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September 22, 2014

U.S. Cracking Down on Data Brokers

The U.S. is stepping scrutiny of big data companies that regulators increasing view as “stewards of information detailing nearly every facet of consumers’ lives.”

The U.S. Federal Trade Commission (FTC) has been leading the charge with tougher enforcement of consumer protection laws. Earlier this year, it reached settlements with two data brokers for violations of the Fair Credit Reporting Act. The web site Instant Checkmate and InfoTrack Information Services both agreed to pay civil fines and permanent injunctions against continuing their alleged illegal practices.

The settlements focused on web sites that provided background checks on consumers to prospective employers and landlords. Among other things, regulators charged that InfoTrack provided “inaccurate information suggesting that job applicants potentially were registered sex offenders, possibly causing employers to reject their job application.”

The FTC complaint against San Diego-based Instant Checkmate alleged that it “failed to require that users of its reports identify themselves or certify the purpose for which they were seeking consumers’ information.” Instant Checkmate was fined $525,000; InfoTrack was fined $1 million.

The stepped up enforcement is part of a concerted effort by FTC Chairwoman Edith Ramirez to crack down on data brokers whose practices raise “the prospect of differential treatment of low-income and underserved populations.”

Ramirez told a recent FTC workshop on big data that an agency study found that some data brokers are using techniques like “predictive scoring” to make unfair or illegal distinctions based on ethnicity, income, age and health. The result, she warned, is a kind of “digital redlining” or “discrimination by algorithm.”

Latanya Sweeney, the FTC’s chief technologist, added that a recent analysis of Google Network ads showed that web sites popular with specific ethnic groups like an African American fraternity were more likely to be served background check ads offering to undercover possible criminal records. The FTC analysis also found more offers for high-risk credits cards on the fraternity site while secure credit cards ads tended to show up on web sites targeting Ivy League graduates.

“The proliferation of connected devices and the plummeting cost of collecting, storing and processing information and the ability of data brokers and others to combine offline and online data means that companies can accumulate virtually unlimited amounts of consumer information and store it indefinitely,” Ramirez told the FTC big data workshop.

“Using predictive analytics, they can learn a surprising amount about each of us from this data.”

While beefing up enforcement of existing consumer protection laws, the FTC chief said the agency also is considering whether the excesses of some data brokers will require new consumer protections. Big data can be enormously beneficial to society and individuals or it can be deeply detrimental, Ramirez warned. “It will almost certainly be a mixture of the two.”

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