Is the Equifax Hack the Worst Everand Why?

Equifax (along with TransUnion and Experian) is one of the three main U.S. credit bureaus, which maintain vast repositories of personal and financial data used by lenders to determine credit-worthiness when consumers apply for a credit card, mortgage, or other loans. The company handles data on more than 820 million consumers and more than 91 million businesses worldwide and manages a database with employee information from more than 7,100 employers, according to its website. These data are provided by banks and other companies directly to Equifax and the other creditbureaus. Consumers have little choice over how credit bureaus collect and store their personal and financial data. Equifax has more data on you than just about anyone else. If any company needs airtight security for its information systems, it shouldbe credit reportingbureaus such as Equifax. Unfortunately this has not been the case.

On September 7, 2017 Equifax reported that from mid-May through July 2017 hackers had gained access to some of its systems and potentially the personal information of about 143 million U.S. consumers, including Social Security numbers and drivers license numbers. Credit card numbers for 209,000 consumers and personal information used in disputes for 182,000 people were also compromised. Equifaxreported the breachto law enforcement and also hired a cybersecurity firm to investigate. The size of the breach, importance, and quantity of personal information compromised by this breach are considered unprecedented.

Immediately after Equifax discovered the breach, three top executives, includingChief Financial Officer John Gamble, sold shares worth a combined $1.8 million, according to Securities and Exchange Commission filings. A company spokesman claimed the three executives had no knowledge that an intrusion had occurred at the time they sold their shares on August 1 and August 2. Bloomberg reported that the share sales were not planned in advance. On October 4, 2017 Equifax CEO Richard Smith testified beforeCongress and apologized for the breach.

The size of the Equifax data breach was second only to the Yahoo breach of 2013, which affected data of all of Yahoos 3 billion customers. The Equifax breach was especially damaging because of the amount of sensitive personal and financial data stored by Equifax that was stolen, and the role such data play in securing consumers bank accounts, medicalhistories, and access to financing. In one swoop the hackers gained access to several essential pieces of personal information that could help attackers commit fraud. According to Avivah Litan, a fraud analyst at Gartner Inc.,on a scale of risk to consumers of 1 to 10, this is a 10.

After taking Equifax public in 2005, CEO Smith transformed the company from a slow-growing credit-reporting company (12 percent organic growth per year)into a global data powerhouse. Equifax bought companies with databases housing information about consumers employment histories, savings, and salaries, and expanded internationally. The company bought and sold pieces of data that enabled lenders, landlords, and insurance companies to make decisions about granting credit,hiring job seekers,and renting an apartment. Equifaxwas transformed into a lucrative businesshousing $12 trillion of consumer wealth data. In 2016, the company generated $3.1 billion in revenue. Competitors privately observed that Equifax did not upgrade its technological capabilities to keep pace with its aggressive growth.Equifax appeared to be more focused on growing data it could commercialize.

Hackers gainedaccess to Equifaxsystems containing customer names,Social Security numbers,birth dates, and addresses. These four pieces of data are generally required for individuals to apply for various types of consumer credit, including credit cards and personal loans. Criminals who have access to such data could use it to obtain approval for credit using other peoples names. Credit specialist and former Equifax manager John Ulzheimer calls this is a nightmare scenariobecause all four critical piecesof information for identity theft are in one place.

The hack involved a known vulnerability in Apache Struts, a type of open-source software Equifax and other companies use to build websites. This software vulnerability had beenpublicly identified in March 2017, and a patch to fix it was releasedat that time. That meansEquifax had the information to eliminate this vulnerability two months before the breach occurred. It did nothing.

Weaknesses in Equifax security systems were evident well before the big hack. A hacker was able to access credit-report data between April 2013 and January 2014. The company discovered that it mistakenly exposed consumer data as a result of a technical error that occurred during a 2015 software change.Breaches in 2016 and 2017 compromised information on consumers W-2 forms that were stored by Equifax units. Additionally, Equifax disclosed in February 2017 that a technical issue compromised credit information of some consumers who used identity-theft protection services from LifeLock.

Analyses earlier in 2017 performed by four companies that rank the security status of companies based on publicly available information showed that Equifax was behind on basic maintenance of websites that could have been involved in transmitting sensitive consumer information. Cyberrisk analysis firm Cyence rated the danger of a data breach at Equifax during the next 12 months at 50 percent. It also foundthe company performedpoorly when comparedwith other financial-services companies. The other analyses gave Equifax a higher overall ranking, but the company fared poorly in overallweb-services security, application security, and software patching.

