The government was defeated over a Liberal Democrat amendment proposing strengthened punishment for those breaching data protection rules yesterday.
Peers voted by a margin of just four votes in favour of the amendment to the criminal justice and immigration bill, which adds to the list of offences to which data controllers are liable.
Since HM Revenue and Customs revealed it had lost the data of 25 million child benefit claimants the government has been struck by a wave of similar news stories.
Last month the Commons' human rights committee said it had grave concerns about government protocol in its examination of 18 separate data security breaches.
Baroness Miller of Chilthorne Domer proposed yesterday that those charged with looking after personal data should be guilty of an offence if they disclose it to another person and "repeatedly or negligently" allow it to be disclosed.
"Data controllers currently do not face anything like adequate sanctions if they intentionally or recklessly disclose information, or indeed are repeatedly negligent," she told peers.
Baroness Miller attacked the government for having had time to address the issue and argued the issue was not confined to the public sector.
"The difficulty with that is that if you are a member of the public, it does not matter if it is the public sector or the private sector that has lost your data; the fact is, your data have been lost," she pointed out.
A Conservative amendment tabled on the same issue confined itself to the public sector and, as its spokesperson Lord Henley acknowledged, those working under a government contract.
The government opposed the amendment. Lord Hunt said backing the additional offences would be "immature" because of ongoing reviews into data security.
"A number of imminent reviews and reports will inform both the actions that the government have to take as a government and whether legislative changes should be made," he explained.
"That is why we think it would be premature to legislate at this point."
The Tories backed the government when it came to the vote on the amendment, but the Liberal Democrats were victorious by 134 votes to 130.