Businesses Take Note: The FTC Assesses Big Data Practices

by Snell & Wilmer
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[co-author: Justin Powley]

Businesses engaged in big data practices should be mindful of a new report issued by the Federal Trade Commission (FTC), in which the FTC serves notice of its intention to monitor areas where big data practices can violate consumer protection and equal opportunity laws.

In the report, Big Data: A Tool for Inclusion or Exclusion? the FTC examines “the commercial use of big data consisting of consumer information and focuses on the impact of big data on low-income and underserved populations.”  The report followed a public workshop held in September 2014 where the FTC brought together stakeholders to discuss how big data can be used both to create opportunities for consumers and to exclude them from such opportunities.

The FTC seems intent on doing what it can to assure that big data practices focus on creating opportunities, rather than on discriminatory actions.

What is “Big Data”?

“Big data” has been variously defined since its inception.  One definition found (via Google, of course) is “extremely large data sets that may be analyzed computationally to reveal patterns, trends and associations, especially relating to human behavior and interactions”.  Or, as former HP CEO Carly Fiorina once explained, “the goal is to turn data into information, and information into insight.”  So, as the FTC has recognized, big data is a tool, and like any tool, it can be used for helpful and harmful purposes.

The “Three Vs” of Big Data

In the report, the FTC explains that big data relies on the “three V’s”: volume, velocity and variety.   Volume refers to the vast quantity of data that can now be gathered; velocity refers to the speed at which big data can now be accumulated and analyzed; and variety refers to the breadth of data that can now be combined and analyzed effectively.  Each of the “three V’s” grows with technology and permit the analysis and use of big data in ways that were not previously possible.

Big Data’s Life Cycle

The FTC describes the life cycle of big data as involving four phases:

  • the collection phase, in which small amounts of data are gathered over time from a variety of data sources;
  • the compilation and consolidation phase, in which the small amounts of data are compiled and consolidated into large data sets, creating “big data;
  • the data analytics phase, where the big data is analyzed to uncover patterns and features in the data sets; and
  • the final phase, where big data is used by businesses to develop new products, inform decision making, individualize marketing, and target new customers.

Potential Benefits and Risks of Big Data Practices

The FTC notes that big data can be used to provide numerous opportunities for improvements in society.  For example, big data can be used to:

  • more efficiently provide matching products and services to consumers;
  • increase educational opportunities;
  • provide access to credit using non-traditional methods;
  • tailor healthcare to individual patients’ characteristics;
  • provide specialized healthcare to underserved communities; and
  • increase equal access to employment to promote a more diverse workforce.

However, the FTC also expresses concern that big data can be used as a tool to discriminate.  There may be concerns about the quality of data, including its accuracy, completeness and representativeness.   For example, hidden biases in the collection, analysis, and interpretation of the data may inadvertently exclude certain populations (generally, underserved communities).  Big data may also be used to categorize consumers in ways that exclude certain populations.  This categorization may result in:

  • individuals mistakenly being denied opportunities based on the actions of others;
  • create or reinforce existing disparities;
  • expose sensitive information;
  • assist in the targeting of vulnerable consumers for fraud;
  • create new justifications for exclusion;
  • result in high-priced goods and services for lower income communities; or
  • weaken the effectiveness of consumer choice.

Previously, in December 2013 the Senate Commerce, Science and Transportation Committee issued a report that criticized leading data brokers for their lack of transparency when it comes to explaining their practices in gathering personal data on almost all Americans, and how such data can be used to target the financially vulnerable.

Laws That May Apply to Big Data Practices

The FTC recognizes that in the 21st century,  the challenge for a business is not whether it should use big data, but rather how to use big data in a way that avoids the potential negative results outlined above.  To use big data for appropriate purposes, businesses need to understand the laws that may apply to the collection and application of big data.  The FTC notes a few current laws that may apply to big data usage, including the Fair Credit Reporting Act (FCRA), equal opportunity laws, and the Federal Trade Commission Act.

The Fair Credit Reporting Act

The FCRA applies to consumer reporting agencies that compile, use, and sell consumer reports, such as those reports used to determine eligibility for credit, employment, insurance, and housing benefits.  The report notes that if a business is compiling or using big data to make similar eligibility decisions, it should make sure that it is in compliance with all the privacy provisions of the FCRA.

For example, some FCRA requirements include having reasonable procedures in place to ensure accuracy of the big data, providing notices to users of the big data reports, allowing consumers to access the data the business has gathered about them, and allowing consumers to correct inaccuracies that may arise in the data.

Similarly, the FCRA requires that businesses that use big data for employment purposes certify that it has a “permissible purpose” for obtaining the information and that it will not use the information in a way that violates equal opportunity laws.

Equal Opportunity Laws

When using, compiling, or selling big data, businesses should also consider federal equal opportunity laws, including the Equal Credit Opportunity Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Fair Housing Act, and the Genetic Information Nondiscrimination Act.

These laws collectively prohibit discrimination based on protected characteristics such as race, color, sex or gender, religion, age, disability status, national origin, marital status, and genetic information.  Discrimination under these laws may take the form of a “disparate treatment,” when a business treats an applicant differently based on a protected characteristic, or a “disparate impact,” when a business has neutral policies or practices that have a disproportionate adverse effect or impact on a protected class.  For example, the report notes that a disparate impact may occur where a business does not expressly screen job applicants based on gender, but through its use of big data in screening job applicants, a particular gender is disproportionally screened out.

The Federal Trade Commission Act

Section 5 of the Federal Trade Commission Act prohibits unfair or deceptive acts and practices.  Businesses using big data and big data analytics should be mindful to refrain from violating a material promise to a consumer, such as a promise to refrain from sharing data with third parties.  Business should also take care to reasonably secure consumers’ data where that failure is likely to cause substantial injury, such as when maintaining social security numbers or medical information.  Moreover, the FTC notes that businesses should take steps to avoid selling big data analytics if it knows or has reason to know that the buyer will use the products for fraudulent purposes.

Conclusion

Given the growing importance of big data in our economy, business should expect that the FTC will continue to monitor big data practices to evaluate whether they remain compliant with existing laws, including the FTC Act, the FCRA and various equal opportunity laws.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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