Feds call for new limits on data brokers

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.

Gordon Meyer, founder and chief executive of eBureau, said in an e-mail that he hadn’t had time to read the report yet.

Meyer’s company is a major provider of predictive scoring and verification services for online marketers, with its “eScore” patented scoring algorithms helping businesses size up how profitable someone might be, for instance.

EBureau’s website boasts that its vast data network “seamlessly integrates billions of records across thousands of databases that cover nearly all U.S. adults and households.”

Meyer founded eBureau in 2004 after a career at catalog company Fingerhut.

A focus on data brokers

Maneesha Mithal, the FTC’s associate director of the division of privacy and identity protection, said the data brokers were “generally forthcoming” with the commission.

The FTC called for legislation on data brokers in its general 2012 consumer privacy report, but the new report is focused on data brokers and based on industry data, and goes further in its recommendations.

Sen. Jay Rockefeller, D-W.Va., and chairman of the Senate Commerce Committee, which has investigated data brokers, introduced a data broker bill in February to improve transparency and opt-out rights. Ramirez on Tuesday said the FTC wants to build on that.

David Vladeck, a former director of the FTC’s Bureau of Consumer Protection who now teaches at the Georgetown University Law Center, said the FTC was quite deliberate in the nine companies it chose. He said eBureau was chosen because “it’s involved in the financial services industry in a way that many of the other data brokers are not.”

Vladeck also said that one of the most troubling areas is products to help mitigate a merchant’s risk.

“If you are misidentified or if the information is in error, you could be wrongly denied the ability to cash a check,” he noted. “Or you could be offered instead of a prime loan, a subprime loan.”

Consumer advocates applauded the FTC’s move. Jeff Chester, head of the Center for Digital Democracy in Washington, called the report a “disturbing privacy wake-up call.”

“Unlike the White House’s Big Data reports issued earlier this month, the FTC study provides a much more realistic — and chilling — analysis of an out-of-control digital data collection industry,” Chester said.

Data brokers are one faction of the shapeless world of Big Data data sets. A multitude of institutions, agencies and companies collect and maintain information but are not data brokers because they don’t trade in it, for instance, and the collection of such data is not their sole purpose.

“The Big Data problem is an enormous universe, and this is one slice of it,” Georgetown’s Vladeck said.