F.T.C. Opens an Inquiry Into Data Brokers

The Federal Trade Commission on Tuesday opened an investigation into data brokers, the companies that collect and sell information about consumers for marketing and other purposes.

The agency issued administrative subpoenas to nine different information resellers, requiring each company to provide extensive details about how it collects information about consumers; how it uses, stores, analyzes and shares that data; and whether the company allows consumers to access and correct the records the company holds about them. Some of the companies named in the inquiry do not directly sell information about consumers, but offer analytics services in which they categorize, score or evaluate consumer data.

The companies include Acxiom of Little Rock, Ark., one of the world’s largest information resellers, which manages customer databases for major banks, automakers and retailers; eBureau, a company in St. Cloud, Minn., which, on behalf of clients like credit card companies, lenders, insurers and educational institutions, evaluates and scores online consumers in the market for those companies’ products; Intelius, a company in Bellevue, Wash., which offers people-search look-up services and background checks; and PeekYou, a company that analyzes social media sentiment. Acxiom and eBureau were the subjects of separate articles this year in The New York Times.

In an e-mail message in response to a reporter’s query, Gordy Meyer, the president of eBureau, wrote that the company “welcomes the opportunity to describe, to the F.T.C., its practices and the benefits we provide to businesses as well as consumers.” Representatives of other companies did not immediately return e-mails from a reporter seeking comment.

The F.T.C.’s action comes nine months after the agency issued a report on consumer privacy, calling on data brokers to make their practices more transparent to the public. Because most data brokers are business-to-business enterprises, regulators say, many consumers are not aware that such companies may compile and sell hundreds of details about their race or ethnicity, financial status, shopping habits, health interests, vacation preferences, Web browsing history, online search queries and other matters. In fact, some larger data brokers have collected more than 1,000 pieces of information each on a majority of adults in the United States. Regulators say they are concerned that the information could be used to unfairly narrow or limit the kinds of financial, insurance, health, education or other offers certain consumers receive.

“Data brokers aggregate huge amounts of data on individuals and have the capacity to create powerful profiles combining information about what you do offline and online,” David C. Vladeck, the director of the F.T.C.’s Bureau of Consumer Protection, said in a phone interview Tuesday. “We worry that this information may be used in ways that could be harmful to consumers.”

In a statement, the Direct Marketing Association, an industry trade group, welcomed the F.T.C. investigation, saying the results would highlight the “significant benefits” consumers derive from receiving marketing pitches that are based on information about their personal tastes and activities.

Yet some legislators and regulators say they are taking a harder look at the industry because of practices that are opaque to consumers. Unlike consumer reporting agencies, for example, which are required by federal law to show consumers their credit reports and allow them to correct errors in their own records, data brokers who collect and sell consumer information for marketing purposes are not required to give individuals access to the records those companies hold about them. In its report earlier this year, the F.T.C. asked Congress to consider enacting regulations to give consumers some rights to data collected about them.

The F.T.C.’s investigation represents at least the fourth inquiry into the industry this year.

In July, Representative Edward J. Markey, Democrat of Massachusetts, and Representative Joe L. Barton, Republican of Texas, co-chairmen of the Bipartisan Congressional Privacy Caucus, started an examination into the practice of nine data collectors. That investigation is continuing; the lawmakers held a public briefing in the House with executives from the companies last Thursday. In October, Senator John D. Rockefeller IV, Democrat of West Virginia, opened his own investigation into nine information resellers . (Each investigation involves different companies, although a few companies were included in more than one inquiry). The Government Accountability Office has also started its own research into the industry.

But the F.T.C.’s 15-page administrative orders require each company to provide much more detailed information than the legislators asked for.

“We are going to get a huge amount of data,” Mr. Vladeck said. “We are going to get answers.”

Senator Opens Investigation of Data Brokers

On Wednesday, Senator John D. Rockefeller IV, Democrat of West Virginia, opened an extensive investigation of nine leading information brokers. Because Americans now conduct much of their daily business online, the senator said he was concerned that “an unprecedented amount” of personal, medical and financial information about people could be collected, mined and sold, to the potential detriment of consumers.

