How ‘data brokers’ are striking gold

A growing number of “data brokers” are raking in profits by scouring through the Internet to build profiles of consumers.

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By looking at purchasing histories, social media pages and more, the brokers can piece together pictures of individual consumers that can help companies target their advertising with great precision.

Privacy advocates fear the information could be used for more nefarious ends, and the industry has caught the attention of federal regulators.

This week, the Federal Trade Commission issued a long-awaited report on the data broker industry that highlights how the companies collect and use data about consumers. The agency called on Congress to pass legislation requiring “transparency and accountability” in the industry.

The report comes on the heels of a similar report from the Senate Commerce Committee last year, and a call from the White House for a new privacy law.

The reports from the FTC and the Senate Commerce Committee both said data brokers group consumers together into categories for the use of marketers.

The FTC said the categories include “Plus-size Apparel,” “African-American Professional,” “Biker/Hell’s Angels,” “Allergy Sufferer,” “Exercise – Sporty Living” and “Working Class Mom.”

The Senate Commerce Committee report cited categorizations such as “Burdened by Debt: Singles,” “X-tra Needy,” “Credit Crunched: City Families,” “Ethnic Second-City Strugglers,” “Fragile Families” and “Small Town Shallow Pockets.”

The companies build the profiles based on publicly available information on social media platforms, retailers’ records of offline and online purchases made with credit and debit cards and information that consumers volunteer online, such as online surveys, warranty forms and sweepstakes entries.

The data also comes from public documents made available by federal, state and local governments, such as court records, mortgages and voter registration information.

Data brokers collect information about consumers “in ways that consumers don’t really understand,” said Chris Calabrese, a privacy lawyer at the American Civil Liberties Union (ACLU).

The companies collect and sell information about consumer’s race, religion and ethnicity, which “would raise red flags for most people,” he said.

“Consumers didn’t volunteer to be a part of this system” and “don’t get value from this.”

Privacy advocates worry that, in addition to being collected without people’s knowledge, the information is being used to harm consumers.

Pam Dixon, executive director of the World Privacy Forum, said she is mostly concerned about “the grey area” between using data about consumers to target ads and using data about consumers in ways that are restricted by financial and health privacy laws.

“When information about you influences your marketplace opportunities and your wallet,” consumers need protections, she said.

As an example, Dixon said a healthcare company could charge customers more based on whether they purchase plus-sized clothing or items associated with a preexisting health condition.

Dixon said she also worries about financial service companies such as payday lenders offering harmful interest rates to consumers living in areas that have been identified as financially less stable.

Representatives of the data broker industry say those fears are overblown.

While it’s easy to come up with worst-case scenarios for uses of consumer data, “there’s no evidence that it’s actually happening,” according to Peggy Hudson, senior vice president of government affairs for the Direct Marketing Association, which represents data brokers.

The reports from the FTC and the Senate Commerce Committee identify “major benefits and only theoretical harms,” she said.

“The information that our members use is used for marketing only.”

Hudson pointed to self-regulatory efforts within the data broker industry that she said are “more nimble” and can adapt to changing technologies faster than legislation, she said.

“If there is harm out there, we will work to address it.”

Hudson also expressed optimism about consumer awareness of data collection.

In addition to industry efforts to increase transparency around the issue, consumers are generally aware that they are receiving targeted ads based on their behavior, she said.

But pressure is mounting on the industry to be more transparent.

Earlier this year, Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.) introduced a bill that would require data brokers to allow consumers to opt-out of certain data collection practices and correct inaccurate information about themselves.

The FTC, meanwhile, called for Congress to require data brokers to be more upfront about how they collect, use and share data.

Congress should also require data brokers to allow consumers to correct or suppress information, depending on the use of the data, the FTC said.

Calabrese echoed the calls for data brokers to be more transparent.

Last year, one data broker — Acxiom — launched AboutTheData.com, which allows people to view the information that the company has collected about them.

Because the site requires an email address to register and includes only some of the information about each consumer, it is “a step in the right direction, but a flawed one,” Calabrese said.