Security Breach May Put 40 Million Credit Card Holders at Risk

A security breach of customer information at a credit card-processing company has exposed as many as 40 million cardholders of all brands to potential fraud, MasterCard International Inc. (search) said Friday.

The credit card giant said its security division detected multiple instances of fraud that tracked back to CardSystems Solutions Inc. (search) of Tucson, Ariz., which processes transactions for banks and merchants. About 13.9 million of those credit cards at risk are MasterCard-branded cards, the company said

MasterCard said it immediately notified its customer banks of specific card accounts that may have been subject to compromise so they can take measures to protect their cardholders. The company said that social security numbers, dates of birth and the like were not stored on MasterCard cards.

CardSystems said it was hit by a computer virus that captured customer data for the purpose of fraud.

The breach appears to be the largest ever involving financial data, said David Sobel, general counsel at the Electronic Privacy Information Center (search).

"The steady stream of these disclosures shows the pressing need for regulation of the industry both in terms of limitation in the amount of personal information that companies collect and also liability when these kinds of disclosures occur," Sobel said.

That the breach involved a third party also "indicates that this is a shadowy industry where the consumer never really knows who is going to be handling and using their personal information," he added. "Presumably, the affected consumer thought they were dealing with MasterCard."

"It sounds like the Guinness Book of World Records here," said Richard Smith, a leading computer privacy activist who runs a Web site called ComputerBytesMan.com.

Officials from American Express (AXP), Visa and Discover had no immediate comment. MBNA, a large issuer of cards, also did not immediately return a call.

There have been a string of episodes this year in which companies have reported stolen or misappropriated customer data. Earlier this month, Citigroup (C) said United Parcel Service (UPS) had lost computer tapes with sensitive information from 3.9 million customers of CitiFinancial, a unit that provides personal and home loans.

Among the companies that have in 2005 reported stolen or misappropriated customer data are Bank of America Corp. (BAC), ChoicePoint Inc. (CPS), PNC Financial Services Group Inc. (PNC), Reed Elsevier's LexisNexis unit, Retail Ventures Inc.'s (RVI) DSW Shoe Warehouse and Wachovia Corp. (WB).

CardSystems has already taken steps to improve the security of its system. MasterCard said it was giving the company "a limited amount of time" to demonstrate compliance with MasterCard security requirements.

The Associated Press and Reuters contributed to this report.