WASHINGTON – A Senate panel released a report and held a hearing before the holiday break on the multibillion-dollar and largely unregulated data broker industry, which showed that these firms have several avenues to collect sensitive data on consumers.
To better understand how firms in the industry operate, the Senate Commerce Committee reached out last year to nine companies that sell consumer data for marketing purposes. Based on this information, the committee staff was able to draw some conclusions in a 36-page report.
Data brokers collect a huge volume of detailed data about consumers, from what illnesses they may have, to what car they own and what types of soap they buy. They use this information to create consumer profiles that categorize consumers, or “score” them, without their consent.
Data brokers also identify financially vulnerable consumers by putting them into categories like “rural and barely making it,” “ethnic second city strugglers,” and “credit-crunched: city families.”
Credit scores and medical records are not available to data brokers under federal law, but these “e-scores” are not covered by those laws.
Sen. Jay Rockefeller (D-W.Va.), the committee chairman, has been vocal on privacy issues for years and has sponsored legislation that would give consumers the ability to prevent online companies from tracking them on the Web and using that information for profit. During the hearing, he did not mention any specific legislation but reiterated his commitment to continue scrutinizing the industry.
“The [National Security Agency] is so secure in its protection of privacy as compared to this group that we’re talking to, these data brokers,” he said. “It’s not even close.”
Rockefeller expressed his dissatisfaction with three data brokers – Acxiom, Experian, and Epsilon – who had failed to turn over information to the committee for its investigation.
“To date they have not given me complete answers,” Rockefeller said. “I am putting these three companies on notice today that I am not satisfied with their responses and am considering further steps I can take to get this information.”
Epsilon said in a statement it had not participated in order “to protect our business, and cannot release proprietary competitive information.”
Tony Hadley, senior vice president of government affairs and public policy at Experian, said the company had submitted 3,000 pages of response documents for the report. He told the committee the company could not disclose specific information about its clients, saying it would put the company at a disadvantage against its competitors.
Hadley said that data brokers significantly enhance economic productivity and provide many benefits to consumers. For example, marketing data “brings lower prices and greater convenience to consumers by strengthening competition,” he said.
“This is a serious subject,” Rockefeller said. “We have the feeling people are getting scammed or screwed. …It’s up to you to talk us out of that.”
According to the report, marketers maintain databases that track and sell the names of people who have certain illnesses.
Pam Dixon, executive director of the World Privacy Forum, said that data brokers have compiled dossiers on millions of people, categorizing them by type of disease, including cancer, Alzheimer’s and even bed wetting.
Dixon warned that at least one data broker sells lists of rape victims and victims of domestic violence.
“The data broker industry as it is today does not have constraints and does not have shame. It will sell any information about any person regardless of sensitivity for 7.9 cents a name, which is the price of a list of rape sufferers which was recently sold,” she said.
Rockefeller criticized data brokers on several fronts, but he seemed particularly troubled by the idea that some of these companies classify consumers in a way that might open the doors for predatory lending. In addition, the senator seemed equally concerned that some data brokers classify consumers based on their medical or financial weaknesses.
Such classifications “seem tailor-made to businesses that seek to take advantage of consumers,” he said, adding that he was “revolted” by the practice.
The report notes that one data broker sells a tool to identify consumers, including widows and military personnel, who might not have access to financial services and, as a result, might accept high-interest rate payday loans.
The panel found out that data brokers use “pseudo-scores” based on non-financial factors in lieu of actual credit scores to circumvent the Fair Credit Reporting Act.
The practice of grouping consumers into categories for marketing purposes is not new. The industry can be traced back to the 1970s when some firms began collecting data from public records to help marketers target consumers based on their consumption preferences.
Today, however, there are various ways to obtain consumer data thanks to the Internet and advances in computing and data analysis.
“Tons of consumers are now using computers, smart phones, and tablets to make purchases, plan trips, and research personal financial and health questions, among other activities,” the report notes. “These digitally recorded decisions provide insights into the consumer’s habits, preferences, and financial and health status.”
The data broker industry generated $156 billion in revenue in 2012.
Data brokers have consistently asserted Congress should not impose any consumer privacy legislation on the industry and, instead, allow firms to regulate themselves.
Jerry Cerasale, the chief lobbyist for Direct Marketing Association (DMA), tried to convince the panel that new laws are not needed and could actually freeze the industry.
The DMA launched the Data-Driven Marketing Institute and recently released a study to quantify the data broker industry’s contribution to the economy.
He said strong privacy laws already exist in the United States, which are complemented by the industry’s self-regulation.
At the request of Rockefeller, the Government Accountability Office released a report last month that found that under federal law consumers do not have a right to know what information data brokers have compiled about them for marketing purposes. The GAO report concluded that Congress should consider legislation to provide consumers with appropriate privacy protections.