FTC: TJX “Failed To Provide Reasonable And Appropriate Security”

Written by Evan Schuman
March 28th, 2008

In the multi-year databreach at TJX—the worst in credit card history—the retail chain "created an unnecessary risk to personal information by storing it on, and transmitting it between and within, in-store and corporate networks in clear text," according to a complaint issued Thursday by the U.S. Federal Trade Commission.

That report also found that TJX "did not require network administrators and other users to use strong passwords or to use different passwords to access different programs, computers, and networks" and that it failed to "use readily available security measures to limit access" and cited one crucial example: not "using a firewall to isolate card authorization computers."

The FTC complaint also accused the chain of a failing to "employ sufficient measures to detect and prevent unauthorized access to computer networks or to conduct security investigations, such as by patching or updating anti-virus software or following up on security warnings and intrusion alerts."

Despite those conclusions—coupled with the FTC’s legal conclusion that these actions constituted "an unfair act or practice" against consumer interests—FTC staffers said they had no legal authority to fine the chain, an authority they have repeatedly—and unsuccessfully–sought from Congress.

The only actions they could take was to instruct TJX to try and do better in the future and to insist that outside assessors check the chain once every two years for the next 20 years. PCI rules already require the chain to be assessed once a year.

The difference is that the ever-other-year reports will go to FTC offices while the PCI annual reports are kept within the industry. If government lawyers don’t like the reports that TJX submits, "then action can be taken," said Alain Sheer, an attorney for the FTC’s Bureau of Consumer Protection.

What kind of action? That gets into the specifics of what is found. Legally, the FTC is limited to issuing a per-violation fine of only $11,000, according to Laura DeMartino, the unit’s assistant director for enforcement. But a "violation" can be interpreted as every day that the violation exists, DeMartino said, which could be a large number of days for a report covering a 24-month period.

The FTC’s inability to get punitive with retailers it considers acting poorly is nothing new and neither is the FTC’s internal frustration with their toothless threats.

But FTC Chairman Deborah Platt Majoras said the actions can at least get a message out to the public that someone is watching, even if there’s not much they can do.

"By now, the message should be clear: companies that collect sensitive consumer information have a responsibility to keep it secure," Majoras said. "These cases bring to 20 the number of complaints in which the FTC has charged companies with security deficiencies in protecting sensitive consumer information. Information security is a priority for the FTC, as it should be for every business in America."


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