“An ever-increasing percentage of their lives will be available for download, and the digital footprint they will inevitably leave behind will become more specific and potentially damaging, if used improperly,” Mr. Rockefeller, who is the chairman of the Senate Committee on Commerce, Science and Transportation, wrote in letters to the data brokers. “It is critical that we understand what information companies like yours are already collecting and selling.”

Linda A. Woolley, the acting chief executive of the Direct Marketing Association, a trade group, called the senator’s investigation “a baseless fishing expedition.”

“I hope Senator Rockefeller understands what he’s tampering with,” she said in an e-mailed statement.

The Senate investigation represents the second Congressional inquiry into the industry’s practices this year. In July, Representative Edward J. Markey, Democrat of Massachusetts, and Representative Joe L. Barton, Republican of Texas, co-chairmen of the Bipartisan Congressional Privacy Caucus, began a House inquiry into data compilers, which is ongoing. And the Federal Trade Commission has been looking into the practices of about a dozen major data brokers.

Data brokers collect a wide variety of information from public sources and third parties, including details like consumers’ financial status, race or ethnicity, buying history, hobbies, health concerns, travel preferences, Internet providers and social networks.

The companies often use the information for a practice called “database marketing” — that is, using data mining to help clients like retailers, banks and airlines tailor marketing pitches to their best customers or identify potential new ones.

Collecting, analyzing and selling such information for marketing purposes is perfectly legal. Indeed, it’s a huge business. Some data brokers have said they maintain several thousand details on the majority of adults in the United States.

But some legislators and regulators say they are concerned that neither they nor consumers know the extent of the material that data brokers collect; whom they disclose or sell it to; and exactly what they are doing with it.

Unlike consumer reporting agencies, which are required by federal law to show people their own credit reports and allow them to correct errors, data brokers are not required to show consumers information collected about them for marketing purposes.

Earlier this year in a report on protecting consumer privacy, the F.T.C. urged the industry to create a centralized Web portal where consumers could learn about companies’ practices and their options for controlling information collected about them. The agency also recommended that Congress pass legislation giving people access to information that data brokers hold about them. Underlying regulators’ efforts is their concern that some information brokers could create financial dossiers about individuals that are akin to credit reports and use them to unfairly exclude individual consumers from certain offers or charge some people higher prices than others.

“There are data brokers whose marketing lists may not cross the line into credit reports but come very close,” said Julie Brill, a member of the F.T.C. “The question is whether the lists are being used for marketing purposes or for something very close to credit purposes.”

Industry representatives say that data-based marketers use consumer marketing data for legitimate commercial practices, not for regulated purposes like making offers of credit or insurance.

They add that collecting marketing data benefits consumers because it allows companies to send people offers for products and services they are interested in. It also increases efficiency because companies know ahead of time not to send pitches for, say, lawn mowers to people who live in apartments.

“Consumers love getting what they want — information, products, benefits, upgrades — when they want it,” said Ms. Woolley of the Direct Marketing Association. “There is no evidence that data-driven marketing harms consumers in any way.”

On Wednesday, Mr. Rockefeller sent letters of inquiry to established database marketers like Acxiom, headquartered in Little Rock, Ark.; credit reporting agencies like Experian and Equifax, which have separate marketing arms; and newer companies, like Rapleaf and Datalogix, that specialize in helping companies pursue online and mobile consumers.

Mr. Rockefeller asked each company to provide extensive business details about its data collection operations since Jan. 1, 2009.

Scott Howe, the chief executive of Acxiom, said the company looked “forward to continuing to work with the Congress to help the members gain a deeper understanding of Acxiom’s business and how people and the economy benefit from the appropriate use of data.”

In an e-mail, Demitra L. Wilson, a spokeswoman for Equifax, said the company is not a data broker and that the only a small portion of its business involves unregulated, aggregated data about consumers.

And Gerry Tschopp, a spokesman for Experian, said the company welcomed the opportunity to discuss “the benefits of the appropriate use of consumer data” with legislators.

