Branding so-called data brokers “unfair,” “lethal,” and “a dark underside of American life,” Sen. John D. Rockefeller IV (D-WV) released a report on the data industry in a Senate Commerce, Science, and Transportation Committee hearing yesterday and warned three companies that he would be coming after them to learn precisely what consumer information they have and whom they sell it to.
“We want to know who and why. Who is putting consumers into these categories and who is buying them?” said Rockefeller upon releasing the 36-page report on data-driven marketing, which decried the use of consumer segments such as “Zero Mobility” and “Very Elderly.”
“Some data brokers responded positively to our inquiries, but several of the largest—Epsilon, Experian, and Acxiom—are continuing to resist oversight, just resist it! I’m putting these three companies on notice today that there are steps we can use to get this information,” railed Rockefeller, who noted that in similar situations in the past, “We gave ourselves subpoena power.”
Rockefeller charged that the media seemed obsessed with the privacy transgressions of the National Security Agency while turning a blind eye to what he considered more serious malfeasance on the part of commercial data users. The report, “A Review of the Data Broker Industry: Collection, Use, and Sale of Consumer Data for Marketing Purposes,” concludes that, “The wide variety of consumer access and control policies provided by the representative companies show that consumer rights in this arena are offered virtually entirely at the companies’ discretion.”
“I wake up to seven newspapers with nothing but NSA headlines,” Rockefeller, also a member of the Intelligence Committee, blustered. “I’m here to tell you that they are so secure in protection of privacy compared to these data brokers, it’s not even close.”
In addressing Experian SVP of Government Affairs Tony Hadley, Rockefeller alleged that financial institutions used data to segment “underbanked” consumers such as members of the military and widows to discriminate against them. Hadley countered that the opposite was the case.
“There are between 40 [million] and 50 million Americans outside the banking system that financial institutions cannot reach. They don’t have financial identities, but that doesn’t mean they don’t need access to financial services,” Hadley responded. “Financial institutions use this to help empower them, not to scam them.”
Rockefeller insisted on knowing the names of Experian clients who did this, alleging that such data was also used to perpetrate scams on military members. Hadley declined due to contractual obligations, but noted that the most frequent users of data on underbanked individuals were on the public record—agencies such as the West Virginia, Massachusetts, and New Jersey Health and Human Services department. “They want to reach those people to let them know what benefits they’re eligible for,” Hadley said.
Sen. Richard Blumenthal (D-CT) asked Hadley about data brokers’ role in dynamic pricing of products based on individual customer behavior, a practice that the former Connecticut Attorney General considered unfair. “Dynamic pricing does exist,” Hadley responded, “but we don’t provide products that allow clients to undertake dynamic pricing.”
Witness Jerry Cerasale, SVP of government affairs for the Direct Marketing Association, added that dynamic pricing has been an accepted practice of marketers for decades. “Frequent fliers have different prices, frequent shoppers have different prices,” he noted.
Sen. Ed Markey took data brokers to task for compiling of propensity scores on individuals for insurance or loan eligibility, for instance, based on personal information that falls outside government regulation. “Creating labels to describe segments that categorize them for certain behavior can cause real harm. It’s not redlining, but ‘weblining,’ Markey said. “It’s telling people, ‘You’re in the wrong financial group, the wrong racial group, the wrong sex.”
Other committee members voiced more practical concerns about enforcing regulation on the data industry. Sen. Ron Johnson (D-WI) asked what exactly defined a data broker and Sen. Deb Fischer (R-NE) wanted to know, should regulations be put in place, what the prospects would be for enforcing them. The answer from Jessica Rich, director of the Bureau of Consumer Protection at FTC, was not encouraging.
“Most of our enforcement actions are in the area of the Fair Credit Reporting Act, where we have our strongest tools,” Rich said. “The thieves are often overseas. They’re often never caught because they’re in Russia or China. You’d need the passage of a strong security law.”
Committee Ranking Member John Thune (R-SD) expressed a view of data-driven marketing activities that was most in line with the industry’s. “Data-driven marketing can provide benefits and greater convenience to consumers,” he stated.” It can lower the cost of products and services because businesses can target marketing more precisely. It also can help businesses create and sell products that consumers actually want, lowering start-up costs for new businesses.”