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Laws and Regulations Affecting Data Privacy

Compliance / Privacy
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In May 2007, Minnesota extended its breach notification law to hold companies responsible if their actions (i.e., lack of security controls) contributed to the theft of consumers' personal information. As of August 2007, persons and entities are prohibited from retaining data from the payment card's magnetic strip, as well as the card's security code and PIN for more than 48 hrs after a transaction is approved. While the Payment Card Industry's (PCI's) Data Security Standard (DSS) states that this data should not be retained, this law makes it illegal to do so.

While the United States has had a variety of data privacy and/or protection bills introduced into both sides of Congress, none has been passed into law. Debate exists as to whether a national law would contain enough detail or stringent-enough requirements to help the data privacy cause or would actually hurt the cause by overriding more-restrictive state laws. Only time will tell.

If you're interested in tracking recent incidences requiring notification as well as updates to previously publicized events, see the Chronology of Data Breaches page at the Privacy Rights Clearinghouse Web site.

Another initiative started by California requires the three credit agencies—Equifax, Experion, and TransUnion—to allow consumers to "freeze" access to their credit file. That is, the credit agencies are prevented from giving out your credit information. The theory is that if your identity has been stolen, freezing your credit information will make it much harder for the thief to obtain a credit card or obtain a loan using your information. As of this writing, 39 states and the District of Columbia have passed credit-freeze laws, and for the 11 states that have not yet passed a freeze law, the three credit agencies are voluntarily allowing consumers to freeze their files. For the list of states that have passed these laws, see the Consumers Union's Guide to Security Freeze Protection. Note that to freeze your information, you'll have to contact all three agencies.

Finally, states have passed various flavors of identity-theft laws. The focus of these laws is to make identity theft a crime in an attempt to deter would-be thieves. The National Conference of State Legislators provides a site listing of the states with identity theft laws.

Sarbanes-Oxley Act (SOX)

Debate has raged for years over the security implications of the Sarbanes-Oxley Act (SOX). The bottom line is that, while they are heavily implied, no data security requirements are spelled out in SOX. Therefore, it is up to the SOX auditor to levy any data security requirements. The only reason I mention it in this article is because most auditors do examine some parts of IT in general and often examine access controls related to financial data stored and maintained by IT.

To most in IT, "SOX" is a four-letter word. And small and medium-sized businesses have long cried foul at the cost of coming into compliance with SOX. Unfortunately, while SOX compliance requirements for small businesses were relaxed slightly earlier this year, any hopes you might have of Congress re-writing or eliminating SOX have been dashed by the recent losses in the mortgage and financial sectors due to the subprime lending debacle. The "E" word (meaning Enron) is often uttered when people discuss how much management knew of the impending doom of this market and tried to hide it. So there is little hope of getting relief from the burdens of SOX anytime soon.

In fact, more countries are climbing on the corporate-responsibility bandwagon. Japan has passed its own version of SOX, commonly known as J-SOX. Officially named the Financial Instruments and Exchange Law, it goes into effect in April 2008. And given the recent financial scandals in the UK, rumor has it that Parliament is considering its own version of SOX.

Payment Card Industry

The PCI issued a revised DSS in May 2006 clarifying some requirements and adding others. September 30 was the deadline for the Level 1 merchants (i.e., merchants with over 6 million credit card transactions) to come into compliance. Level 2 merchants (those with 1 million to 6 million transactions) have until December 31 of this year. Studies show that over half of merchants remain out of compliance with the DSS. I don't know about you, but that doesn't give me a warm fuzzy when using my credit card.

Perhaps it's the deadlines and their associated fines for non-compliance or maybe it's the news coverage of recent breaches, but regardless of why, the requirements of the PCI's DSS have finally been receiving some much-needed attention by IT. I am still amazed by the number of organizations that think that these regulations don't apply to them. Regardless of the number of transactions, if your organization stores cardholder data, the regulations apply. The only variable is the question of whether you're likely to be audited. If you are a Level 4 merchant, you may think you can slide by and ignore the regulations because you won't get audited. Think again. I saw a Level 4 merchant that had never had breach get audited. And before you make your final decision to ignore these requirements, picture yourself in a court of law after your organization has suffered a breach, attempting to defend your choice to ignore the PCI requirements.

On the flip side, while merchants are receiving a lot of bad press for not being in compliance with these regulations, retailers have begun to fight back, pointing fingers at the issuing banks for requiring them to retain cardholder data. The National Retail Federation recently sent a letter to the PCI Security Standards Council requesting that credit card companies alter the data retention requirements they place on merchants. They contend that there wouldn't be so much data at risk if they (the merchants) weren't required to retain data.

Regardless of who's to blame (retailers or the credit card companies), breaches are occurring. Personally, I don't care who's to blame. I just want my private data protected!

What You Can Do

Why do we care so much about these laws and regulations? Because loss of private information and the identity theft that often results continue to rise at alarming rates.
While new laws and regulations may someday be passed that will make would-be thieves think twice about committing identity theft, the fact remains that the best way to protect yourself against identity theft is to stay vigilant:

  • Monitor your bank accounts for fraudulent activity.
  • Carefully examine your credit card statements for transactions that are not yours.
  • Due to the Fair and Accurate Credit Transactions Act (FACTA) of 2003, we are entitled to a free copy of our credit report annually from www.annualcreditreport.com. Get it and look it over carefully.
  • Request your children's credit history as well. (Children are increasingly becoming victims of identity theft.)
  • Think twice about giving out your social security number, especially for things like grocery store frequent shopper cards or movie rentals, where there is no need for them to have that information.
  • Don't reply to or submit orders via email spam.
  • Educate those around you. You and I are in an industry where we are more aware of scams than the rest of the population. You can help protect your family, friends, and colleagues by educating them on how to protect themselves against identity theft.

Finally, if you find yourself a victim of identity theft, visit the Federal Trade Commission's Identity Theft site for tips on what to do.

Carol Woodbury


Carol Woodbury is IBM i Security SME and Senior Advisor to Kisco Systems, a firm focused on providing IBM i security solutions. Carol has over 30 years’ experience with IBM i security, starting her career as Security Team Leader and Chief Engineering Manager for iSeries Security at IBM in Rochester, MN. Since leaving IBM, she has co-founded two companies: SkyView Partners and DXR Security. Her practical experience and her intimate knowledge of the system combine for a unique viewpoint and experience level that cannot be matched.

Carol is known worldwide as an author and award-winning speaker on security technology, specializing in IBM i security topics. She has written seven books on IBM i security, including her two current books, IBM i Security Administration and Compliance, 3rd Edition and Mastering IBM i Security, A Modern, Step-by-Step Approach. Carol has been named an IBM Champion since 2018 and holds her CISSP and CRISC security certifications.

MC Press books written by Carol Woodbury available now on the MC Press Bookstore.

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