Update: Security breach at Sam's Club exposes credit card data

An unspecified number of consumers have been affected by the breach

Sam's Club, a division of Wal-Mart Stores Inc., is investigating a security breach that has exposed credit card data belonging to an unspecified number of customers who purchased gas at the wholesaler's stations between Sept. 21 and Oct. 2.

In a brief statement released Dec. 2, the Bentonville, Ark.-based company said it was alerted to the problem by credit card issuers who reported that customers were complaining of fraudulent charges on their statements.

It's still not clear how the data was obtained, according to the statement. But "electronic systems and databases used inside its stores and for Samsclub.com are not involved," the company said.

Sam's Club is currently working with both Visa International Inc. and MasterCard International Inc. to investigate the breach. The company also has notified the U.S. Attorney's Office for the Western District of Arkansas and the U.S. Secret Service .

Sam's Club officials didn't respond to calls for comment.

In a statement, Visa said it has alerted all of the affected financial institutions, asked them to provide independent fraud-monitoring services to affected customers and requested that they issue new cards as needed.

"Visa will continue working with its member financial institutions, merchants and appropriate authorities to do whatever is necessary to protect cardholders," Visa said.

Kayce Bell, chief operating officer at Alabama Credit Union (ACU) in Tuscaloosa, Ala., said the company is reissuing cards to about 500 credit card and debit card holders as a result of the breach. The credit union was alerted to the problem last week by Credit Union National Association Inc., she said.

"We received information through our national reporting service that there had been a very large breach of data at Sam's Club," Bell said. About 500 debit cards and credit cards issued by ACU were among the accounts compromised in this incident, she said.

This isn't the first time this year the credit union has had to block and reissue credit and debit cards at Visa's request. Earlier this year, the ACU had to deactivate and reissue about 1,550 cards after Visa notified it that cards compromised in a CardSystems Inc. breach in June were being used fraudulently.

"I find the breach at Sam's Club to be quite surprising," said Corinne Sherman, vice president of card services at the Pennsylvania Credit Union Association. What is especially of concern is that Sam's Club appears to have stored information from both tracks of the magnetic stripe on the back of credit cards, thereby raising the potential for data thieves to create counterfeit cards, she said.

Considering the number of similar breaches that have been publicized this year, "it surprises me that large merchants like Sam's haven't rushed to secure their systems yet," Sherman said.

The fallout from such breaches is especially hard on credit unions, a vast majority of whom don't have the size and scale of larger banks, she said. The typical hard costs involved in blocking and replacing cards is around $3.50 per card, she said. But longer-term costs in terms of damage to reputation, customer churn and future fraud losses are much harder to calculate, she said.

"The average consumer doesn't understand that it was Sam's Club who was at fault and not the actual issuer of the card," she said.

The Sam's Club breach is the latest in a string of data compromises this year at organizations that have included Bank of America Corp., ChoicePoint Inc. , the University of California and CardSystems. Those breaches have fueled consumer concern about data protection and talk of legislative action to make companies more accountable for the data they own. The breaches have also resulted in Visa and MasterCard requiring all companies that handle payment-card information to comply with their Payment Card Industry (PCI) data-protection standard.

"Visa is aggressively partnering with entities across the nation to broaden adherence to these standards," the company said in its statement regarding the Sam's Club breach. "As Visa has said before, it's important that every entity that handles payment card information adhere to the highest data protection standards, such as the PCI standard, to protect the security and privacy of their customers."

Even so, such incidents are a test of how far Visa and Mastercard are willing to go to enforce the penalties associated with non-compliance -- particularly when dealing with large merchants, said an analyst at a financial services firm who requested anonymity.

"This opens up some questions on how objectively they will deal with this issue," the analyst said. "Will they pay favorable attention to large retailers like Wal-Mart but be willing in a split second to cut off the mom-and-pop liquor store" that suffers a similar security breach?

Copyright © 2005 IDG Communications, Inc.

  
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