“Getting to Know You, Getting to Know All About You…” FTC Data Brokers Report Calls for More Industry Transparency, Regulation in How Data Brokers Use Consumers’ Personal Information

by Davis Wright Tremaine LLP

“You may not know them, but data brokers know you,” Federal Trade Commission (FTC) Chairwoman Edith Ramirez said when she announced the release of the Commission’s newest report on the data broker industry. And in the FTC’s opinion, Congress and the data brokerage industry need to take concerted action to bring transparency to the industry, protect consumers’ personally identifiable information (PII), and prevent abuse and discrimination. But will the FTC’s recommendations have any real effect? In light of recent statements about “actual” vs. “potential” harm and the expanding scope of the Agency’s Section 5 enforcement authority, the answer is a definite “maybe.”

On May 27, 2014, the FTC released “Data Brokers: A Call for Transparency and Accountability,” a report that marks the conclusion of the FTC’s two-year study into data broker industry practices. Coming on the heels of the White House’s own Big Data Report the FTC’s Data Brokers Report highlights that “[i]n today’s economy, Big Data is big business” with numerous positive effects for both companies and consumers. And data brokers specifically play an important role in driving our economy through increased targeted marketing, identity verification and fraud detection.

But the Data Brokers Report also rang alarm bells about how data broker practices regarding PII collection, storage and sale all pose risks to consumers. The FTC painted a picture of a complex industry, opaque to most individuals, where consumers have little control over how the billions of consumer PII data points are collected, analyzed, aggregated, sold, and indefinitely stored by its players. And because data brokers operate out of the spotlight, few consumers know that these brokers share their information across a range of businesses.

The Commission noted that a consequence of industry practices is that data brokers make inferences about consumers in sensitive areas—such as an individual’s age, ethnicity, income levels, and health. Further, the Commission expressed concerns that consumers are at a disadvantage when it comes to controlling and correcting their information. “[B]ecause data brokers are not consumer-facing, consumers may not know where to go” to exercise any opt-out options or correct errors in their data. The FTC also revealed that many data brokers indefinitely store all of their collected data, even if later updated, which may create security risks for consumer PII.

At the heart of the Data Brokers Report’s findings is “a fundamental lack of transparency about data broker industry practices,” where “[m]uch of [the industry’s] activity takes place without consumers’ knowledge.” In response, FTC sounded the trumpet’s call for legislative action, recommending that Congress bring tighter regulations and greater consumer controls to the data broker industry.

Legislative Recommendations
Marketing Products
The Commission recommends that Congress adopt legislation to:

  • Give consumers greater access to their data, and the ability to opt-out of having their data shared for marketing purposes;
  • Create a centralized mechanism, such as an Internet portal, where data brokers can identify themselves, describe information collection and use practices, and give consumers links to access tools and opt-out options;
  • Require data brokers to provide consumers with a reasonable level of detail and access to their PII, including any sensitive data;
  • Mandate that data brokers clearly disclose to consumers that they make certain inferences on consumers based on their raw data; and
  • Require consumer-facing sources to
    • Prominently notify consumers that they share consumer data with data brokers;
    • Alert consumers about any possible opt-out options; and
    • Obtain consumers’ affirmative express consent before collecting and sharing “sensitive” information, such as certain health information, with data brokers.

Risk Mitigation Products
The Commission recommends that Congress adopt legislation to:

  • Provide consumers with transparency when a company uses a risk mitigation product that limits a consumer’s ability to complete a transaction, in order to protect consumers in situations not presently covered by the Fair Credit Reporting Act (FCRA); and
  • Require consumer-facing companies to provide consumers with the identity of the data broker that the company relied on if a risk mitigation product adversely impacts a consumer’s ability to complete a transaction or obtain a benefit.

