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Credit cards at risk after Target breach

Q&A: What happened, what to do

– With less than a week until Christmas, a real-life Grinch has stolen the credit and debit card information of about 40 million Target shoppers.

Target says anyone who made purchases by swiping cards at terminals in its U.S. stores between Nov. 27 and Dec. 15 may have had their accounts exposed. The stolen data include customer names, credit and debit card numbers, card expiration dates and the three-digit security codes located on the backs of cards.

The stolen information included Target store cards and major brands such as Visa and MasterCard.

The data breach did not affect online purchases, the company said.

Here are answers to 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 877-438-4338.

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 that given all the security, she believes the breach may have been an inside job. And it 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 that 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 shut down your card. If that doesn’t happen, the card issuer will generally strip charges you claim are fraudulent off your card immediately.

Q: What is this going to cost Target?

A: 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, considering the volume of transactions Target does, Litan said.

Litan said 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 of 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 banks have pushed back against the idea, because the microchip cards costs significantly more than the magnetic strip version, and changing all the country’s ATMs could drive the total costs into the billions of dollars.

Lyne said it’s unclear whether 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.

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