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U.S. appeals court says CU can sue over data breach
WASHINGTON (7/21/08)—In an important decision for credit unions, a U.S. court of appeals last week threw out a lower court ruling that had denied Pennsylvania State Employees CU (PSECU) and Sovereign Bank standing to sue BJ’s Wholesale Club the $98,000 it spent replacing member credit cards after customer data was stolen from the retailer. The credit union had tried to recover the $98,000 from both the retailer and its merchant bank, Fifth Third Bank, through negotiations. More than 235,000 credit and debit cards total were reissued, and nearly 1,000 accounts were affected by illegal purchases made by thieves. The $3.13 billion Harrisburg, Penn.-based credit union ultimately filed suit against the retailer and bank in U.S. Middle District Court in 2004. In last week’s decision by the United States Court of Appeals, The Hon. William W. Caldwell said the 2006 district court ruling granting summary judgment to Fifth Third Banks is reversed. The judge remanded the cased for further proceedings regarding the breach of contract claim. PSECU President/CEO Greg Smith said the credit union plans now to return to the District Court for a jury trial--which his credit union originally requested. "I think jurors will understand the issues pretty easily," said Smith. "Our counsel may also pursue an expanded complaint--not just the breach of contract issue." Rick Wargo, executive vice president/general counsel for the Pennsylvania CU Association, has said of the case, “PSECU’s litigation is significant in terms of allocating the responsibility for compliance on the appropriate parties, in this case merchants or retailers.” Wargo told News Now Friday, “PSECU is painstakingly doing some pioneering work to make the payment system a better place for all financial institutions.” Also commenting on the appeals court’s ruling, Credit Union National Association CUNA Deputy General Counsel Mary Dunn said, "In making his decision, the judge relied on the 1993 Visa operating rules and other evidence indicating that PSECU was an intended beneficiary of the agreement between Visa and Fifth Third Bank that the bank would ensure BJ's complied with the operating rules, including those involving data security. PSECU presented its argument well and the court agreed."


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