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FTC imposes $10M fine against ChoicePoint for data breach

The breach resulted in the compromise of nearly 160,000 consumer records last year

January 26, 2006 12:00 PM ET

Computerworld - The U.S. Federal Trade Commission (FTC) has imposed a $10 million civil penalty against data aggregator ChoicePoint Inc. for a massive data security breach that resulted in the compromise of nearly 160,000 consumer records last year (see "ChoicePoint to tighten data access after ID theft").

In addition to the penalty, which FTC Chairman Deborah Platt Majoras described as the largest ever levied by the agency, ChoicePoint has been asked to set up a $5 million trust fund for individuals who might have become victims of identity theft as a result of the breach.

As part of its agreement with the FTC, Alpharetta, Ga.-based ChoicePoint will also have to submit to comprehensive security audits every two years for the next 20 years.

"This is an important victory for consumers," Majoras said. "This tells companies that they must protect sensitive consumer information. They must guard the front door as well as guard the back door against hackers."

ChoicePoint provides data to credit providers, government agencies, landlords and others who use personal information to process loans, leases and other contracts. In a statement today (download PDF), Derek V. Smith, the company's chairman and CEO, said the incident "provided critical lessons from which ChoicePoint, and indeed the entire industry, has learned a great deal.

"The men and women of this company take nothing more seriously than their responsibility to safeguard consumer information and, as a direct result of those lessons learned, we have for the past several months been in the process of implementing nearly all the changes reflected into today's settlement," Smith said.

ChoicePoint publicly acknowledged the data theft last February, but the incident itself took place in the fall of 2004. At the time it made the breach public, ChoicePoint said the theft happened when "a small number of very well-organized criminals posed as legitimate companies to gain access to personal information about consumers."

It also said later that it was taking steps to better protect customer data, pointing to a "rigorous re-credentialing of broad categories of customer accounts" as well as changes including masking or truncating sensitive personal identifier information such as Social Security numbers and driver's license numbers.

The $10 million penalty is being levied for violations of the Fair Credit Reporting Act (FCRA), Majoras said. Though ChoicePoint collected and maintained billions of pieces of consumer data -- including consumer names, Social Security numbers, and bank and credit card information -- the company failed to implement reasonable procedures for protecting the data, she said.

In its decision, the FTC slammed ChoicePoint, saying that it did not have reasonable procedures

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