A security analysis by Fair Isaac Corporation (FICO), a data analytics company focusing on credit scoring services, found that by July 14 public-facing websites run by Equifax had expired certificates, errors in the chain of certificates, or other web-security issues. Certificates are used to validate that a users connection with a websiteis legitimate and secure.

The findings of the outside security analyses appear to conflict with public declarations by Equifaxexecutives that cybersecurity was a top priority. Senior executives had previously said cybersecurity was one of the fastest-growing areas of expense for the company. Equifax executives touted Equifaxs focus on securityin an investor presentation that took place weeks afterthe company had discovered the attack.

Equifax has not revealed specifics about the attack,but either its databases were not encryptedor hackers were able to exploit an application vulnerability that provided access to data in an unencrypted state. Experts thinkand hopethat the hackers were unable to access all of Equifaxs encrypted databases to match up information such as driver license or Social Security numbers needed to create a complete data profile for identity theft.

Equifax management stated that although the hack potentially accessed data on approximately 143 million U.S. consumers, it had found no evidence of unauthorized activity in the companys core credit reporting databases. The hack triggered an uproar among consumers, financialorganizations, privacy advocates, and the press. Equifaxlost one-third of its stock market value.Equifax CEO Smith resigned, with the CSO (chief security officer) and CIO departing the company as well. Banks will have to replace approximately 209,000 credit cards that were stolenin the breach, a major expense. Lawsuitsare in the works.

Unfortunately the worst impactwill be on consumers themselves, because the theft of uniquely identifying personal information such as Social Security numbers, address history, debt history, and birth dates could have a permanent effect. These pieces of critical personal data could be floating around the Dark Web for exploitation and identity theft for many years. Such information would help hackers answer the series of security questions that are often required to access financial accounts. According to Pamela Dixon,executive director of the World Privacy Forum, This is about as bad as it gets. If you have a credit report, theres at least a 50 percent chance or more that your data were stolen in this breach.

The data breach exposed Equifax to legal and financial challenges, although the regulatory environment is likely to become more lenient under the current presidential administration. It alreadyis too lenient. Credit reporting bureaus such as Equifaxare very lightly regulated. Given the scale of the data compromised, the punishment for breaches is close to nonexistent. There is no federally sanctioned insurance or audit system for data storage, the way the Federal Deposit Insurance Corporation provides insurance for banks after losses. For many types of data, there are few licensing requirements for housing personally identifiable information. In many cases, terms-of-service documents indemnify companies against legal consequences for breaches.

Experts said it was highly unlikelythat any regulatory body would shut Equifaxdown over this breach. The company is considered too critical to the American financial system. The two regulators that do have jurisdiction over Equifax, the Federal Trade Commission and the Consumer Financial Protection Bureau, declined to comment on any potential punishments over the creditagencys breach. Even after one of the most serious data breaches in history, no one is really in a positionto stop Equifax from continuing to do business as usual. And thescope of the problem is much wider.

Public policy has no good way to heavily punish companies that fail to safeguard our data. The United States and other countries have allowed the emergence of huge phenomenally detaileddatabases full of personal information available to financial companies, technology companies, medical organizations, advertisers, insurers, retailers, and the government.

Equifax has offered very weak remediesfor consumers. People can go to the Equifax website to see if their information has been compromised. The site asks customers to provide their last name and the last six digits of their Social Security number. However, even if they do that, they do not necessarily learn whether they were affected. Instead, the site provides an enrollment date for its protection service. Equifax offered a free year of credit protection service to consumers enrolling before November 2017. Obviously, all of these measures wont help much because stolen personal data will be available to hackers on the Dark Web for years to come.

Governments involved in state-sponsored cyberwarfare are able to use the data to populate databasesof detailed personaland medical information that can be used for blackmail or future attacks. Ironically, the credit-protection service that Equifax is offering requires subscribers to waive their legal rights to seek compensation from Equifax for their losses in order to use the service, while Equifax goes unpunished. On March 1, 2018, Equifax announced that the breach had compromised an additional 2.4 million more Americans names and drivers license numbers.

Harmful data breaches keep happening. In almost all cases, even when the data concerns tens or hundreds of millions of people, companies such as Equifax and Yahoo that were hacked continue to operate. There will be hacksand afterward, there will be more. Companies need to be even more diligent about incorporating securityinto every aspect of their IT infrastructure and systems development activities. According to Litan, to prevent data breaches such as Equifaxs, organizations need many layers of security controls. They need to assume that prevention methodsare going to fail.

• What do you consider to be the most significant security threat affecting TMU?
• What management, organization, and technology factors that can potentially contribute to these problems?
• How would you suggest TMU deal with these issues?