ADVFN Logo

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for default Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.

HD Home Depot Inc

383.60
-2.29 (-0.59%)
29 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Home Depot Inc NYSE:HD NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  -2.29 -0.59% 383.60 387.64 379.7236 387.13 4,169,096 00:00:00

After Target and Home Depot Breaches, Small Lenders Object to Settlements

28/04/2015 12:27am

Dow Jones News


Home Depot (NYSE:HD)
Historical Stock Chart


From Mar 2019 to Mar 2024

Click Here for more Home Depot Charts.
By Robin Sidel 

Small banks and credit unions are banding together in a bid to recover hundreds of millions of dollars in losses incurred from high-profile data breaches at Target Corp. and Home Depot Inc.

Angry at being squeezed out by bigger banks, the small institutions now are trying to upend a long-standing industry practice in which card networks Visa Inc. and MasterCard Inc. negotiate settlements with breached merchants and then distribute the proceeds to affected financial institutions.

The smaller firms say the process favors the big banks, even though the larger institutions can more easily absorb the cost of such incidents, including issuing new cards.

The frustration reached a boiling point earlier this month, when the lenders filed a motion objecting to terms of a settlement Target reached with MasterCard that would see the retailer provide $19 million to card issuers to cover breach-related losses.

On Monday, small banks and credit unions asked a federal judge to allow them to pursue additional compensation, marking a high-profile legal challenge to the traditional deal in which banks surrender the right to all other reimbursement claims. The banks contend the Target settlement would cover only a "minimal portion of the actual SHYdamages."

Meanwhile, a similar court case filed by small card issuers against Home Depot is drawing fresh support from two industry trade groups. Home Depot hasn't reached a settlement with Visa or MasterCard.

The small institutions are "looking to pursue any channel that makes them whole," says Dan Berger, president of the National Association of Federal Credit Unions, a trade group.

A survey of 535 banks conducted last year by the American Bankers Association found that nearly three-quarters of banks with assets below $1 billion didn't receive any reimbursement for breaches between 2009 and 2014, while all banks with assets above $50 billion were SHYreimbursed.

The brewing battle is the latest tussle between merchants and the card industry, which have been clashing on everything from fees to card security. It also highlights the far-reaching repercussions of data hacks, as concerns about cybersecurity mount across all industries.

Cardholders aren't responsible for unauthorized transactions, although they are often inconvenienced by fraudulent transactions on their accounts and the need to get replacement cards and new account numbers.

Instead, the financial institutions that issue the cards are on the hook to absorb fraud losses and pay for the cost of new cards.

This is proportionally a bigger problem for small banks, as it can cost them more than $10 to replace a card, whereas the nation's biggest banks can send out new cards for closer to $3 apiece due to the economies of scale, according to the bankers SHYassociation.

"When you have to absorb losses for something you had nothing to do with, it's tough," said Scott Arney, chief executive of the Chicago Patrolmen's Federal Credit Union, which has 16,600 Visa-branded debit and credit cards in circulation and had $80,000 in fraud losses during 2014. Mr. Arney said he didn't have details of which breaches accounted for the losses but noted that the overall problem seems to be getting worse: The credit union has seen $55,000 in fraud losses during the first quarter of this year.

In a previous breach, Mr. Arney said, the credit union incurred losses of about $150,000 and received $1,000 in an industry settlement.

Trade groups representing community banks and credit unions estimate they have spent more than $350 million to reissue credit cards and debit cards and to deal with other issues related to the Target and Home Depot breaches.

The Target breach exposed 40 million credit- and debit-card accounts to potential fraud during the 2013 holiday shopping season. The Minneapolis-based retailer agreed in March to pay $10 million to settle a consumer class-action suit tied to the breach, without acknowledging wrongdoing.

Community banks and credit unions filed lawsuits against Target that were eventually consolidated into one case that is now seeking class-action status. Their efforts, however, were thrown into doubt earlier this month, because the $19 million settlement that Target reached with MasterCard calls for issuers who participate in the settlement to give up their legal claim against Target.

Plaintiffs in the case include Umpqua Bank in Roseburg, Ore., which is a unit of Umpqua Holdings Corp.; Mutual Bank in Whitman, Mass.; Village Bank in St. Francis, Minn.; CSE Federal Credit Union in Lake Charles, La.; and First Federal Savings of Lorain in Lorain, Ohio.

At a hearing Monday, U.S. District Judge Paul Magnuson didn't rule on the plaintiffs' motion to allow issuers that participate in the settlement to also pursue other ways to get reimbursed.

Previous breach settlements also have required financial institutions to drop legal pursuits if they participate in a settlement, but the magnitude and publicity of the Target incident has attracted more attention from card issuers.

"We have made it very clear throughout the process that [participation] is entirely an individual choice for issuers," said Eileen Simon, chief franchise integrity officer at MasterCard.

A Target spokeswoman declined to comment, citing pending litigation. The retailer defended its pact with MasterCard in a motion filed Friday in the Minnesota court case, saying "there is nothing even remotely unlawful" about it.

Visa, meanwhile, hasn't struck a deal with Target, but the company said it "continues to analyze all relevant information to ensure we reach a resolution that is accurate and fair to all Visa clients and participants in the payments system."

Small card issuers are gearing up for a similar fight over last year's Home Depot breach, which exposed 56 million cards to fraud after a five-month attack on its payment terminals. A host of issuer lawsuits against the home-repair chain have been consolidated in federal court in Atlanta.

"Recovery amounts for credit unions and community banks are insufficient as compared with the losses," says Diana Dykstra, president and CEO of the California Credit Union League, which is a trade group for 365 credit unions that are based in the state. Ms. Dykstra's group and another trade group, Credit Union National Association, earlier this month joined the Home Depot lawsuit.

A spokesman for Home Depot declined to comment on the SHYlawsuits.

Write to Robin Sidel at robin.sidel@wsj.com

Access Investor Kit for The Home Depot, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US4370761029

Access Investor Kit for MasterCard, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US57636Q1040

Access Investor Kit for Target Corp.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US87612E1064

Access Investor Kit for Visa, Inc.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US92826C8394

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


1 Year Home Depot Chart

1 Year Home Depot Chart

1 Month Home Depot Chart

1 Month Home Depot Chart

Your Recent History

Delayed Upgrade Clock