FTC Sues Wyndham Hotels

[author: Cynthia Larose and Amy Malone]

The Federal Trade Commission (FTC) has announced that it has filed suit in U.S. District Court in Phoenix against Wyndham Worldwide Corporation and three of its subsidiaries.  The lawsuit cites “alleged data security failures that led to three data breaches at Wyndham hotels in less than two years.”   The breaches in question date back to 2008.

Details of the complaint are below.

Defendants

Wyndham Worldwide: franchises and manages hotels throughout the U.S.

  • Wyndham Hotel Group (“Hotel Group”): subsidiary of Wyndham Worldwide
  • Wyndham Hotel and Resorts (“Hotel and Resorts”): subsidiary of Wyndham Hotel Group and uses franchise agreements to license the Wyndham name to independently-owned hotels.  Hotel and Resorts provided “information technology services” to these franchises.  All online reservations for Wyndham-branded hotels are made through the Hotels and Resorts’ site.
  • Wyndham Hotel Management (“Hotel Management”): subsidiary of Wyndham Hotel Group and uses management agreements to license the Wyndham name to independently-owned hotels and “agrees to fully operate the hotel on behalf of the owner.”

The FTC makes a persuasive argument as to why all of the defendants make up a common business enterprise.  According to the complaint, “at all relevant times, Hotel Group and Wyndham Worldwide have performed various business functions on Hotel Management’s behalf, or overseen such business functions, including legal assistance and information technology and security.” Wyndham Worldwide is responsible for creating and maintaining oversight of security policies and procedures for itself and its subsidiaries.

Allegations set forth in the complaint and the FTC’s description of the breaches:

Defendants’ Deceptive Statements

Defendants’ privacy policies or online statements say that they “safeguard our Customers’ personally identifiable information by using standard industry practices.” It also states that they take “commercially reasonable efforts to create and maintain ‘fire walls’ and other appropriate safeguards…”

Defendants Inadequate Data Security Practices

The Defendants engaged in numerous practices that put the security of their customers’ personal information at risk.  Those practices include, but are not limited to:

  • Failing to use firewalls between networks
  • Failing to encrypt stored payment card information
  • Connecting branded hotels to the corporate network without first implementing adequate security measures at those locations
  • Failing to fix existing security issues at the branded hotels; therefore, putting the entire corporate network at risk
  • Allowing servers to use default user IDs and passwords and knowingly letting those servers connect to the corporate network
  • Failing to use industry standard password complexity
  • Failing “to adequately inventory computers connected to the…network” which prevented the Defendants from being able to “appropriately manage the devices on its network”
  • Failing “to employ reasonable measures to detect and prevent unauthorized access to Defendants’ computer networks or to conduct security investigations”
  • Failing to follow incident response procedures
  • Failing to adequately restrict vendors from the main network

Intrusions into Defendants’ Computer Network

The complaint alleges that inadequate data security practices led to three separate breaches during which intruders gained access to the main network using similar techniques each time.  Defendants failed to update their practices quick enough to prevent further intrusions onto their network.

First Breach

Prior to the first attack, the Defendants knew that the hotel’s property management system server was using an operating system that the vendor had stopped supporting more than three years prior to the attack.  No updates or patches were available during this time.

In April 2008, intruders gained access to a Phoenix, Arizona Wyndham-branded hotel local computer network. “The hotel’s local network was also connected to Hotels and Resorts’ network through the hotel’s property management system.”  The next month, the intruders used a brute force attack with caused 212 user accounts to be locked out.  The Defendants were able to figure out that the “lockouts were coming from two computers on Hotels and Resorts’ network [but] they were unable to physically locate those computers.”  The “Defendants did not determine that the Hotels and Resorts network had been compromised until four months later.”  The attack led to the compromise of an administrator account on the Hotels and Resorts network.  Because there were no firewalls, once the attackers had access to the network they were able to access servers at many other hotels.

The intruders used memory-scraping malware on many Wyndham-branded hotels’ property management system servers. By which they were able to access payment card data.  They also located unencrypted files that contained payment card information.  The storing of unencrypted payment card information was allowed because the systems were inappropriately configured.  More than 500,000 payment card accounts were compromised.

Second Breach

After the first breach the Defendants failed to monitor their networks for malware.  As such, in March 2009 another breach occurred through a vendor administrator account in the Phoenix location.  Defendants were made aware of this breach due to complaints from consumers that their cards had fraudulent charges on them.  The Defendants then scanned the Hotels and Resorts’ network for the malware used in the first breach and found it on their servers.  The intruders were able to again use memory-scraping malware and they were able to reconfigure software to create clear text files containing payment card account numbers.  More than 50,000 payment card accounts have incurred fraudulent charges.

Third Breach

In January of 2010 Wyndham was informed by a credit card issuer that fraudulent charges had posted to their consumers’ cards following a stay at a Wyndham hotel.  Wyndham then discovered that at the end of 2009 intruders compromised the administrator account and accessed the property management system servers. Again, memory-scraping malware was used to access credit card information.  According to the complain, approximately 69,000 accounts have incurred fraudulent charges.

Violations of the FTC ACT

  • Deception:  Defendants represented that they had “implemented reasonable and appropriate measure to protect personal information against unauthorized access.”  They failed to take such actions. The statements they made about security were false or misleading and constitute a violation of the act under deceptive acts or practices.
  •  Unfairness: “Defendants have failed to employ reasonable and appropriate measure to protect personal information against unauthorized access.” This failure has caused substantial injury to consumers and “is not outweighed by countervailing benefits to consumer or competition.”

ReliefThe FTC is asking the court for a permanent injunction to prevent the Defendants from future violations of the act; for the court to award relief to redress the injury to the consumers and for Plaintiff court costs.

Published In: Antitrust & Trade Regulation Updates, General Business Updates, Consumer Protection Updates, Privacy Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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