Bank Back On Hook For Data Theft At BJ's Wholesale

An appeals court reversed a lower court ruling absolving Fifth Third Bancorp from paying damages associated with replacing credit cards.

A federal appeals court last week reversed a lower court's order that credit card processor Fifth Third Bancorp did not have to pay for new credit cards for some cardholders whose data was stolen during a 2004 hacking incident at BJ's Wholesale Club.

In ruling, the United States Court of Appeal upheld a challenge to the lower court's decision brought by the Pennsylvania State Employees Credit Union.

Fifth Third provided credit card processing services to BJ's. In its initial complaint, PSECU argued that Fifth Third bore some liability for the data breach because it failed to properly train the retailer's staff in proper security procedures.

The breach led to the pilfering of the names and credit card numbers of thousands of BJ's Wholesale customers and led to millions of dollars in theft-related losses.

PSECU, which issues Visa credit cards to its members, said it was forced to spend $100,000 canceling and reissuing more than 235,000 cards after the breach, and sought damages against Fifth Third. However, a U.S. District Court judge in Pennsylvania dismissed the claim two years ago.

Last week, the U.S. Court of Appeals judge reinstated the claim and ordered the matter returned to the district court. Several claims that PSECU filed against BJ's Wholesale Club were dismissed previously, but several matters related to the case remain pending in court.

At one point, the case involved IBM. BJ's Wholesale sought to recover some of its losses from the computing giant, claiming that when it upgraded card-processing software, it told IBM to deactivate a feature that retains magnetic strip data so that a transaction can be processed offline. It's that data that was hacked.

IBM was dismissed from the case in October 2005, court records show.

 

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