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FTC Launches Investigation into Data Brokerage Companies

| Dec 20, 2012 | News

In response to growing apprehension about the largely unregulated nature of the rapidly expanding data collection industry, the Federal Trade Commission (FTC) has launched a comprehensive investigation into the practices of nine major data brokerage companies.

The Digital Privacy.jpg Commission has solicited detailed information from nine data brokers and hopes to use the findings to improve the currently underdeveloped regulatory framework governing such practices.
“We are going to get answers,” stated David C. Vladeck, director of the Bureau of Consumer Protection at the FTC, indicating the agency’s intent to make recommendations to Congress about whether increased monitoring of the industry is necessary.
In general, data brokerage companies operate by collecting personal information about consumers from a wide range of sources, and selling that valuable data to other organizations. Companies purchasing the data commonly use it for marketing, identity verification, financial fraud detection, and other purposes.
In an attempt to clarify details surrounding such practices, the FTC issued orders requiring each firm under scrutiny to submit information about its practices, including how it gathers and sells consumer data, as well as what privacy protections it maintains.
The FTC will probe the extent to which the companies retain information after it is sold, as well as the extent to which industry practices typically provide consumers the opportunity to view and correct any inaccurate information collected about them. The Commission will investigate whether the companies typically elicit consumer consent, and if they allow consumers to opt out of data collection.
The FTC plans to measure the extent to which these companies are engaging in practices that violate consumers’ privacy. Regulators worry that a lack of transparency in the data collection process has created privacy risks unknown to consumers, a concern reflected in a FTC consumer privacy report issued in March.
Regulators have expressed a desire to combat the “invisibility” of data brokers, a prevalent concern within the FTC report. While such companies may gather large amounts of data about consumers, they do not interact with the consumers themselves; rather, they lift information from public records and other available sources. Therefore, many consumers are unaware that companies are accessing and selling their data. A lack of transparency may mean that, even if the companies permit consumers to view and correct their personal data, consumers may not know they have such access rights, especially if they are unaware of the practice of data brokerage altogether.
In the FTC’s report, the Commission offered recommendations to data brokers that would mitigate these “invisibility” concerns, suggesting, for example, that brokers collaborate in creating a central Web site accessible to the public that would describe how they collect and analyze personal data and inform consumers of their rights.  Upon conclusion of the current investigation, the FTC hopes to supplement its prior findings with a more in-depth understanding of existing industry practices in an attempt to forge long-term privacy solutions.
FTC regulators involved in the current investigation have expressed additional concerns, including that the presence of such stores of consumer information will lead to profiling of consumers, a practice that may restrict the types of opportunities available to certain consumers. For example, the FTC’s Vladeck expressed concern that a consumer who purchased a deep-fat fryer online, for example, would be classified as a “health risk” and could be denied future online offers for health insurance based on data collected.
Data brokerage companies contend that there is no need for concern over the industry or its policies, and that they will cooperate fully with the investigation.   Rather than denying information to certain consumer groups, data brokers contend that their practices are beneficial to all consumers, customizing advertisements to their particular tastes, but not barring them from accessing helpful information.
Jerry Cerasale, Senior Vice President for Government Affairs of the Direct Marketing Association, stated that customized marketing may result in search results or advertisements tailored to indicated preferences, but they do not “create a barrier for [the consumer] to look elsewhere.”
The FTC plans to collect the responses from each company and prepare a further report which will include recommendations to Congress about whether additional regulation of the industry is necessary to protect consumers.
The Commission initiated the current investigation just months after Representatives Edward Markey (D-Mass.) and Joe Barton (R-Texas) first contacted the data brokers requesting information about industry practices this past summer. The FTC, as opposed to many Congressional investigative bodies, keeps specific findings from such inquiries confidential. For this reason, analysts expect the Commission’s actions to yield more fruitful results than did the legislative inquiries.
The FTC voted 5-0 on December 18, 2012, to approve issuing the administrative subpoenas to each of the nine companies.

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