MINNEAPOLIS — Target says that about 40 million credit and debit card accounts may have been affected by a data breach that occurred just as the holiday shopping season shifted into high gear.
The chain said that accounts of customers who made purchases using their cards at its U.S. stores between Nov. 27 and Dec. 15 may have been exposed. The stolen data includes customer names, credit and debit card numbers, card expiration dates and the three-digit security codes located on the backs of cards.
The Minneapolis company said it immediately told authorities and financial institutions once it became aware of the breach and that it is teaming with a third-party forensics firm to investigate the matter and prevent future breaches. It. said it is putting all "appropriate resources" toward the issue.
Target Corp. advised customers to check their statements carefully. Those who suspect there has been unauthorized activity on their cards should report it to their credit card companies and call Target at 866-852-8680. Cases of identity theft can also be reported to law enforcement or the Federal Trade Commission.
Target didn't say exactly how the data breach occurred, but said it had since fixed the problem and that credit card holders can continue shopping at its stores.
But news of the breach comes at the height of the holiday shopping season and threatens to scare away shoppers worried about the safety of their personal data.
Target is just the latest retailer to be hit with a data breach problem. TJX Cos., which runs stores such as T.J. Maxx and Marshall's, had a breach that began in July 2005 that exposed at least 45.7 million credit and debit cards to possible fraud. The breach wasn't detected until December 2006. In June 2009 TJX agreed to pay $9.75 million in a settlement with multiple states related to the massive data theft but stressed at the time that it firmly believed it did not violate any consumer protection or data security laws.
An even larger hack hit Sony in 2011. It had to rebuild trust among PlayStation Network gamers after hackers compromised personal information including credit card data on more than 100 million user accounts. Sony was criticized for slowness in alerting users to the breach.
"Target's first priority is preserving the trust of our guests and we have moved swiftly to address this issue, so guests can shop with confidence. We regret any inconvenience this may cause," Chairman, President and CEO Gregg Steinhafel said in a statement Thursday.
Target has 1,797 U.S. stores and 124 in Canada.
The data breach did not affect online purchases, the company said.
Here are some answers to the most common questions about the theft:
Q: I shopped at Target during that time. What should I do?
A: Check your credit card statements carefully. If you see suspicious charges, report the activity to your credit card companies and call Target at 866-852-8680. You can report cases of identity theft to law enforcement or the Federal Trade Commission.
You can get more information about identity theft on the FTC's website at www.consumer.gov/idtheft, or by calling the FTC, at (877) IDTHEFT (438-4338).
Q: How did the breach occur?
A: Target isn't saying how it happened. Industry experts note that companies such as Target spend millions of dollars each year on credit card security, making a theft of this magnitude particularly alarming.
Avivah Litan, a security analyst with Gartner Research, says given all the security, she believes the breach may have been an inside job.
Litan says Target's breach suggests that current security standards aren't working.
"It's really a wake-up call to the banking industry, but they never seem to wake up," she said.
James Lyne, global head of security research for the computer security firm Sophos, says something clearly went wrong with Target's security measures.
"Forty million cards stolen really shows a substantial security failure," he says. "This shouldn't have happened."
Q: Who pays if there are fraudulent charges on my account?
A: The good news is in most cases consumers aren't on the hook for fraudulent charges.
Credit card companies are often able to flag the charges before they go through and shutdown your card. If that doesn't happen, the card issuer will generally strip charges you claim are fraudulent off your card immediately.
And since the fraud has been tied to Target, it'll be the retailer that ultimately compensates the banks and credit card companies.
Q: How much is this going to cost Target?
A: It's too soon to tell. In addition to the fraud-related losses, banks may start charging Target a higher merchant discount rate, which is the amount retailers pay banks for providing debit and credit card services. While the percentage difference may be tiny, it could result in steep costs given the volume of transactions Target does, Litan said.
Litan added that the company could also face class action lawsuits from consumers, though most of them will be meritless, and fines from federal agencies. When combined, the costs of the breach could be so steep that they actually prompt Target to raise prices., she said.
"The real winner in this is Wal-Mart," she said.
Q: How can I protect myself?
A: Like they say, cash is king. You can only lose what you're carrying, though admittedly many people may not feel safe walking around with a wad of bills in their pocket.
As stated before, credit card companies don't hold consumers liable for charges they don't make. Usually the worst thing consumers have to deal with is the hassle of getting a new credit card.
And the paper trail generated through credit card transactions can often make it easier do things such as return items you've purchased, or keep track of work-related expenses.
It's worth noting that while debit cards offer many of the same perks as credit cards, without the worry that you'll spend more than what's in your bank account, they often don't come with the same kind fraud protections.
As a result, those card holders may have a tougher time getting their money back if their number is stolen.
Q: How can future breaches be prevented?
A: Litan said an easy way to prevent fraud would be to eliminate the use of easily cloned magnetic strip cards and upgrade to the kind of microchip technology used in most other parts of the world.
But she said that banks have pushed back against the idea, because the microchip cards costs significantly more than the magnetic strip version and changing over all of the country's ATMs could drive the total costs into the billions of dollars.
Lyne said it's unclear if the use of microchip cards would have prevented the Target breach, since it's unclear how it happened, but that it certainly wouldn't hurt.
Q: Why is the Secret Service investigating?
A: While it's most famous for protecting the president, the Secret Service also is responsible for protecting the nation's financial infrastructure and payment systems. As a result, it has broad jurisdiction over a wide variety of financial crimes. It isn't uncommon for the agency to investigate major thefts involving credit card information.