Bank, Payday Lender Spar Over Insider Cybersecurity Risk

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By Daniel R. Stoller

A recent federal court ruling illustrates that employees continue to pose cybersecurity risks for companies that have upgraded security in response to a data breach, cybersecurity professionals and attorneys told Bloomberg BNA ( USAA Fed. Sav. Bank v. PLS Fin. Servs., Inc. , N.D. Ill., No. 16-cv-7911, dismissal 5/30/17 ).

The present case arises from USAA Federal Saving Bank claims that PLS Financial Services, a payday lending group, negligently failed to protect USAA customers’ "financial information so as to allow third parties to create fraudulent checks.” But Judge Sara L. Ellis of the U.S. District Court for the Northern District of Illinois dismissed the claims.

The court found “no common law duty exists to safeguard personal information under Illinois law,” and no legal duty exists “beyond legislative requirements” to safeguard an individual’s personal information or protect it from disclosure. Also, USAA didn’t adequately allege under its state consumer protection statute claim that an internal data breach at the payday lender took place in Illinois or affected individuals there, it said.

Companies have increasingly employed more advanced cybersecurity defenses—often to stop hackers. But companies focused on external threats can ignore internal actors or employees that pose the biggest security risk. Despite the case being tossed, it serves to remind companies to pay attention to internal security, including employees, third-party vendors, and other groups they work with closely, cybersecurity pros said.

For the financial sector, one of the biggest cybersecurity issues is that third-party or technical-service providers often “are inadequately protected and over-reliant on perimeter defenses and encryption technologies,” Tom Kellerman, CEO of cybersecurity investment strategy company Strategic Cyber Ventures in Washington and a former member of the Commission on Cybersecurity under President Barack Obama, told Bloomberg BNA May 31. These companies need to employ “user behavioral analytics” to confirm the identity of who is using the account or making a transfer, he said.

To minimize security threats from the inside, it’s essential to monitor employees, Kellerman said. But even enacting all the most sophisticated cybersecurity protocols won’t completely prevent “rogue employees from abusing information on the system,” he said.

Beware: Insider Threats Lurking

In October 2012, the Federal Trade Commission and PLS reached a no fault settlement under which the company paid $101,500 and agreed to make customer data security changes. It agreed to develop a “comprehensive information security program” and “to take reasonable measures to protect against unauthorized access to or use of such information.”

Timothy J. Toohey, partner at Greenberg Glusker Fields Claman & Machtinger LLP’s in Los Angeles and head of the firm’s cybersecurity practice, told Bloomberg BNA May 31 that often “human beings are at the root of all these cybersecurity problems.” Companies not only have to deal with “employee carelessness,” but also handle internal threats from more nefarious insiders.

For the careless employee, ample training and increased “institutional procedures” will help banks, financial institutions, and other consumer-facing companies that must deal with clearinghouse and third-party payment vendors, Toohey said. However, dealing with rogue employees or hackers, companies need to have “instituted procedures” that double check every purchase and balance transfer, he said. Also, companies need to have procedures in place that “adequately monitor employees with access to sensitive customer information--such as financial transaction data,” he said.

To contact the reporter on this story: Daniel R. Stoller in Washington at dStoller@bna.com

To contact the editor responsible for this story: Donald Aplin at daplin@bna.com

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