TJX Settlement: Is This <i>Really</i> The Message We Want Sent?

When a group of 41 U.S. states announced a settlement with TJX this week—a supposed punishment for the retail chain, in the words of one state attorney general, for treating sensitive payment card information "like trash"—it was billed in some circles as a painful lesson for retailers who treat security laxly. The truth is, the lesson was just the opposite.

The deal (see our full coverage of the terms of the settlement) consisted of three elements: Payment; new security rules; the need to report back to the states. How painful were any of those elements for the $19 billion owner of Marshalls, T.J. Maxx, HomeGoods, A.J. Wright, HomeSense and Winners? Let's take a look at each.

  • The $9.75 Million Payment
    At a glance, a payment of almost $10 million sounds like a lot, until you delve deeper. None of the dollars were punitive per se. The smallest slice--$1.75 million—went to reimburse the legal and administrative costs of the states investigating the breach and negotiating this settlement for two-and-a-half years.

    Two ways of looking at that. The happy way: For 41 states to be involved for 2-and-a-half years, $1.75 million isn't bad.

    The unhappy way: What the heck took 30 months? If TJX was as cooperative as the AGs said it was (why wouldn't they be? They got their own state AG's office—Massachusetts—to head up the probe. You don't score political points by beating up one of your state's largest employers), how many weeks could it have taken to have established this report? (As a colleague used to say when covering federal prosecutors, "Justice delayed is Justice Department.")

    The conclusions in the report included no information that was not widely known—and widely reported—within a few weeks of the January announcement of the breach. Assuming their probe went beyond reading the local newspaper, the evidence wasn't demonstrated in the published settlement. And if the quality of the evidence gathered is hinted at by the lopsided TJX-friendly settlement, TJX may want to audit that $1.75 million figure.

    Let's get back to the money. Another $8 million seems to be for funding state programs to pay ways the states can investigate such actions in the future. Specifically, that breaks down to $2.5 million that "will fund a Data Security Trust Fund to be used by the state Attorneys General to advance enforcement efforts and policy development in the field of data security and protecting consumers’ personal information" and $5.5 million for general "data protection and consumer protection efforts by the states."

    How much is this going to hurt TJX? Well, TJX itself pointed out "the cost for this settlement is already reflected in the reserve that TJX established in 2007." In other words, when TJX set aside some $216 million for breach-related costs in 2007, they could have handled this payment then—more than 22 times over, in fact. Heck, the initial insurance check that TJX received alone would have covered this settlement, with $9.25 million left over.To be fair, TJX had other court costs and security upgrades to deal with, but given that it won both class-action lawsuits and that the reserves were so large, it's clear that this invoice won't exactly bring them down to their POS knees.

  • The New Security Rules
    At a glance, the settlement appears to impose quite a few security rules on TJX, which seems worthwhile. That's true until you look closely at the rules and realize, "Wait a second. Aren't virtually all of those rules already mandated by PCI? And hasn't TJX—as a level one merchant—already agreed to abide by those rules? Indeed, aren't these 'punitive' new rules the exact same requirements that tons of large retailers—who, by the way, have not been breached to the tune of 100 million payment cards—also have to live by? Isn't this akin to punishing drunk drivers who kill groups of children by saying that they must now pay federal, state and municipal taxes and also abide by posted speed limits?"

    The few instances where the settlement tiptoed beyond PCI mandates, it didn't seem to tiptoe very far. PCI guidelines do not mandate network segmentation, but it does recommend it, for example. The settlement has TJX having agreed to segment its network.

    PCI guidelines do not currently take a firm position on so-called end-to-end encryption (by defining it as “from PIN pad to acquiring bank," it's more like middle-to-near-the-end encryption) but then again, neither does the settlement. It merely requires TJX to " to encourage the development of new technologies" such as end-to-end encryption. Let's call this the Attaboy mandate.

  • Ongoing Reports Back To The States
    This would have more teeth in it were TJX not already making such reports back, courtesy of PCI. The difference, though, is the state reports are going to public organizations, rather than private industry players. Fear not, though, as TJX's lawyers made sure that wouldn't be problematic.

    How? By insisting that the settlement include this line, which was somehow missing from the various state news releases that went out proclaiming the deal: the states agree that they “shall treat such documents as exempt from disclosure under the relevant public records laws.”

    One might conclude from all of this that it would be wise to avoid getting into Poker games with TJX executives. But it's not necessarily that they'd be such superb poker players. It truly helps to be able to use your own deck of cards and to be able to choose the dealer.