Data Resellers Liable for Downstream Security Failures

Of course, no legitimate business would put out a welcome mat for crooks.  But as the FTC’s data security cases make clear, that’s the effect when companies fail to take reasonable steps to secure sensitive information in their possession — or data they allow others to access.  Three recent settlements with companies that resell credit reports illustrate that point.

The companies contract with the nationwide credit reporting agencies to assemble data about a person in a single “trimerge report,” which they resell to mortgage brokers and others to determine credit eligibility.  The reports are a veritable all-you-can-eat buffet of sensitive data:  name, current and former addresses, Social Security number, date of birth, employment history, trade lines, account numbers — the works.  Businesses that buy the trimerge reports get them through an online portal, accessible with a user name and password.

The FTC’s complaint recaps a number of lapses in the resellers’ security practices.  What’s notable for data security watchers is that the allegations relate primarily to the resellers’ mistakes with regard to their clients’ access to the data.  For example, the FTC complaint cited their failure to take reasonable steps to assess the risks of allowing clients with unverified or inadequate security to access credit reports through the portal and their failure to maintain an effective system for monitoring clients’ access to detect suspicious activity.

When it comes to unexpected twists and turns, FTC complaints aren’t exactly M. Night Shamalayan movies.  So the alleged result of those failures shouldn’t come as a big surprise.  According to the pleadings, hackers exploited vulnerabilities in the computer networks of the resellers’ clients — and in one complaint allegation, the reseller itself — allowing the hackers access to hundreds of credit reports.  Additionally, says the FTC, hackers could take a look at any credit report the client had pulled in the past 90 days.

But the FTC’s concerns didn’t end there.  The complaint alleges that even after learning of the data breaches, the resellers didn’t take reasonable steps to protect against future breaches.  The FTC charged that the companies’ practices violated the Gramm-Leach-Bliley (GLB) Safeguards Rule, the Fair Credit Reporting Act, and Section 5 of the FTC Act.

The proposed consent orders bar future violations of the Safeguards Rule and require the companies, among other things, to:

• have a comprehensive information security program designed to protect the security, confidentiality, and integrity of consumers’ personal information, including information accessible to clients;

• get independent audits of their security programs every other year for 20 years; and

• maintain reasonable procedures to limit access to credit reports to those with a permissible purpose.

In voting to accept the proposed settlements for public comment, FTC Commissioner Brill issued a statement joined by Chairman Leibowitz, Commissioner Rosch, and Commissioner Ramirez: 

“While we view the breaches in these cases with alarm, we are also cognizant of the fact that these are the first cases in which the Commission has held resellers responsible for downstream data protection failures. Looking forward, the actions we announce today should put resellers — indeed, all of those in the chain of handling consumer data — on notice of the seriousness with which we view their legal obligations to proactively protect consumers’ data. The Commission should use all of the tools at its disposal to protect consumers from the enormous risks posed by security breaches that may lead to identity theft. In the future, we should not hesitate to use our authority to seek civil penalties under the FCRA to make the protection of consumer data a top priority for those who profit from its collection and dissemination.”

'Nuff said?