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Banks, credit unions scramble in wake of Heartland breach

Several have begun reporting fraud associated with exposed cards

January 27, 2009 12:00 PM ET

Computerworld - In the first real indication of the scope of the recently disclosed data breach at Heartland Payment Systems Inc., banks and credit unions from Washington to Maine have begun to reissue thousands of credit and debit cards over the past few days.

Several have also begun disclosing fraud associated with payment cards that were reported to them by Visa and MasterCard as having been exposed in the breach.

A Pennsylvania law firm today filed the first class-action lawsuit related to the breach. Chimicles & Tikellis LLP in Haverford, Pa., filed the lawsuit on behalf of Alicia Cooper, a resident of Woodbury, Minn., and others who might have been affected by the breach.

The complaint, filed in the U.S. District Court for the District of New Jersey in Trenton, alleges that Cooper, whose card was compromised in the breach, and others, were victims of Heartland's negligence in protecting cardholder data. The lawsuit, which calls for a jury trial, charged Heartland with breach of contract, breach of implied contract and breach of fiduciary contract for the breach.

The compromise has pushed the Washington Credit Union League (WCUL) in Federal Way, Wash., to revive legislation that would mandate specific data protection controls on all merchants and third parties, such as Heartland, that process payment card data. The bill (HB 1149) received its first hearing last Thursday in the Washington State House Committee on Financial Institutions and Insurance, according to a statement released by the WCUL.

Heartland, a Princeton, N.J.-based processor of payment card transactions, disclosed last Tuesday that its systems had been broken into by unknown intruders sometime last year. The company claimed that the intrusion -- which some are calling the biggest ever -- was discovered only earlier this month. Visa and MasterCard alerted Heartland of suspicious transaction activity, triggering Heartland to conduct its own forensic investigation, during which the intrusion was discovered.

The company said that intruders planted sophisticated sniffer software in its network and stolen data as cards were being processed.

Heartland has not yet released any information on the number of cards exposed in the intrusion. But the fact that the company processes more than 100 million transactions per month for over 250,000 customers has sparked speculation that the breach might be even bigger than the one disclosed by The TJX Companies Inc. in which more than 45 million payment cards were compromised.

Since its disclosure, a growing number of financial institutions across the country have begun notifying their customers of their cards being potentially compromised as a result of the breach. In most cases, the compromises result in the cards being blocked and recalled by the financial institutions. A small sample of those making such announcements included the following:

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