On March 7, the FTC announced a study of Payment Card Industry Data Security Standard (“PCI DSS”) assessments – the audits required of certain merchants pursuant to rules imposed by payment card brands such as Visa and MasterCard. As part of this study, the FTC issued orders to provide information to nine data security auditors.1 While the FTC announcement does not specify a motivation for the study or how its results might be used, the level of detail of the FTC’s questions and the depth of required responses suggests that the FTC’s interest in the PCI DSS is more than a passing one. Companies required to maintain PCI DSS certification should be aware of the possibility that FTC involvement could lead to changes in the PCI DSS certification process, including a more stringent, and costly, assessment process.
Many of the FTC’s requests for information are geared generally toward the degree of rigor in, and the efficacy of, PCI DSS assessments. For example, the FTC asks about certifications and training required of the PCI DSS assessors, the time spent on a typical PCI DSS assessment, the number of assessments that found PCI DSS compliance, the number of assessments that designated clients as non-compliant, and the number of clients who suffered a data breach in the year following an assessment. Several of the FTC’s questions, however, are at a level of detail that suggests the FTC has given a great deal of thought to what the agency may perceive as potential weaknesses in the PCI DSS certification process. In particular, the FTC directs questions toward assessment scope,2 sampling procedures, reliance on employee interviews, and compensating controls.3 The theme of potential conflicts of interest also comes up repeatedly. The FTC asks directly about policies regarding conflicts of interest both for standard PCI DSS assessments and for forensic audits performed after a data breach, and asks several more specific questions related to the independence of assessors. For example, the FTC asks whether clients have input into the drafting of assessment reports, the extent to which a client has input into the scope of a PCI DSS assessment, and the extent to which the assessor communicates with the client in determining the adequacy of compensating controls.
The FTC requests not just narrative responses from the nine data security companies, but also documents related to six representative assessments,4 including contracts, notes, test results, and communications with the client or third parties.
The FTC did not explain the study’s purpose other than to say that information gathered will be “used to study the state of PCI DSS assessments,” but the study may simply be a means of settling an ongoing disagreement within the FTC as to how reliable certified PCI DSS compliance is as an indicator of reasonable data security. The FTC has previously relied upon PCI DSS compliance as an indicator of reasonable data security. Under the terms of the FTC’s settlement with hospitality company Wyndham Hotels and Resorts, the requirement that Wyndham maintain reasonable information security was deemed to be satisfied if Wyndham maintained certification of PCI DSS compliance.5 Last year, however, the FTC sued LifeLock, Inc. and reached a $100,000,000 settlement, on allegations that LifeLock violated a 2010 data security consent order by, among other things, failing to maintain adequate data security despite the fact that LifeLock maintained PCI DSS certification.6 In a vigorous dissent to the proposed settlement, Commissioner Ohlhausen specifically pointed to the Wyndham settlement to show that “the FTC considers PCI DSS certifications to be important evidence of reasonable data security.” In response, Chairwoman Ramirez, Commissioner Brill, and Commissioner McSweeny issued a public statement proclaiming that “[c]ertifications alone will not suffice” to meet obligations to protect consumer information through reasonable data security.
Given the FTC’s aggressive stance toward data security enforcement generally, it seems quite possible that the FTC is not merely settling an internal debate over the merits of PCI DSS, but also seeks to influence the PCI DSS assessment process. To the extent that the FTC concludes that PCI DSS certification does not reliably indicate reasonable data security, the FTC could pressure the industry to apply more rigor to the PCI DSS assessment process. Pressure could be exerted upon the promulgators of the PCI DSS to revise formal requirements or upon merchants and other industry participants by according weight only to PCI DSS assessments that meet the FTC’s own standards of adequacy. It is also possible that the FTC contemplates actions against data security companies performing the assessments on the theory that inadequate PCI DSS assessments can cause consumer harm through subsequent breaches.7
While it is certainly possible that the FTC study portends future FTC pressure on the process of PCI DSS certification, such regulatory focus would make little sense for a regulator charged with protecting consumer interest. To begin with, even in an instance where an alleged failure to comply with the PCI DSS purportedly allowed a data compromise to occur, which in turn resulted in payment card fraud, the likelihood of actual consumer harm is remote because consumers are, as a rule, fully reimbursed for any fraud.8 Moreover, PCI DSS certification is now of decreasing relevance as merchants are shifting to chip technology. Chip technology – which utilizes microchip-embedded cards – may drastically reduce counterfeit fraud associated with data breaches, and the major card brands now have programs to eliminate requirements of PCI DSS certification for qualified merchants that have implemented chip technology.9 Indeed, given the promise of chip technology, it could be argued that any increased regulatory attention should be directed at card brands, which for years delayed implementing chip technology. (And when the card brands finally did implement chip technology – in a manner imposing onerous costs upon merchants10 – it was a Chip and Signature version, which offers less security than the Chip and Pin version that has long been used throughout much of the world.11) Given this, it is possible that the purpose of the FTC study is not to place pressure on the PCI DSS certification process, but rather to simply understand it better so that the FTC can apply the lessons learned to advocate for similar models being adopted outside the payment card industry. That said, companies that undergo PCI DSS certifications should be aware that the FTC’s interest in the PCI DSS certification process could forebode increased costs of certification in the event that FTC pressure results in a more stringent certification process.