Why the FTC's Worries About Online Data Brokers Are Overblown

The Federal Trade Commission is worried that online retailers may know too much about you thanks to online "data brokers" that collect, categorize, and sell information about potential customers. Unsurprisingly, its top official wants Congress to pass a law giving the agency power to regulate on your behalf.

The data broker industry "largely operates in the dark," FTC Chair Edith Ramirez told reporters yesterday, according to Ars Technica. "We want to shed the veil of secrecy that surrounds data broker practices."

Terminator 2, Carolco PicturesTerminator 2, Carolco Pictures

"The Commission recommends that Congress consider enacting legislation to make data broker practices more visible to consumers and to give consumers greater control over the immense amounts of personal information about them collected and shared by data brokers," said an agency statement released yesterday.

The FTC is not worried that you are worried that retailers may know too much. The agency's presumption is that consumers don't know what's going on, and that the agency should be given the authority to take action as a result.

Along with the statement calling for legislation, the agency also released a detailed report examining the practices of data brokers. The report focuses heavily on the industry's practice of collecting personal information from a variety of sources and then organizing that information into potentially targetable silos for retailers.

"Data brokers infer consumer interests from the data that they collect," the report says. "They use those interests, along with other information, to place consumers in categories." Some are based on income and ethnicity, others on life events such as pregnancy or geographic features. This information is then combined with offline data to market to online consumers.

To its credit, the report notes that there are benefits to this sort of activity, including fraud prevention, better products, and tailored advertisements. But it also warns about potential risks, including security breaches, identity confusion, and the possibility that "they may facilitate the sending of advertisements about health, ethnicity, or financial products, which some consumers may find troubling and which could undermine their trust in the marketplace."

That last bit strikes me as a potentially real problem, but not one that FTC needs to be involved with. If consumers turn on a company for sending ads that seem too creepy, then the company has a pretty good incentive to reverse course, or at least to moderate practices that consumers find creepy. In fact, we've seen that happen already: Mega-retailer Target sparked a backlash by too aggressively targeting pregnant women—in one case actually figuring out that a teenage girl was pregnant before her father did. Eventually, the store started dialing back its marketing, including ads for yard equipment and other products along with the material it was targeting to pregnant women. When they did, they found that pregnant women were in fact happy to use the coupons and specials sent directly to them.

I'm sure that still seems at least a little bit creepy to some people once they find out about it. But it suggests a few things about how this sort of targeting works. First, companies will change their targeting behaviors in response to negative consumer reactions. Second, that consumers are worried mostly about the feeling that a company's data collection efforts are overly invasive; once that sensation is gone, people seem happy to use the discounts and specials—the benefits—that come from such targeting. It's not that they don't want companies to market to their needs; it's that they don't want to feel like they're being spied on.

I'm fairly sympathetic to some of the privacy concerns that marketing practices like these inevitably raise. Companies that collect this sort of data shouldn't be able to mislead people about their practices, and in general, it ought to be possible to opt out of many types of data collection, although that probably means opting out of some services and benefits as well.

But the deep fears that this sort of marketing seems to stoke, and the related calls for regulation, have also struck me as rather overblown. These companies are just doing a more sophisticated version of what sales representatives have done for years: attempting to get a better handle on their customers so they can better meet their wants and needs—and sell them more stuff in the process. In the pre-digital era, salesman would watch for cues, noticing a customer's style of dress or speech or the car they drove, and tailoring their pitch to suit. This is just a big-data, digital-era version of the same basic practice. And the result is that potential customers get products designed more to their tastes, ads that they might actually be interested in, and, hopefully, a happier experience as a result. 

The biggest worry here is not that companies will use this data to nefariously try to sell you stuff you like, but that the government will eventually get hold of it and use it for something else. But somehow I doubt that will be a big part of any new FTC regulations. 

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  • Hugh Akston||

    You know, I am concerned about the collection and use of my personal information for massive data-mining projects. But not by data brokers.

  • ||

    The Federal Trade Commission is worried that online retailers may know too much about you thanks to online "data brokers" that collect, categorize, and sell information about potential customers

    You mean like the NSA?

  • Pro Libertate||

    No. When the retailers lose confidential information, that's called a security breach, and there are consequences, like CEOs and CIOs losing their jobs. Not to mention that the business loses consumer and investor confidence.

    So nothing like the NSA.

  • Snowden-Nakamoto||

    If it makes you feel any better I can be worried about the NSA for him.

  • Pro Libertate||

    "Pimps" is an ugly word. We can call ourselves "DATA BROKERS."

