FDIC Wants Banks to Notify Customers of Identity Theft
The ruling follows several highly publicized consumer privacy breaches that were disclosed over the last few weeks, including the loss of backup tapes containing the credit card information of 1.2 million federal workers by Bank of America; the loss of 145,000 customers' personal information to identity thieves at ChoicePoint, an aggregator and reseller of personal information; the loss and possible theft of customer credit card information from over 100 DSW Stores, a nationwide shoe retailer; and the disclosure from Lexis-Nexis, a compiler of legal and consumer information, that the Social Security numbers, names and addresses of 30,000 people may have been stolen by identity thieves.
The FDIC decision comes at a time when lawmakers in Washington, DC are mulling legislation that could force companies to disclose material breaches of customer information. The FDIC proposal is somewhat similar to California's Information Practice Act (A.K.A. SB 1386) which mandates similar public disclosure for companies that have exposed California residents to privacy breaches, although whereas SB 1386 requires companies to disclose all breaches, the proposed FDIC rule would only require banks to disclose breaches in which they believe customers' private information was misused.
"The FDIC ruling, if approved by the Federal Reserve, could cause a significant increase in identity theft disclosures," said Stickley, a banking security expert and the Chief Technology Officer for TraceSecurity.
"Today, most large-scale identity thefts go unreported, either because the bank wants to avoid tarnishing their reputation or because they are simply unaware of the breaches. Many banks employ archaic data privacy practices that haven't kept pace with the evolving threats. The exploits of identity thieves, however, which are often coordinated by international crime syndicates, have become increasingly creative and sophisticated. Many banks are caught in a catch-22 situation: Their customers are demanding greater online access to a broader range of financial services, yet as banks make their services available online to customers, they're also making them available to thieves."
"There's no single silver bullet that can eliminate identity theft," concludes Stickley. "Based on our experience, the banks that do the best job of protecting their customers' information are the banks that view information security not as a static one-time fix, but as a regularly monitored business process that requires continuous improvement. Information security must become infused directly into every facet of the business, governing everything from policies and procedures for how the receptionist greets front desk visitors, to how waste paper is shredded, to how software engineers design and test the guts of online banking applications."