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Cornerstone Witness Testifies on Merchant Data Breaches Before Texas House Committee
Tuesday, April 19, 2016 7:00 AM

Testifying before the Texas House Investments and Financial Services Committee last week, Fort Worth City Credit Union President Ron Fox described the impact of data security breaches on Texas credit unions.

The committee met in Dallas to take testimony on three of their interim study charges: cybersecurity issues facing financial institutions, challenges to community banking, and start-up funding for new businesses in Texas.

Fox testified about the challenges credit unions face when data breaches occur at merchants, from monitoring card activity for fraud; costs and issues related to reissuing cards that may be compromised; fraud losses; and, because of the lack of information from merchants, the members' perception that the breach is the credit union’s fault.

The committee was also advised that the techniques criminals use when committing fraud with the stolen card info is evolving. Reports associated with the Landry's breach purport that false cards are being used in the community where the card is legitimately issued rather than being sold around the world. Such local use would make fraudulent use of cards more difficult to identify before significant fraud occurs.

Estimates so far for Texas credit unions from the Landry's data breach are 35,000 cards compromised, $83,000 in re-issuance costs, and $619,000 in fraud losses.

Fox offered four suggestions to the committee for legislative changes to strengthen the card-processing security in Texas:

  • Require merchants receiving payment by credit or debit cards to protect the sensitive personal financial information they receive;
  • Require card recipients to notify their card processor immediately upon detecting a breach, and require the information be provided to the issuing financial institutions by the card processors;
  • Allow card issuers to recover costs and losses resulting from a business’s failure to protect or destroy the data.
  • Require anyone taking credit or debit cards to remove card data once the transaction is completed.

The committee also heard from community banks about similar problems regarding card fraud due to data breaches and the expense relating to these breaches. The banking commissioner testified on the work his agency has done with law enforcement to combat data breaches and general cybersecurity threats to financial institutions every day. The committee also heard from cybersecurity experts regarding the significant threat to financial institutions from hackers around the world.

Texas Bankers Association (TBA), Independent Bankers Association of Texas (IBAT), and the banking commissioner testified about the challenges facing community banks, which include declining charter numbers, no new bank charters, increased federal regulations, low interest rates, heavy competition, increasing technology costs, and pressures to merge.

The committee also heard from venture capital firms on start-up investing in Texas and how government can support start-up efforts.

For more information, please contact Texas Credit Union Association President Jeff Huffman at 469-385-6488 or jhuffman@txcua.coop.