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Cyber Breaches Prompt Questions of When to Warn

On Wednesday, Target and Neiman Marcus executives testified before a House Energy and Commerce subcommittee on cyber crime and consumer data protection.

WASHINGTON — A Target executive told a Congressional panel Wednesday that a national federal breach-notification standard would be better than a patchwork of state laws that retailers must meet when data security breaches are discovered and consumer financial and personal data are compromised.

This story first appeared in the February 6, 2014 issue of WWD.  Subscribe Today.

Target Corp. and Neiman Marcus Group executives testified before a House Energy and Commerce subcommittee on cyber crime and consumer data protection — marking the second hearing in two days — as lawmakers in both chambers explore ways to craft legislation to combat cyber crime and develop national standards and a uniform data-breach notification requirement.

Illinois Attorney General Lisa Madigan criticized the security systems of U.S. companies and their ability to protect consumer data in her testimony before the panel, and noted that her office has joined that of Connecticut Attorney General George Jepsen in launching a multistate investigation into the data breaches at Target, Neiman Marcus and Michaels Stores.

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Lawmakers are probing how the data security breaches at Target and Neiman Marcus happened, whether the companies notified the public quickly enough about compromised personal information and payment cards, and whether federal legislation should be devised to create national standards and strengthen enforcement of data security breaches in the private sector.

Rep. Gus Bilirakis (R-Fla.) asked executives from both retailers whether they supported a national standard on security-breach notification, which was at the heart of the two days of Congressional hearings.

“Given that [46 states and the District of Columbia] in the U.S. and its territories have developed data-breach notification laws with different requirements — standards of harm and definitions of personally identifiable information — do you or your companies find it difficult to navigate through very different standards?” Bilirakis asked.

“It’s my understanding the majority of the [state] statutes provide for broad public disclosure and we provided broad public disclosure on Dec. 19,” said John J. Mulligan, Target’s executive vice president and chief financial officer, noting that the company disclosed the breach in major newspapers and also provided notices via e-mail to 17 million of its customers.

Target reported the breach in December, which it initially said affected 40 million consumers who purchased goods in stores and potentially had their debit and credit card information stolen. The retailer later said another 70 million consumers may have had personal data such as their names, addresses, e-mail addresses and phone numbers stolen.

“Certainly one standard would be easier to follow than 47, but we complied with all 47 state statutes,” Mulligan said.

Michael R. Kingston, senior vice president and chief information officer at Neiman Marcus, said he didn’t have an “opinion” on a national standard but warned that any legislation should be “flexible” as merchants try to defend against highly sophisticated malware attacks.

“I would say that it’s important there be flexibility with whatever [legislative] standards we have because I do think these investigations, these events are different and on a case-by-case basis need to be handled differently,” he said.

Neiman Marcus Group Ltd. LLC disclosed its data security breach on Jan. 10, reporting that 1.1 million payment cards may have been compromised.

The National Retail Federation has said it supports a uniform federal breach notification law that preempts the current state laws.

“There is currently no comprehensive federal law that requires companies to protect consumer or user data,” said Rep. Jan Schakowsky (D-Ill.). “Nor is there a federal requirement that companies inform their customers in the event of a data breach.…I believe it is critical that this subcommittee move forward with legislation that will ensure that best practices are followed at all retailers and that consumers are informed as soon as possible after cyber theft is discovered.

Rep. Lee Terry (R-Neb.), chairman of the Subcommittee on Commerce, Manufacturing and Trade, said he is working on legislation that would “foster quicker notification [by businesses] by replacing the multiple — and sometimes conflicting — state notification regimes with a single, uniform federal breach-notification regime.”

Edith Ramirez, chairwoman of the Federal Trade Commission, testified that the FTC wants legislation that strengthens its existing authority over data security standards, gives the FTC the ability to seek civil penalties to deter unlawful conduct and requires companies to provide notification to consumers when there is a security breach.

“Never has the need for legislation been greater,” she said. “With reports of data breaches on the rise, and with a significant number of Americans suffering from identity theft, Congress needs to act.”