FTC calls for data broker regulation
Report details labels applied to consumers based on habits, income, ethnicity
Data brokers that keep files on consumers are labeling people by their ethnic backgrounds, income, and even by their hobbies, politics and health status, the Federal Trade Commission said in a report released Tuesday that calls for sweeping new regulations.
What kind of labels? Immigrants who speak mostly Spanish and have lower-than-average incomes are tabbed "Timeless Traditions." Single and over 66 with low education and net worth? You're "Rural Everlasting," said the report. Other consumers may be tagged with "Allergy Sufferer," "Bible Lifestyle" or "Plus-Size Apparel."
"You may not know them, but data brokers know you," FTC Chairwoman Edith Ramirez said in a conference call with reporters after releasing the report, "Data Brokers: A Call for Transparency and Accountability." "They know what you buy, your ethnicity ... your interests and hobbies."
The labels can be used to shape the offers -- and prices -- that individuals receive from businesses including retailers, banks and insurers, the agency said.
Most people are unaware of the details compiled about them in extensive marketing dossiers, and lack the ability to challenge and correct the information if it contains errors, the agency said.
The FTC called for legislation to increase transparency and accountability of data brokers' activities. Consumers should have ways to find out and correct the information compiled on them, the agency said, and should be allowed to opt out of the use of their information, especially on sensitive topics such as health status.
Data can serve you -- or cost you
Someone who is offered coupons for healthy food might not object to being tagged as "Diabetes Interest," Ramirez said. But the same label could be used to mark the person as being a higher risk for insurance. Similarly, someone marked as a low-income urbanite might see online ads for expensive payday loans instead of for credit cards.
The call for legislation expanded on previous studies of big data that found consumer privacy protection lacking. In November 2013, the Government Accountability Office issued a report that chronicled how information resellers were invading personal lives. In February, U.S. Sens. John D. Rockefeller IV, D-W.Va., and Edward Markey, D-Mass., introduced a bill to put restrictions on data brokers and provide opt-out rights for consumers.
Based on an examination of nine major data brokers, the FTC report supported concerns that marketing companies have created a private sector Big Brother, while it also said that big data does hold benefits for the public.
Data brokers house vast troves of consumer transactions and other details, the report said, and share the information back and forth to create even more extensive files on individuals. One of the nine companies studied, Acxiom, has 3,000 different data points, which it calls "propensities," on file for almost all U.S. consumers. The data comes from sales reported by retailers, tracking on websites, magazine and newsletter subscriptions, social media traffic, public records on property and court actions, and other sources.
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In addition to shaping marketing pitches, the data trove is used to power search services for people's contact information, and for identity verification in fraud prevention. Details about hobbies or past addresses can be used in security questions to verify identity before making an online transaction.
The industry group Direct Marketing Association said, in an emailed response to the report, that industry self-regulatory practices already provide consumer protection such as the ability to opt out of marketing offers. The industry also said that the FTC study found only potential misuses of consumer information, not actual harm.
Marketing data are not used in eligibility decisions, such as granting a loan, where the use of consumer information is already governed by the Fair Credit Reporting Act, the association said. The FCRA sets transparency standards for credit reporting bureaus and requires consumer access and error correction for credit reports. Other federal law protects the use of health information, the marketing association said.
Those protections may not be enough to protect consumers from new uses of data, the FTC and consumer advocates said.
"In some cases it can be used in price discrimination," said Paul Stephens, director of policy and advocacy at the Privacy Rights Clearinghouse. For example, owning an iPhone or Apple computer might mark you as someone who is less price sensitive than other consumers, leading to higher prices in online offers for other products.
Information warehoused for fraud protection should be more tightly regulated so that it does not get into the wrong hands and contribute to fraud, Stephens said. Data brokers have been hacked for personal identifying information, and have in at least one case sold individuals' identifying details directly to fraudsters."The bottom line is, we're talking about an industry that is running amok with consumer information," he said.
Nine data companies profiled
The nine companies on which the FTC report was based are Acxiom, Corelogic, Datalogix, eBureau, ID Analytics, Intelius, PeekYou, Rapleaf and Recorded Future. The nine collected $426 million in 2012 from sales of data products.
Brokers that provide marketing services should be subject to legislation that creates a central portal for consumers to find individual data companies, access information in their profiles, and be allowed to opt out of the use of their data, the FTC said. Brokers should also be required to reveal when they have made inferences by combining and analyzing data -- the source of labels that profile individuals.
Categorized by race, age, income
Consumer categories in use by data brokers, the FTC reports, include:
- Urban Scramble, Mobile Mixers: Both labels contained high proportions of low-income Latinos and African-American.
- Rural Everlasting: Single men and women older than 66 with "low educational attainment and low net worths."
- Timeless Traditions: Immigrants, many of retirement age, who have been in the United States for 10 or more years, speak some English but prefer Spanish.
Some categories focus on consumers' financial statuses, such as "Pennywise Mortgagee," and "Upscale Retail Cardholder," and others note a person's interests or politics, such as "Truckin' & Stylin'," "Biker/Hell's Angel" and "Leans Left." Other categories noted in the FTC report also include "Resolute Renters," "Financial Newsletter Subscriber," "African-American Professional," "Affluent Baby-Boomer," "Spanish Speaker," "Allergy Sufferer," "Santa Fe/Native American Lifestyle," "Twitter User with 250+ Friends," " New Age/Organic Lifestyle," "Plus-Size Apparel," "Exercise - Sporty Living," "Expectant Parent" and "Cholesterol Focus."
Data brokers should also disclose information about the sources of their data, so that consumers could correct wrong information, the FTC said.
And for sensitive data such as health information, retailers and other businesses that deal directly with the public should be required to get a firm opt-in from consumers before collecting and sharing the information with data brokers, the report said.
"The industry suffers from a fundamental lack of transparency," Ramirez said.
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