The massive data breach caused by the hacking of Target in 2013 which compromised the security of as many as a hundred million credit and debit cards resulted in banks incurring millions of dollars in costs to replace the credit and debit cards put at risk by the data breach. Although Target is still negotiating with Visa in regard to the amount that Target will reimburse Visa for these costs, Target announced recently that it had reached a settlement with MasterCard to pay nineteen million dollars to cover the costs of reissuing new cards for those people affected by the data breach.
Now a small group of banks has brought legal action to block the settlement which they allege is unfair to the banks that suffered losses as a result of having to reissue debit and credit cards. Charles Zimmerman, one of the lawyers representing the group of banks challenging the proposed settlement has said the settlement “provides paltry restitution for the substantial losses suffered.” A motion for a preliminary injunction to prevent the settlement will be heard today in federal court in Minnesota.
Regardless of the outcome of this motion hearing or any settlements between the credit card companies, Target and the credit card issuing banks, consumers are well aware that the best place to find a helping hand when it comes to security while shopping is at the end of their own arms. Part of the reason that we have had so many major retail data breaches in the last couple of years is that the United States still uses magnetic stripe technology from the 1960s rather than the modern computer chip credit cards used primarily throughout the rest of the world that is not susceptible to the type of mass retail hacks that we have seen at Target, Home Depot and others. With the new chip cards, a new number is created for every transaction for which the card is used, making it worthless for a hacker to steal the credit card’s number from a card processing machine. Regulations go into effect in October of 2015 that will require retailers to implement such smart card chip technology or be held financially responsible for all losses incurred using the magnetic stripe cards, which is why we will see retailers scrambling to meet the October 2015 deadline. Meanwhile, some stores such as WallMart have already installed the machines to use the new smart chip cards.
So what should consumers do?
First of all, never use your debit card for retail purchases. Federal law does not provide the same level of consumer protection from liability that you get with the use of a credit card. Second, you should get a new smart chip card as soon as possible and use it whenever possible. These new cards also have magnetic strips so you can still use the same card through the old style credit card processors if the store where you are shopping does not yet have card readers capable of processing the sale using the computer chip.