Heartland CEO Vows To Fight MasterCard Breach Fines Of $6 Million-Plus

Written by Fred J. Aun
May 11th, 2009

Heartland Payment Systems has apparently decided that being a data breach victim doesn’t mean that it has to be victimized by the card brands. At least that’s the impression from how Heartland CEO Robert Carr is reacting to more than $6 million in fines imposed on it by MasterCard, fines that that he said were illegal and that he plans to “vigorously contest.”

Data breach victims pushing back against fines is nothing new, but a processor calling out one of the two largest card brands and doing it during a very public investor conference call, well, that’s a bit different.

The MasterCard fine represented the bulk of $12.6 million in expenses and accruals attributed to the processing system intrusion, Carr told investors.

“The smaller part of these intrusion-related expenses represent legal and other expenses related to the intrusion and less than $1 million is related to fines assessed by Visa against our sponsor banks, which fines our sponsor banks are contesting,” Carr said. “More than 50 percent of this expense, however, relates to a fine that MasterCard assessed against our sponsor banks ostensibly because of an alleged failure by Heartland to take appropriate action upon having learned that its computer system may have been breached and upon thereafter having discovered the intrusion. Heartland believes that it responded appropriately to all information that it learned regarding the possibility of a system breach and that, upon discovering the intrusion, it took immediate and extraordinary action to address the intrusion.”

Carr insisted his company “fully cooperated with MasterCard’s investigation” of the intrusion this year and in 2008. Because of that, Carr said, Heartland considers considers the Mastercard fine “to be in direct violation of both the MasterCard rules and applicable law” and he said the company is urging its sponsor banks to also “vigorously contest through all means possible,” including the courts, MasterCard’s action.

MasterCard denied that it did anything wrong, but said little beyond that. In a statement E-mailed to reporters, MasterCard spokesperson Chris Monteiro wrote that MasterCard “believes the fines it imposed were warranted and consistent with its rules.” (Interpretation: “MasterCard to Heartland: Finers Keepers, Data-Losers Weepers”)

Carr said he and his colleagues at Heartland are pleased the company was recently re-certified as PCI compliant. The CEO also pledged that the end-to-end encryption approach that he’s talked about for months will be delivered—to at least some Heartland customers—by the end of the third quarter (late September). In a series of podcasts with StorefrontBacktalk, Carr detailed exactly how Heartland’s encryption approach would work and it’s rather unorthodox key-management strategy.

In the earnings call, Carr said the payment processing industry is in the middle of a “cybercrimes arms race” and must work to stay ahead of criminals “who never rest and do not call committee meetings to update their malicious tools.” He said Heartland and other members of the payments industry are sharing information about attacks made on their systems. This is being done through the new Payments Processors Information Sharing Council, Carr said.

At a recent meeting, 30 representatives from 20 payments companies were given USB devices that included documentation and software tools for fighting system attacks. “These devices contain the malware used to attack our systems and malware from numerous other cybercrime attacks that have occurred in 2008 and 2009,” Carr said. “Software tools were also distributed so that these malware files could be located on scanned computers. This new PPISC organization had a great start and we believe it will make a significant improvement in information sharing about cybercrime attacks among payments processors and merchant acquirers.”


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Most Recent Comments

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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