2 March 2006

[Federal Register: March 2, 2006 (Volume 71, Number 41)]
[Page 10686-10687]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



[File No. 052 3148]

CardSystems Solutions, Inc.; Analysis of Proposed Consent Order 
To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.


SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before March 27, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``CardSystems Solutions, File No. 052 3148,'' 
to facilitate the organization of comments. A comment filed in paper 
form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room 135-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form as part of or as an attachment to e-mail messages 
directed to the following e-mail box: consentagreement@ftc.gov.

    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).

    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 

makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm

FOR FURTHER INFORMATION CONTACT: Jessica Rich or Alain Sheer, Bureau of 
Consumer Protection, 600 Pennsylvania Avenue, NW., Washington, DC 
20580, (202) 326-3224.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for February 23, 2006), on the World Wide Web, at http://www.ftc.gov/os/2006/02/index.htm.
 A paper copy can be obtained from the FTC Public 

Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, a consent agreement from CardSystems Solutions Inc. 
(``CardSystems'') and its successor, Solidus Networks, Inc., doing 
business as Pay By Touch Solutions (``Pay By Touch'').
    The consent agreement has been placed on the public record for 
thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement and take appropriate action or make final 
the agreement's proposed order.
    According to the Commission's proposed complaint, CardSystems 
provides merchants with products and services used in ``authorization 
processing''--obtaining approval for credit and debit card purchases 
from banks that issued the cards. Last year, it processed about 210 
million card purchases, totaling more than $15

[[Page 10687]]

billion, for more than 119,000 small and mid-size merchants. In the 
course of processing these credit and debit card purchases, CardSystems 
collected and stored personal information about consumers, including 
card number and expiration date and other information, from magnetic 
stripes on the cards. Pay By Touch acquired CardSystems' assets on 
December 9, 2005, at which time CardSystems ceased doing business. Pay 
By Touch uses CardSystems' former employees, equipment, and technology 
to process transactions for the same merchants CardSystems served.
    The Commission's proposed complaint alleges that CardSystems stored 
personal information on computers on its computer network and failed to 
employ reasonable and appropriate security measures to protect the 
information. The complaint alleges that this failure was an unfair 
practice because it caused or was likely to cause substantial consumer 
injury that was not reasonably avoidable and was not outweighed by 
countervailing benefits to consumers or competition. In particular, 
CardSystems engaged in a number of practices that, taken together, 
failed to provide reasonable and appropriate security for personal 
information stored on its computer network. Among other things, it: (1) 
Created unnecessary risks to the information by storing it; (2) did not 
adequately assess the vulnerability of its computer network to commonly 
known or reasonably foreseeable attacks, including but not limited to 
``Structured Query Language'' injection attacks; (3) did not implement 
simple, low-cost, and readily available defenses to such attacks; (4) 
failed to use strong passwords to prevent a hacker from gaining control 
over computers on its computer network and access to personal 
information stored on the network; (5) did not use readily available 
security measures to limit access between computers on its network and 
between such computers and the Internet; and (6) failed to employ 
sufficient measures to detect unauthorized access to personal 
information or to conduct security investigations.
    The complaint further alleges that several million dollars in 
fraudulent purchases were made using counterfeit copies of credit and 
debit cards that contained the same personal information CardSystems 
had collected from the magnetic stripes of credit and debit cards and 
then stored on its computer network. After discovering the fraudulent 
purchases, banks cancelled and re-issued thousands of these credit and 
debit cards, and consumers holding these cards were unable to use them 
to access credit and their own bank accounts.
    The proposed order applies to personal information from or about 
consumers that CardSystems and Pay By Touch (as CardSystems' successor) 
collect in connection with authorization processing. The proposed order 
contains provisions designed to prevent them from engaging in the 
future in practices similar to those alleged in the complaint.
    Part I of the proposed order requires CardSystems and Pay By Touch 
to establish and maintain a comprehensive information security program 
in writing that is reasonably designed to protect the security, 
confidentiality, and integrity of personal information they collect 
from or about consumers. The security program must contain 
administrative, technical, and physical safeguards appropriate to their 
size and complexity, the nature and scope of their activities, and the 
sensitivity of the personal information collected. Specifically, the 
order requires CardSystems and Pay By Touch to:
     Designate an employee or employees to coordinate and be 
accountable for the information security program.
     Identify material internal and external risks to the 
security, confidentiality, and integrity of consumer information that 
could result in unauthorized disclosure, misuse, loss, alteration, 
destruction, or other compromise of such information, and assess the 
sufficiency of any safeguards in place to control these risks.
     Design and implement reasonable safeguards to control the 
risks identified through risk assessment, and regularly test or monitor 
the effectiveness of the safeguards' key controls, systems, and 
     Evaluate and adjust their information security program in 
light of the results of testing and monitoring, any material changes to 
their operations or business arrangements, or any other circumstances 
that they know or have to reason to know may have a material impact on 
the effectiveness of their information security program.
    Part II of the proposed order requires that CardSystems and Pay By 
Touch obtain within 180 days, and on a biennial basis thereafter, an 
assessment and report from a qualified, objective, independent third-
party professional, certifying, among other things, that: (1) They have 
in place a security program that provides protections that meet or 
exceed the protections required by Part I of the proposed order, and 
(2) their security program is operating with sufficient effectiveness 
to provide reasonable assurance that the security, confidentiality, and 
integrity of consumers' personal information has been protected.
    Parts III through VII of the proposed order are reporting and 
compliance provisions. Part III requires CardSystems and Pay By Touch 
to retain documents relating to their compliance with the order. Part 
IV requires dissemination of the order now and in the future to persons 
with responsibilities relating to the subject matter of the order. Part 
V requires them to notify the Commission of changes in their corporate 
status. Part VI mandates that CardSystems and Pay By Touch submit 
compliance reports to the FTC. Part VII is a provision ``sunsetting'' 
the order after twenty (20) years, with certain exceptions.
    This case is similar to the recent FTC cases against BJ's Wholesale 
Club and DSW Inc., which also involved alleged failures to secure 
credit and debit card information. As in those cases, CardSystems faces 
potential liability in the millions of dollars under bank procedures 
and in private litigation for losses related to the breach.
    The purpose of this analysis is to facilitate public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the proposed order or to modify its terms in any way.

    By direction of the Commission, with Commissioner Harbour 
Donald S. Clark,
[FR Doc. E6-2934 Filed 3-1-06; 8:45 am]