According to a proposed settlement announced by the Federal Trade Commission (“FTC”) on March 27, 2008, discount retailer TJX will be required to implement a comprehensive information security program to remedy deficiencies in protecting sensitive consumer information. If approved, the settlement will resolve allegations that the company engaged in practices that failed to provide reasonable and appropriate security for consumer information. In addition to implementing a comprehensive security program, TJX will be required to obtain periodic security audits to provide reasonable assurances that personal information is being adequately protected.

In the FTC’s action against TJX, the Commission alleged that TJX failed to prevent unauthorized access to personal information on its computer networks. These failures allowed a hacker to exploit vulnerabilities and obtain tens of millions of credit and debit payment cards used at the retailer’s stores along with personal information about approximately 455,000 consumers that returned merchandise without receipts. The FTC alleged that TJX:

• Created an unnecessary risk to personal information by storing it on and transmitting it between various computer networks in clear text;
• Did not use readily available security measures to limit wireless access to its networks, thereby allowing an intruder to connect wirelessly to its networks without authorization;
• Did not require the use of strong passwords or different passwords to access different programs, computers, and networks;
• Failed to use readily available security measures, such as firewalls, to limit access among its computers and the Internet; and
• Failed to employ sufficient measures to detect and prevent unauthorized access to computer networks or to conduct security investigations, such as patching or updating anti-virus software. 

The FTC’s settlement with TJX requires the retailer to implement and maintain a comprehensive information security program that is designed to protect the security, confidentiality and integrity of personal information collected from or about consumers. The program must include certain administrative, technical and physical safeguards that are appropriate to the company’s size, the nature of its activities, and the sensitivity of the personal information it collects. In particular, TJX must:

• Designate an employee or employees to coordinate the information security program;
• Identify internal and external risks to the security and confidentiality of personal information and assess the safeguards already in place;
• Design and implement safeguards to control the risks identified in the risk assessment and monitor their effectiveness;
• Develop reasonable steps to select and oversee service providers that handle the personal information they receive from the companies; and
• Evaluate and adjust their information security programs to reflect the results of monitoring, any material changes to their operations, or other circumstances that may impact the effectiveness of their security programs.

In addition, TJX must retain an independent, third party security auditor to assess the sufficiency of its information security program at least once every two years for the next 20 years. This security auditor will be required to certify that the company’s security program satisfies the requirements of the consent agreement and is operating with sufficient effectiveness to provide reasonable assurance that consumers’ personal information is being protected. The FTC is not seeking any financial penalty to resolve the charges.

The proposed agreement is subject to public comment until April 28, 2008, after which the FTC will decide whether to make it final.