By Ellen Nakashima
Washington Post Staff Writer
Thursday, February 22, 2007
Retail giant TJX, whose stores include discount clothing chains T.J. Maxx and Marshalls, said yesterday that a computer-security breach stretched back 10 months earlier than the company originally thought, compromising credit and debit card data, drivers' license numbers, and names and addresses.
The announcement underscores a trend of security breaches involving sensitive credit card data and reflects failures to properly secure computer systems, to notify customers when breaches occur and to update laws for the cyber-crime age, lawmakers and analysts said.
TJX said that while it first thought the intrusion took place from May 2006 to January 2007, it now thinks its computer system was also hacked in July 2005 and on "various subsequent dates" that year. The company, which reported the intrusion in January -- a month after it said it discovered the breach -- has not said how many customers may have been affected or how many customers it has notified.
"We don't have a number for you there. Our work is not finished," spokeswoman Sherry Lang said yesterday. More than 50 computer experts are helping TJX investigate the breaches, she said.
Banks that issued the credit cards have not said how much they have had to cover in fraud-related losses.
More than 30 states have laws that require companies to notify customers as soon as possible when a breach has occurred, though most of the statutes let companies delay notification while law enforcement agencies investigate. A bipartisan group of senators has reintroduced legislation that would mandate customer notification and require companies that maintain personal information to establish internal policies to protect it.
"Americans live in a world where their most sensitive personal information can be accessed and sold to the highest bidder, with just a few keystrokes on a computer, yet our privacy laws haven't kept pace," Sen. Patrick J. Leahy (D-Vt.) said in a statement when the legislation was reintroduced this month.
The credit card industry has set up rules for data protection called the Payment Card Industry Data Security Standard. They include encrypting transmission of cardholder data, regularly testing security systems and processes, and restricting access to data to those with a "need to know."
But most large retailers have not complied with the standard, and noncompliance is about 80 percent among smaller retailers, said Avivah Litan, an analyst with Gartner, an information technology research firm.
Litan said the retailers are not solely to blame. "It's a collective problem with collective responsibility," she said. "Certainly the retailers have to tighten up their systems, but the banks have to strengthen cardholder authentication so even if the data is stolen, it's useless."
Security breaches are difficult to quantify accurately. The Privacy Rights Clearinghouse, a nonprofit research and advocacy group in San Diego, said more than 100 million records of U.S. residents have been exposed by security breaches since February 2005.
The privacy group and the nonprofit Identity Theft Resource Center, also in San Diego, found that the majority of breaches they have tracked in the past few years occurred in government, the military and universities.
One of the biggest breaches occurred in 2005, when 40 million credit card numbers, along with name and account information, were exposed by hackers who broke into CardSystems Solutions, a credit card processing center that handled transfers of payments between the banks that issue credit cards and the merchants' banks.
Retailers often keep more data than necessary to process transactions, Litan said. They also keep information longer than necessary, she said.
"The CEOs and senior managers of most retailers that are storing data, like TJX, have no idea they're storing that data," Litan said. "It's basically a legacy of old systems programming." Many retailer systems were built in the 1970s and '80s, before there were hackers.
Many banks are frustrated because they are "left having to pay for the mistakes of retailers," to cover reissuing cards and any losses due to fraud, said Nessa Feddis, senior federal counsel for the American Bankers Association.
"Retailers are not protecting the data," she said. "It's not a question of notification. It's a responsibility to protect the data."
The bankers typically do not know the scope of retailer breaches because of confidentiality agreements between the retailers and the issuing card companies, such as Visa and MasterCard.
In Massachusetts, where TJX is headquartered, the Massachusetts Bankers Association stopped surveying its members in connection with the TJX breach after more than 30 banks were alerted by Visa and Master Card that their cards had been compromised by the TJX intrusion, association spokesman Bruce Spitzer said.
TJX operates more than 2,400 stores in the United States, Canada and Europe. They accept Visa, MasterCard, American Express and Discover credit cards.
The company reported yesterday that same-store sales in the fourth quarter rose 5 percent from the comparable quarter a year earlier. The quarter ended Jan. 27, 10 days after the breach was disclosed.
TJX, which is being sued by customers and banks, also reported that it spent $5 million in the fourth quarter to cover costs of the investigation, enhance computer security and communicate with customers.
Fourth-quarter profit fell 29 percent, to $205.5 million. Sales rose 9 percent, to $5.1 billion. For the full fiscal year, TJX profit rose 7 percent, to $738 million. Sales rose 9 percent, to $17.4 billion.