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Do Breach Notification Laws Work? Yes

Apparently a good number of consumers who receive letters notifying them that their financial or credit card information has been breached are tossing the notifications without taking action. Does this mean these notices are worthless?

I don't think so. Kim Zetter at Wired's Threat Level blog penned an interesting post covering some of the discussions at the Security Breach Notification seminar, which was held in Berkeley, Calif., this past Friday.

From Zetter's post:

And though most states now have laws requiring companies to warn breach victims, some serious breaches are still showing up on customer credit and bank statements before any official warning has been issued. It all begs the question: are the notification laws working?

Zetter then accurately details benefits of transparency brought by these breach notifications.

However, it's with this point of view that was expressed at the conference that I take issue:

Breach notifications should, theoretically, reduce the number of incidents of identity theft or fraudulent charges to credit cards if consumers take proper precautions once they receive a notification -- such as placing a fraud alert or freeze on their credit account and monitoring their account bills and statements for suspicious transactions.

But in some cases, customers discover fraudulent charges on their cards or become victims of identity theft before a company is even aware its computers have been breached, making the breach notification redundant for those consumers.

Some other points include the issue that a portion, apparently the majority, of notice recipients actually ignore the notifications.

First, just because someone notices a fraudulent transaction on a financial statement, and then later gets a breach notification letter, that does not make that notification "redundant," as it's quite reasonable to expect that most credit card users will not know where a thief got their credit card data. Was it the restaurant I was at last week? The bookstore? Gas station? Or that online purchase?

You won't know for sure. But the breach notification would certainly give you a good idea.

Second, it's possible someone would use several different credit cards at the same online retailer over a period of months. Should this be the case, it would now be a good idea (following a notification) to change the credit card number for all of the cards used at that retailer over the affected period of time.

Third, it gives consumers the option to no longer shop at that merchant.

Helping consumers avoid identity theft and fraudulent transactions is only part of the benefit of data breach notification laws. The other is that it embarrasses companies to do the right thing and get the proper security controls in place. If they don't, the world may eventually know how little care they take with their customers' information. This in itself may have helped to improve the security at many organizations. Not make it perfect, but improve it.

And any consumer who ignores these notices does so at his own peril. And if people don't take any action, such as getting a fraud alert posted, that's their fault.

Before July 2003, when the California breach disclosure law went into effect, the big argument was whether or not there really were numerous serious data breaches occurring. "Where's the proof?" naysayers would ask.

Today, thanks to these laws, at least we have that proof and know what's going on. And wise consumers can take the simple action of changing the card number used at the breach company and placing a fraud alert on their profiles at the major reporting agencies.

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