By Robin Sidel
The future of a $19 million settlement between Target Corp. and
MasterCard Inc. over the retailer's massive 2013 breach was in flux
on Friday after the deal didn't receive enough support from
card-issuing financial institutions.
MasterCard and Target said the pact, which was struck in April,
didn't receive the required support from issuers representing at
least 90% of eligible accounts by a May 20 deadline. It wasn't
immediately known what percentage supported the deal.
"At this stage, we will continue to work to resolve the matter,"
MasterCard said in a statement. Target, based in Minneapolis,
confirmed the development, but had no other comment.
The April pact has been under attack from small issuers who
contend that it doesn't come close to covering the losses they
incurred from the massive breach that exposed 40 million
credit-and-debit card accounts to potential fraud during the winter
2013 holiday shopping season.
Although small issuers have previously griped about the payments
they receive under such deals, it is unusual for a settlement to be
rejected. It wasn't immediately clear if any large issuers also
balked at the pact.
Small lenders have been particularly unhappy with the Target
deal because it prohibits participants from seeking other recourse
to get reimbursed for their losses. Although that is typically a
part of most breach settlements, the Target breach was unusually
large and expensive for issuers who were on the hook for fraudulent
transactions and also spent money to reissue cards to
customers.
A group of small banks and credit unions have sued Target over
the breach. Those lenders contended in legal filings that the
Target settlement would cover only a "minimal portion" of their
actual costs.
Lawyers representing those lenders said they were pleased with
the rejection by financial institutions.
"We will continue working to hold Target accountable and ensure
that all affected financial institutions receive proper
compensation for losses resulting from this data breach," according
to a statement from Charles Zimmerman of Zimmerman Reed PLLP and
Karl Cambronne of Chestnut Cambronne, Pa., who are representing the
small lenders.
A trade group representing credit unions also praised the
development.
"The failure to opt in to the settlement by financial
institutions sends a strong signal to card companies that the
current reimbursement system does not work and financial
institutions need to be made whole," said Carrie Hunt, general
counsel for the National Association of Federal Credit Unions.
Write to Robin Sidel at Robin.Sidel@wsj.com
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