on Friday are the latest examples of a TJX strategy that could hardly be called anything short of brilliant.

The judge’s decision—which is not expected to be overturned, by either the appellate court or the judge himself—sets the many bank plaintiffs to fend for themselves.

They could sue in state court on their own, but that is much more expensive and time-consuming. Many of the losses claimed by individual banks were not huge, making the return-on-investment difficult for many, especially when weighed against the power of the TJX legal team. How much can a small bank afford to invest, given the decent chance that it will end up losing?

But that was ordinary courtroom skill. The brilliant touch materialized about 16 hours later, on Friday morning, when Visa issued its TJX statement. Here’s the full text of the Visa/TJX Agreement.

The Visa statement had TJX agreeing to spend an unspecified amount of money to pay an unspecified number of bank plaintiffs if they’d agree to not sue. What wonderful timing! The agreement did not say how much TJX would set aside, but did say that it wouldn’t be more than $40.9 million. It might end up being a lot less, but the only specific they released was a ceiling for the figure, hoping the less-attentive media might latch onto the $40.9 million figure as a promise.

Visa held out more of a timing carrot by saying that some banks could "receive some financial recovery this calendar year if they participate in the optional program." Let’s see. Pushing for recovery by Dec. 31 in a statement issued a day shy of Dec. 1. Think they’re being given the proverbial bank’s rush? Was that incentive date timed for a New Year’s Eve party or a filing deadline?

Here’s where the timing and the lack of specifics of the dollar amounts get interesting. Of the many plaintiff banks, quite a few are likely to surrender on their own, opting to not pursue litigation because it can’t be justified. The dollar amounts of the losses exist within deposition and discovery records, so there’s no secret there.

Will those folk be offered much? Not likely. The ones to bow out first will likely be those who sustained the lightest provable damages. It’s the remainders that will be interesting. The unspecified kitty amount will then be focused on those think they can make it on their own, with negotiations started to pay those banks just enough to kill the ROI of filing their own lawsuit.

If they negotiate conservatively, it should be just enough and they might even be able to pocket a chunk of that money.

What does this mean for retail security? Quite a bit, I’m afraid. There has always been this struggle between CIOs and CFOs surrounding security spending. Security investments are difficult to justify on an Return-on-Investment because there’s no potential profits from security. At best, it’s risk avoidance, which doesn’t impress a spreadsheet nearly as much as a marketing program claiming a potential 20 percent increase in sales.

But how much is risk avoidance worth? The problem with the TJX case is that it truly is the worst case scenario, with almost 100 million credit card accounts violated, with attackers able to have full run of the systems for years. It’s hard to dream up anything much worse, from a retail IT perspective.

And yet, TJX is coming out in awfully good shape. Federal legislation and state legislation has gone nowhere. The state Attorneys General are not expected to impose any pain. The consumer class-action lawsuit ended with something shy of a slap on the wrist—and a national discount day, a TJX marketer’s dream—and now the bank class-action effort is falling apart.

Even if TJX ends up fully funding $40.9 million, that’s hardly come to be noticed in their earnings reports. What lesson should retail CFOs take from all of that? Does this give them any fiduciary cover to approve the next security investment request? Quite the contrary.

Perhaps the most telling detail in all of this was Visa’s agreement to reduce some—and possibly all—of its $880,000 fine against TJX’s processor to help pay for this settlement bribe. The Visa fine was because of reckless conduct and blatant PCI violations. Why should that be reduced? Did Visa learn that TJX had protected its data better than it initially thought? Nope.

The symbolism is reducing that fine for this reason is telling. The next time some U.S. Senator questions whether the retail industry should be trusted to police itself, retailers had better hope this fine’s final resolution doesn’t come up.

But all is not lost. Not sure which symbolism sends the worst message. The pulling back of the fine or a new contract requirement that uses TJX as the new poster child of good retail security procedures. (Actual line from the agreement: "TJX agrees that upon Visa’s request, TJX will serve on at least four occasions during the twenty-four month period following the date of this Settlement Agreement as a spokesperson in support of the goals of the Payment Card Industry.")

Sometimes, it’s best to not say anything.


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