The breach concerns the way in which both organisations processed and stored personal information.
As a result the ICO has ordered Carphone Warehouse and TalkTalk to improve their data protection practices or face prosecution after both companies failed to meet the basic principles of the DPA.
The investigation revealed that Carphone Warehouse and TalkTalk had been opening customer accounts in the wrong name and passing inaccurate information to credit reference and debt collection agencies.
Security failings had also led to customers being able to view other customers' account details online. In addition, the ICO found that the companies had not responded to requests by individuals for information held about them.
Mick Gorrill, assistant commissioner at the ICO, said: "The DPA gives us all important rights, including the right to correct inaccurate information and to find out what information an organisation holds on us.
"Organisations that process personal information must comply with the DPA and, where we find that this is not the case, the ICO will take enforcement action.
"Carphone Warehouse and TalkTalk's use of inaccurate and incorrect personal data has caused real damage and distress to customers.
"We have now ordered them to take the necessary steps to ensure customers' personal information is sufficiently protected."
The ICO has issued Carphone Warehouse and TalkTalk with Enforcement Notices ordering them to comply with the principles of the DPA.
Failure to comply is a criminal offence and may result in the ICO taking further action.
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