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Congress Caves to Businesses Who Lose Customers' Data

Democratic Measures Protect Business, Leave Consumers Naked

By Martin H. Bosworth
ConsumerAffairs.com

February 2, 2007

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In the wake of the data breach at the TJX retail company, the financial services industry is in a full-court press to spin the risk of identity theft as on the wane.

Aiding and abetting them is a compliant Congress that's proposing bills to limit or exempt companies from liability in the case of lost laptops or outside hack attacks.

A recent study conducted by Javelin Research and Strategy claimed that the overall losses to consumers from identity theft were on the decline. The total overall losses for 2006 were at $49 billion, an 11.5 percent decline from nearly $56 billion in 2005.

Javelin president James Van Dyke credited the decline to stronger awareness of identity theft among consumers and better protection measures by businesses, though he added "$49 billion is still a lot of money."

The study was commissioned in part by Visa and Wells Fargo. Wells Fargo lost a laptop containing data on customers from its mortgage division in May 2006. The laptop was apparently never found.

Visa, as the world's largest debit and credit card issuer, has been at the center of the biggest data breaches in recent memory, ranging from the TJX breach, to the breach of a payment processor for Citibank, back to the infamous outside hack of defunct payment processor CardSystems, although Visa itself has not been blamed for any of the incidents.

The Javelin strategy follows another study by the Identity Theft Assistance Center (ITAC), a cleverly-named organization funded by financial industry heavyweights such as Bank of America and Capital One. That study claimed that that two in five identity theft victims know the perpetrator of the theft -- usually a relative or close friend.

Congress Caves

Meanwhile, legislation pending in both the House and Senate would shield companies from liability in data breaches, while leaving consumers unprotected.

The bills would enable companies to exempt themselves from notifying the public if they had set up encryption on any breached or stolen technology.

House Financial Services Committee chairman Barney Frank (D-Mass.) says he will craft a bill exempting companies from reporting data breaches if they employ encryption technology to make the data "unreadable," according to the Washington Post.

Industry lobbyists are pushing hard for the "encryption exemption," glossing over the possibility that a company could simply lie about its stolen data being encrypted or otherwise protected.

Frank also said that retailers should notify banks immediately in the case of a breach, rather than letting law enforcement make their investigations first.

Frank's bill is similar to Senate legislation proposed by Dianne Feinstein (D-Calif.).

Feinstein's bill would also preempt state laws on breach notifications or security freezes, making it immensely unpopular with consumer advocates and those who believe that laws enacted by state legislatures should not be cavalierly pre-empted by the one-stop-lobbying center known as the United States Congress.

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