Monday, March 20, 2006

Debit-card fraud demonstrates legal loopholes has published an article that suggests the lack of disclosure related to the recent spate of debit card fraud can be traced to a loophole in the California privacy law and the other state laws that are based upon it:

Debit-card fraud underscores legal loopholes:

Despite security-breach notification laws on the books in 23 states, credit-card companies and financial institutions have not named the sources of the breaches.

"There are few details of these leaks because credit-card companies do not want people to lose confidence in debit cards," said Beth Givens, executive director of the consumer advocacy group Privacy Rights Clearinghouse.

The mystery surrounding the data breaches underscores loopholes within the state laws which aim to mandate the disclosure of security breaches. Moreover, the silence over responsibility for the breaches contrasts consumer advocates' warnings that a federal law currently being considered by Congress will ironically roll back protections even further.

There are three cases in which a company suffering a breach can bypass current notification laws, all of which have some basis in the legislation first drafted in California, security and legal experts told SecurityFocus.

A company suffering a data breach can delay notification during a criminal investigation by law enforcement. If the stolen data includes identifiable information--such as debit card account numbers and PINs--but not the names of consumers, then a loophole in the law allows the company who failed to protect the data to also forego notification. Finally, if the database holding the personal information was encrypted but the encryption key was also stolen, then the company responsible for the data can again withhold its warning.

In those cases, "they have no obligation to notify," said Avivah Litan, vice president of security and privacy research for business analysis firm Gartner. "The bottom line is that they escaped the disclosure law--at least for now."

Moreover, it's unlikely that credit-card companies will risk harming their clients by disclosing the identity of companies that fail to take responsibility for breaches, Litan said. While major credit-card companies and banks have warned partners and consumers of recent breaches in general terms, business pressures leave the companies unlikely to out partners, even if the companies are violating the spirit of disclosure laws."

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