By Martin H. Bosworth
ConsumerAffairs.com
July 26, 2005
CardSystems says it may go out of business due because of the business it's lost since a major security breach.
CEO John Perry testified at a House Financial Services subcommittee hearing, warning the credit card transaction processor would have to shut down after creditors Visa and American Express announced they would no longer do business with CardSystems.
A major security breach allowed hackers to get access to 40 million Visa and MasterCard accounts in June of 2005. Perry called the industry response "Draconian" and stated that it would put 115 people out of work.
Visa has agreed to put off its business termination date with CardSystems until October 31st, 2005, pending a meeting between Visa representatives and CardSystems to determine if the relationship can be salvaged, and to allow merchants time to set up alternative credit processing solutions so as not to disrupt business, The Washington Post reported.
Rep. Rick Renzi (R-Ariz.) scheduled the hearing. Most of CardSystems' operations are based in Tucson, where most of the job losses would occur.
MasterCard has said that it is monitoring CardSystems for "compliance" with its standards on a weekly basis, and that it has given the company until August 31st to submit a better business plan.
The CardSystems breach was caused when the company stored individual account data for "research purposes," and failed to provide adequate security measures to protect the data.
In addition to its business woes, CardSystems faces a class action lawsuit in California alleging it was negligentand in "violation of Payment Card Industry Data Standard(s), and rules and regulations it was bound to obey for the benefit of consumers concerning the storage of consumers' private identifying transaction and credit card information."
As of 2005, CardSystems claimed to process more than $15 billion in Visa, MasterCard, American Express, Discover, on-line debit and EBT transactions annually. CardSystems is also a major player in the loyalty card industry via its partnership with Valuetec.
Perry said his company is "still working with the payment card networks, as well as with our customers, who have stood by us as we have investigated this attack on our system."
