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Court gives preliminary OK to $4M consumer settlement in Heartland case

Payment processor agrees to reimburse consumers for costs associated with 2009 breach

May 7, 2010 02:43 PM ET

Computerworld - A federal court in Texas has given preliminary approval to a $4 million settlement of a consumer class-action lawsuit against Heartland Payment Systems Inc. over the massive data breach the payment processor disclosed in January 2009.

Under the proposed settlement, Heartland will pay up to $175 to individuals for out-of-pocket expenses stemming from telephone usage or postage costs tied to card cancellations and replacement, or for any unreimbursed charges resulting from unauthorized use of their cards.

Victims of identity theft resulting from the Heartland data breach will be eligible for a compensation of up to $10,000. As part of the agreement, Heartland will set aside $2.4 million to fund consumer claims arising from the breach. Any funds that remain unclaimed will be given to a nonprofit consumer privacy organization.

All costs associated with notifying consumers of the settlement will be borne by Heartland. Attorneys representing class members will receive a total of $725,000. The named consumer plaintiffs in the case, meanwhile, will receive between $100 and $200.

The settlement was approved by the U.S. District Court for the Southern District of Texas late last month. The court's approval allows Heartland to notify consumers of the proposed settlement. A final hearing on the reasonableness and adequacy of the settlement is scheduled for December.

News of the approval was first reported by Bankinfosecurity.com on Thursday.

Princeton, N.J.-based Heartland, one of the largest processors of payment card transactions in the country, last January disclosed that hackers had broken into its systems and stolen credit and debit card data. Authorities later disclosed that data on as many as 130 million credit and debit cards had been stolen in the breach making it the largest of its kind. Heartland's main data center, which is also the one that was breached, is located in Texas.

A gang of cyberthieves, led by Miami-based Albert Gonzalez, was later identified as being responsible for the break-in at Heartland and other merchants, including TJX and BJs Wholesale Club. Gonzalez was sentenced in March to 20 years in federal prison. Other members of his gang received varying terms. Some are still waiting to be sentenced.

The breach spawned a flurry of lawsuits against Heartland by banks and consumers seeking compensation for breach-related costs. The cases were consolidated and split into two streams, one focused on consumer claims and the other on claims by financial institutions.

In January, Heartland agreed to set aside $60 million to reimburse banks issuing Visa cards, for breach related costs. That settlement however was quickly criticized by lawyers for some banks who claimed the amount was not nearly enough to cover the expenses suffered by banks as a result of the breach. Some argued that the proposed offer was even less than Visa's own internal estimates which pegs financial damages to banks as a result of the breach at $140 million.

Heartland also has agreed to pay $3.6 million to settled claims brought against it by American Express.

The proposed $4 million to settle consumer claims, on the other hand, appears to have garnered broad support from the plaintiffs in the case. In a memorandum asking the court to approve it, lawyers for the plaintiffs called the proposed settlement an "excellent" one for consumers. Typically, courts have tended to dismiss consumer class-action lawsuits in data breach cases involving payment card data. By that measure, Heartland's settlement offer is unusual even though it might appear small considering the number of cards that were compromised.

Jaikumar Vijayan covers data security and privacy issues, financial services security and e-voting for Computerworld. Follow Jaikumar on Twitter at Twitter @jaivijayan or subscribe to Jaikumar's RSS feed Vijayan RSS. His e-mail address is jvijayan@computerworld.com.

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