Feds call for new limits on data brokers

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The FTC wants Congress to enact new rules on companies that comb through data, then sort and sell it to consumer-focused marketers.

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We can’t see or hear them, but as we go about our daily lives online and off, data brokers silently collect vital information about us.

They crunch it. They sell it. They slice and dice it to create lifestyle classifications, with names like Cholesterol Focus or Twitter User with 250+ Friends, that help companies sell stuff to us.

And it’s time to rein them in, the government says.

The Federal Trade Commission (FTC) is urging Congress to enact broad legislation to give consumers more control over their information. In a report Tuesday, the commission decried a “fundamental lack of transparency” in an industry whose practices pose numerous potential risks to consumers.

The report does not identify any illegal activity but recommends Congress require a central clearinghouse, such as an online portal, where consumers can see the behind-the-scenes brokers, find out where they get their information and exercise opt-out rights.

Companies that interact directly with consumers, such as retailers, should have to prominently disclose that they share consumer data with brokers and give customers the ability to opt out of the sharing. Congress should also protect sensitive information, such as certain health data, by requiring organizations to get a customer’s explicit consent before collecting it.

The FTC study was based on information provided by nine data brokers, including eBureau in St. Cloud, via subpoenas issued in late 2012.

“The extent of consumer profiling today means that data brokers often know as much — or even more — about us than our family and friends, including our online and in-store purchases, our political and religious affiliations, our income and socio-economic status, and more,” FTC Chairwoman Edith Ramirez said in a statement with the report. “It’s time to bring transparency and accountability to bear on this industry on behalf of consumers, many of whom are unaware that data brokers even exist.”

No harm detailed, group says

The Direct Marketing Association, whose members include data brokers, said it has long supported transparency and that the FTC report doesn’t document any actual harm to consumers.

A recent study commissioned by the association’s Data-Driven Marketing Institute estimates that $110 billion in revenue and 475,000 jobs nationally depend on the ability of companies to share information for data-driven marketing. The FTC’s recommendations, if enacted, would be a blow to the industry, said Peggy Hudson, senior vice president of government affairs for the Direct Marketing Association.

“It would rob Americans of hundreds of thousands of jobs, and the cost impact would huge,” Hudson said.

Existing laws aren’t sufficient to address how data brokers handle sensitive data in terms of marketing or risk mitigation, the FTC says, and no laws require data brokers to keep consumer data private unless the brokers are using it for credit, employment, insurance, housing or similar purchases.

In a call with reporters Tuesday, Ramirez said the FTC picked the nine brokers because it felt they represented a cross section of a complicated industry. She said she found the “sheer magnitude” of the information gathering and trading “quite astonishing.”

One data broker’s database, the FTC noted, is stuffed with information on 1.4 billion consumer transactions and over 700 billion aggregated data elements, and one broker has 3,000 data segments to describe nearly every U.S. consumer.

Among the many segments that brokers have developed is Urban Scramble, which includes a high concentration of Latinos and African-Americans with low incomes, and Rural Everlasting, which covers an over-66 crowd with “low educational attainment and low net worths.”

Then there’s Leans Left and Upscale Retail Card Holder.

The FTC said in the report that while it didn’t find evidence of discrimination, abuses are foreseeable and some of the segmentation is “disconcerting.”

The nine brokers ordered to supply information for the study are Acxiom, CoreLogic, Datalogix, eBureau, ID Analytics, Intelius, Peekyou, Rapleaf and Recorded Future. Together they racked up sales of $426 million last year.

  • How data brokers peg US

    • Leans Left

    • Upscale Retail Card Holder

    • Winter Activity Enthusiast

    • Mail Order Responder

    • Married Sophisticate

    • Rural Everlasting

    How data brokers work

    Data brokers collect information about consumers from a wide variety of commercial, government and other public sources. They use a person’s name, address, homeownership status, age and certain derived data. A data broker might infer interests because a person has a boating license, a Wired magazine subscription or loyalty to a car brand because of how many were purchased. The data brokers use this actual and derived data to create products, such as advertising and marketing, for clients in a wide variety of industries.

    FTC recommendations

    • Allow consumers to access their own information

    • Allow consumers to suppress use of their information

    • Disclose to consumers the data brokers’ sources of information

    • Disclose any limitations of opt-out option

    Source: FTC’s Data Brokers report

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