People Searching Products
The Commission recommends that Congress adopt legislation to:

  • Allow consumers to access their own information held by data brokers offering people search products;
  • Allow consumers to opt-out of having their PII used for people-searching purposes;
  • Require such data brokers to clearly disclose the sources of a consumer’s PII so that the consumer can correct any errors in information at its source; and
  • Require such data brokers to disclose any limits of their opt-out provisions.

Best Practices Recommendations
The Commission also asked the data broker industry to adopt and strengthen several best practices. First, data brokers should implement “privacy-by-design,” where privacy issues are considered at every stage of product development, with special attention to limiting data collection to only what they “need” and properly dispose of data as it “becomes less useful.” Second, data brokers should devise and apply better measures to avoid collecting information from children and teens. Finally, brokers should take reasonable care to ensure that “downstream users of their data do not use it for eligibility determinations or for unlawful discriminatory purposes.”

While not in the actual Report, Commission Brill advocated in a separate statement that a “requirement that the sources of data broker information used for marketing purposes provide consumer control over collection—express affirmative consent for sensitive information collection, notice and choice for other information—would allow consumers to prevent the collection and use of data that might harm them by blocking information from entering marketing databases in the first place.” This approach was countered by Commissioner Wright, who “is wary of extending FCRA-like coverage,” including limitations on collection and use “to other uses and categories of information without first performing a more robust balancing of the benefits and costs associated with imposing these requirements.”

Practical Effects of the FTC’s Report
The FTC’s Data Brokers Report raises many of the same concerns for consumer privacy associated with Big Data that the White House flagged in its Big Data Report. The FTC’s call for congressional and industry action also echoed its suggestions for greater transparency in the data broker industry that the Commission made in its 2012 report, Protecting Consumer Privacy in an Era of Rapid Change: Recommendations for Businesses and Policymakers. Indeed, one senses a little frustration on the FTC’s part that this is not its first time asking Congress and data brokers to make the industry more intelligible and accessible for consumers.

But does the FTC’s report mean that there is going to be a sea change in policy or industry practice? The answer is: maybe.

Given the political climate on Capitol Hill, it’s unlikely that Congress will make any substantial headway on the FTC’s recommendations any time soon (though Senators Jay Rockefeller and Ed Markey have previously introduced the Data Broker Accountability and Transparency Act in the Senate). Then there is the question of whether the Data Brokers Report really asks anything more from data brokers than they already practice. In an interview posted on IAPP’s Privacy Advisor, data brokers see the FTC’s recommendations as largely measures that have been part of the industry’s code of conduct for years: ‘“The report essentially calls for [these measures] to be embodied in law,”’ according to Acxiom’s Chief Privacy Officer, Jennifer Barrett Glasgow, CIPP/US. So while the FTC’s report may raise eyebrows elsewhere, at least in the data broker industry, it doesn’t seem to point to anything new under the sun.

Other industry members find it curious that after a two-year study, the Report doesn’t even identify actual harm to consumers; instead it “only suggests potential misuses that do not occur” as its grounds for legislative action. But actual harm has not stopped the FTC in the past. As the agency recently stated in the context of its LabMD enforcement action, the unfairness prong of Section 5 allows the agency to go after practices that not only cause, but are “likely to cause” substantial injury to consumers. Reports such as these have led industry to engage in multi-stakeholder efforts to avoid legislation or FTC enforcement, such as the Digital Advertising Alliance’s Self-Regulatory Principles, the World Wide Web Consortium’s Do-Not-Track initiative, and NTIA’s Mobile Application Transparency process that led to a voluntary Code of Conduct for mobile application short form privacy notices.

At its core, the FTC’s report is concerned with the unintended consequences of how current data broker industry practices may affect consumers down the line, and how current laws are not able to protect consumers fully. So while it’s not likely that federal legislation will be enacted anytime soon to stop data broker’s collection activities, it does appear the FTC is trying to build its record and could foreseeably use its Section 5 enforcement authority to try to prevent data brokers from “getting to know you, getting to know all about you…”

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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