Congress Looks for Answers on Big Data Breaches

Americans worried about their credit card security heard for the first time Tuesday from executives at hacked retailers, and their message was two-fold. First, they’re sorry. And second, the attacks on computers at Target, Neiman Marcus, and many other retailers are different than any other they’ve faced.

Target Chief Financial Officer John Mulligan and Neiman Marcus Chief Information Officer Michael Kingston testified before the Senate Judiciary Committee in front of a packed hearing room — some frustrated would-be observers were left out in the hallway. The hearing was the second of three to be held by Congress this week that will examine the ongoing massive credit card heists. On Monday, the payments industry spoke before the Senate Banking Committee; on Tuesday, retailers had their turn.

Target’s Mulligan began by saying his firm was “deeply sorry…we know this breach has shaken (consumers’) confidence.” He offered a brief accounting of the attack, but provided no new details.

Kingston didn’t offer many insights into the still-burning questions around the hacks — who did it, and how. But he did try to cast the retailers as victims of an attack that few, if any, companies could have withstood.

“No system — no matter how sophisticated — is completely immune from cyber attack,” Kingston told the committee. The malware used “had a zero percent anti-virus detection rate.”

A Safer System?

Much of the hearing was spent discussing the pros and cons — mostly, the pros — of switching to smarter credit cards with embedded security chips, essentially copying the so-called EMV system used in Europe. Target said it planned to spend $100 million to upgrade its systems and make them chip-ready.

There is a billion-dollar chicken-and-egg question surrounding the upgrade, however. Chip-enabled card readers at stores are useless unless banks issue new cards with embedded chips; and those cards are useless to fight fraud unless retailers have the chip card readers.

“To prevent this from happening again, none of us can go it alone. We need to work together,” Mulligan said.

It’s unclear whether retailers and banks will have an easy time with that, however. Banks had earlier gone on the offensive, with one industry group publicly saying that retailers often don’t even comply with today’s less arduous standards.

“Nearly every retailer security breach in recent memory has revealed some violation of industry security agreements,” the Independent Community Bankers association said last month, according to the Associated Press. “In some cases, retailers haven’t even had technology in place to alert them to the breach intrusion, and third parties like banks have had to notify the retailers that their information has been compromised.”

Talk of Tougher Laws

While speaking to banking officials on Monday, Senate banking committee members wondered out loud about what kind of federal legislation they could pass that would impact cybersecurity and credit cards. Sen. Elizabeth Warren (D-Mass.) said she favored giving new powers to the Federal Trade Commission so it could issue fines or take other punitive measures against firms that fail to protect consumer data.

“This is a real problem that the FTC’s enforcement authority in this area is so limited,” Warren said Monday, according to Bloomberg. “Data-security problems aren’t going away on their own so Congress really needs to consider whether to strengthen the FTC’s hand.”

The most likely action Congress can take will be passage of a federal law requiring firms that lose data to tell consumers. Currently, only state laws and certain industry-specific rules — such as health care — have such requirements. Congress has been considering such legislation for years. With consumers actually shying away from Target and potentially other retailers because of the attacks, doing something to restore trust is essential, said Senator Patrick Leahy (D-Vt.), chair of the committee.

“Public confidence is crucial to our economy. If consumers lose faith in business’ ability to protect their personal information, our economic recovery will falter,” he said.

Kingston and Mulligan are scheduled to testify again on Wednesday in front of the House Commerce Committee.