NYT: Senator Opens Investigation of Data Brokers

http://www.nytimes.com/2012/10/11/technology/senator-opens-investigation-of-data-brokers.html

October 10, 2012

Senator Opens Investigation of Data Brokers

By NATASHA SINGER

The multibillion-dollar data brokerage industry, a growing force in online marketing, is drawing intensified government scrutiny.

On Wednesday, Senator John D. Rockefeller IV, Democrat of West Virginia, opened an extensive investigation of nine leading information brokers. [1] Because Americans now conduct much of their daily business online, the senator said he was concerned that "an unprecedented amount" of personal, medical and financial information about people could be collected, mined and sold, to the potential detriment of consumers.

"An ever-increasing percentage of their lives will be available for download, and the digital footprint they will inevitably leave behind will become more specific and potentially damaging, if used improperly," Mr. Rockefeller, who is the chairman of the Senate Committee on Commerce, Science and Transportation, wrote in letters to the data brokers. "It is critical that we understand what information companies like yours are already collecting and selling."

Linda A. Woolley, the acting chief executive of the Direct Marketing Association, a trade group, called the senator's investigation "a baseless fishing expedition."

"I hope Senator Rockefeller understands what he's tampering with," she said in an e-mailed statement.

The Senate investigation represents the second Congressional inquiry into the industry's practices this year. In July, Representative Edward J. Markey, Democrat of Massachusetts, and Representative Joe L. Barton, Republican of Texas, co-chairmen of the Bipartisan Congressional Privacy Caucus, began a House inquiry into data compilers, [2] which is ongoing. And the Federal Trade Commission has been looking into the practices of about a dozen major data brokers.

Data brokers collect a wide variety of information from public sources and third parties, including details like consumers' financial status, race or ethnicity, buying history, hobbies, health concerns, travel preferences, Internet providers and social networks.

The companies often use the information for a practice called "database marketing" -- that is, using data mining to help clients like retailers, banks and airlines tailor marketing pitches to their best customers or identify potential new ones.

Collecting, analyzing and selling such information for marketing purposes is perfectly legal. Indeed, it's a huge business. Some data brokers have said they maintain several thousand details on the majority of adults in the United States.

But some legislators and regulators say they are concerned that neither they nor consumers know the extent of the material that data brokers collect; whom they disclose or sell it to; and exactly what they are doing with it.

Unlike consumer reporting agencies, which are required by federal law to show people their own credit reports and allow them to correct errors, data brokers are not required to show consumers information collected about them for marketing purposes.

Earlier this year in a report on protecting consumer privacy, [3] the F.T.C. urged the industry to create a centralized Web portal where consumers could learn about companies' practices and their options for controlling information collected about them. The agency also recommended that Congress pass legislation [4] giving people access to information that data brokers hold about them. Underlying regulators' efforts is their concern that some information brokers could create financial dossiers about individuals that are akin to credit reports and use them to unfairly exclude individual consumers from certain offers or charge some people higher prices than others.

"There are data brokers whose marketing lists may not cross the line into credit reports but come very close," said Julie Brill, a member of the F.T.C. "The question is whether the lists are being used for marketing purposes or for something very close to credit purposes."

Industry representatives say that data-based marketers use consumer marketing data for legitimate commercial practices, not for regulated purposes like making offers of credit or insurance.

They add that collecting marketing data benefits consumers because it allows companies to send people offers for products and services they are interested in. It also increases efficiency because companies know ahead of time not to send pitches for, say, lawn mowers to people who live in apartments.

"Consumers love getting what they want -- information, products, benefits, upgrades -- when they want it," said Ms. Woolley of the Direct Marketing Association. "There is no evidence that data-driven marketing harms consumers in any way."

On Wednesday, Mr. Rockefeller sent letters of inquiry to established database marketers like Acxiom, [5] headquartered in Little Rock, Ark.; credit reporting agencies like Experian and Equifax, which have separate marketing arms; and newer companies, like Rapleaf and Datalogix, that specialize in helping companies pursue online and mobile consumers.

Mr. Rockefeller asked each company to provide extensive business details about its data collection operations since Jan. 1, 2009.

Scott Howe, the chief executive of Acxiom, said the company looked "forward to continuing to work with the Congress to help the members gain a deeper understanding of Acxiom's business and how people and the economy benefit from the appropriate use of data."

In an e-mail, Demitra L. Wilson, a spokeswoman for Equifax, said the company is not a data broker and that the only a small portion of its business involves unregulated, aggregated data about consumers.

And Gerry Tschopp, a spokesman for Experian, said the company welcomed the opportunity to discuss "the benefits of the appropriate use of consumer data" with legislators.

Representatives of Datalogix and Rapleaf did not immediately respond to e-mail and phone requests for comment.

Mr. Rockefeller asked the companies to respond by Nov. 2.

[1] http://commerce.senate.gov/public/index.cfm?p=PressReleases&ContentRecord_id=a42a865a-be30-4171-8278-86ee0a8c76fb

[2] http://www.nytimes.com/2012/07/25/technology/congress-opens-inquiry-into-data-brokers.html

[3] http://www.ftc.gov/opa/2012/03/privacyframework.shtm

[4] http://www.nytimes.com/2012/03/27/business/ftc-seeks-privacy-legislation.html

[5] http://www.nytimes.com/2012/06/17/technology/acxiom-the-quiet-giant-of-consumer-database-marketing.html