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June 3, 2014

Data Brokers Coming Under Scrutiny

Federal regulators are urging Congress to crack down on data brokers who collect and sell personal information without consumers’ knowledge.

The U.S. Federal Trade Commission warned in a recent report that there is a “fundamental lack of transparency” among companies that trade in consumer data. The report urged lawmakers to provide consumers with new tools to protect their data.

An industry group representing data brokers disputed the agency’s warnings.

The report, “Data Brokers: A Call for Transparency and Accountability,” adds to the growing furor over the sale of medical, financial, and other personal data that consumers themselves may not even have access to. Critics point to health care initiatives that would use big data analytics to sift through huge amounts of medical information. While one federal initiative is designed to improve health outcomes, critics warned that huge databases of health statistics could also be tapped by unscrupulous data brokers.

“You may not know them, but data brokers know you,” warned FTC chairwoman Edith Ramirez.

The FTC studied nine data brokers who collect personal information about consumers from a variety of sources.

The data is then sold for a variety of purposes, including identity verification and product marketing.

Five of the brokers examined sold marketing data while four others sold “risk mitigation products” used by clients to verify a customer’s identity or to detect fraud. Three brokers scrutinized by the agency operated “people search” websites.

One concern, the FTC stressed, is that data brokers seldom interact with consumers and individuals are often unaware that personal data is being collected much less the details of industry practices.

Congress has acted to improve transparency in the financial sector. It passed the Fair Credit Reporting Act in 1970 to address the lack of transparency among lenders. The Obama administration proposed a Consumer Privacy Bill of Rights in 2012.

The FTC report recommended that “Congress consider legislation requiring data brokers to provide consumers access to their data, including sensitive data held about them, at a reasonable level of detail, and the ability to opt out of having it shared for marketing purposes.”

It also recommended four requirements for data legislation:

  • Enable consumers to identify data brokers so they may exercise opt-out rights related to data collection.
  • Require data brokers to disclose to consumers that they not only use personal data but also “derive from that data certain data elements” using data analytics tools. The requirement could be met via data broker web sites, the FTC said.
  • Require data brokers to disclose the names and potentially categories of their data sources. This would allow consumers to, for example, correct data on the original public record source.
  • Require that companies using data brokers services inform customers that they share consumer data with brokers. Consumers could then exercise their right to opt out of data sharing with brokers.

Generally, the FTC called on the data broker industry to adopt “privacy-by-design” practices.

Industry groups took issue with the FTC report. “The report finds no actual harm to consumers, and only suggests potential misuses that do not occur,” Peggy Hudson, senior vice president of government affairs at the Direct Marketing Association, said in a statement issued in response to the FTC study.

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Feds Strive to Balance Data Sharing and Risk

Discriminating Aspects of Big Data