Representatives of Datalogix and Rapleaf did not immediately respond to e-mail and phone requests for comment.

Mr. Rockefeller asked the companies to respond by Nov. 2.

Congress Opens Inquiry Into Data Brokers

In a move that could lay bare the inner workings of the consumer data industry, eight members of Congress have opened a sweeping investigation into data brokers — companies that collect, collate, analyze and sell billions of details annually about consumers’ offline, online and mobile activities for marketing and other purposes.

Representative Edward J. Markey, Democrat of Massachusetts, and Representative Joe L. Barton, Republican of Texas, co-chairmen of the Bipartisan Congressional Privacy Caucus, along with six other lawmakers, sent letters of inquiry on Tuesday afternoon to nine leading industry players. In the letters, the legislators requested extensive information about how the companies amass, refine, sell and share consumer data.

Data brokers often collect details about people’s financial, retail and recreational activities to help clients like airlines, automakers, banks, credit card issuers and retailers retain their best customers and woo new ones.

The letter’s recipients included marketing services firms like Acxiom and Epsilon; consumer reporting agencies like Experian and Equifax, which have separate credit reporting and consumer analytics divisions; Fair Isaac, now known as FICO, the credit scoring services company; and Intelius, a company that offers reverse phone look-up and background check services. The letter gave the companies three weeks to respond.

The Congressional inquiry heightens the scrutiny of a largely unregulated industry whose companies sell their services to third parties, rarely interacting directly with consumers.

In 2010, the Federal Trade Commission began its own investigation into the practices of more than a dozen data compilers. One of those companies, Spokeo, recently agreed to settle charges with the government that it had violated federal law by selling consumers’ personal data for employment screening. Enforcement actions against several other data brokers are pending, the agency said.

Now Mr. Markey says he wants the Congressional investigation to further expose data broker practices, saying some had the potential to affect people’s access to education, health care, employment or economic opportunities.

But Mr. Markey’s ultimate goal is to determine whether legislators should enact a law regulating the industry. Unlike consumer reporting agencies, which are required by federal law to show people their own credit reports and allow them to correct errors, information brokers are not currently required to show consumers information collected about them for marketing purposes.

“We have gone from an era of data keepers to this new era where data reapers are able to create very complex profiles of every American,” Mr. Markey said in a telephone interview.

He said he was particularly troubled by data broker programs that categorize individual consumers as desirable or undesirable sales prospects, often without their knowledge and consent, a practice that he said raised privacy concerns. “I’m hoping to ratchet up the transparency so we can foster a system of oversight and consumer control over their data.”

The privacy caucus’s letter was prompted by an article last month in The New York Times about Acxiom, based in Little Rock, Ark. Mr. Markey’s office gave The Times a copy of the letter.

Jennifer Barrett Glasgow, the chief privacy officer of Acxiom, said company executives had testified before Congress numerous times to inform legislators about the steps they take to protect consumers. “We are happy to provide whatever information we can to further inform interested parties,” she said.

Other industry representatives did not immediately respond to requests for comment.

The privacy caucus does not have subpoena power. But Mr. Markey said other industries, like cellphone carriers, had complied with his requests in the past. He said he expected similar cooperation from data brokers.

The letter asked each company to provide a list of all of its sources of data; a list of the specific kinds of consumer information, including ethnic, race or religious data, it collects; descriptions of the data collection methods used, like tracking of social network or mobile phone activity; explanations about each product and service the company has marketed to third parties since January 2009, and the type of data used in such products and services; details about whether any of the products or services are federally regulated; explanations about the security measures used to protect consumer data; as well as descriptions of the opt-out, data access, correction and deletion options the company offers consumers.

The direct marketing industry already offers consumers choices about managing marketing pitches sent through the mail. Digital marketers have a program for people who wish to opt out of receiving online ads tailored to their behavior.

But Mr. Markey said consumers also needed greater access to data collected about them so they could make more informed choices.

“You have to make sure that the values of the physical world accompany the transition to the virtual, digital world,” he said.