  • Gadianton||

    Just assume that anything you put in an online form is going to be packaged and sold to every email list on the planet, and fill in the data accordingly.

  • Snowden-Nakamoto||

    That's a criminal offense if the data in question is an SSN.

    These companies are getting a free ride from the state, in the form of coercive criminal laws surrounding social security numbers. That is what enables this whole industry. It is a criminal offense to protect yourself from them.

  • ||

    But these people really and truly believe there's no problem the government can't solve. Even if they have to invent the problem first.

  • Pro Libertate||

    Government is absolutely brilliant at creating problems that "only government can solve." Then recursively proposing that it solve the problems created by its previous solution.

  • Francisco d'Anconia||

    But these people really and truly believe there's no problem the government can't solve. Even if they have to invent the problem first.

    See income inequality.

  • Snowden-Nakamoto||

    Government invented the problem when they created social security numbers and promised to send Men With Guns to imprison anybody who chose to preserve their own privacy when filling out a private company's social-security-number request form.

    This is a government-created problem that simply manifests itself in the actions of a private company.

  • Plàya Manhattan.||

  • ||

    I just hope it's not one of mine.

  • ||

    Huh, I always assumed chimpanzee/human hybrids would be sterile.

  • ||

    Look, jesse, I hate every ape I see, from chimpan-A to chimpan-Z.

  • ||

    I knew your relationship with your father was strained, but I didn't expect it to drive you to racism.

  • ||

    Be nice, Jesse. You know Epi has no idea who his father his.

  • ||

    Daddy no want me! I'm gonna take a bus to Reno!

  • Francisco d'Anconia||

    I see the squirrels are at it again.

  • Ken Shultz||

    Once the government starts regulating data brokers, it won't be protecting us from the data brokers for very long. In very short order, the government will be protecting the data brokers from us.

    No thanks.

    Congress should find some other way to drum up campaign contributions.

  • Dances-with-Trolls||

    Congress should find some other way to drum up campaign contributions

    What, you think that they won't be extorting from deeply interested in both sides of this issue?

  • Ken Shultz||

    They want to regulate data brokers for the same reason John Dillinger wanted to rob banks.

  • Snowden-Nakamoto||

    Nonsense.

    All the GOVERNMENT need to do is regulate anybody who asks for GOVERNMENT identification.

    Don't like it? Don't ask for government ID. Real simple.

  • Francisco d'Anconia||

    Last I checked, corporations use my info to make my life better. What does government use my info for?

  • Dances-with-Trolls||

    To make their lives better.

  • Snowden-Nakamoto||

    Last I checked, corporations use my info to make my life better.

    It appears that you last checked sometime prior to the chartering of the British East India company.

  • SIV||

    I didn't realize Maya Angelou was a human trafficker until I read her obituary. I bet some of them gals was underage too.

  • Ken Shultz||

    Racist.

  • anon||

    At least you know who she is/was. I still have no fucking idea.

    Ignorance, in this case, is bliss.

  • GILMORE||

    I learned about the whole retail/data broking nexus back in the 1990s

    Back then, the majority of info was from credit card purchases and retail-card (dept store card & supermarket card) shopper data

    (this has always been the point of 'affinity marketing'. Do you want to use your CVS card? points! bennnys! *we want your data*)

    The 'brokering' came into effect when the various retail venues realized that the data itself was a valuable commodity, and they began trading via middlemen* with other businesses - particularly catalogue retailers - to generate an effective marketplace for customer info.

    One thing that surprised me was how relatively benign it really was. The only thing anyone cared about were things like average purchase prices and frequency. whether it was dildoes or belt-sanders didn't matter.

    The big name in the industry was Axciom, whom I'm guessing from their online partners is still a player....

    I think a point here = companies have used personal data for decades. Harmlessly. Government is now in this game = and frankly I can't see any application of it that doesn't involve either stealing from people or threatening them.

  • Brandon||

    (this has always been the point of 'affinity marketing'. Do you want to use your CVS card? points! bennnys! *we want your data*)

    You say this like it's news. It has been discussed at length here for years. The general consensus seems to be that since I can choose whether to give CVS my data, and that they provide something of value in exchange for it, we are ok with it. The government, on the other hand, does it unilaterally and provides nothing of value in exchange, so it is a problem.

  • Invisible Finger||

    I think Robert Bork would have something to say about data brokering if he wasn't dead.

  • SIV||

    A found or fake name applied loyalty card is totally anonymous so long as you ONLY use cash with it. You can "loan" it once to another shopper using credit or debit and that identity will stick.

    I'm strictly a cash customer for all face-to-face transactions under $10k.

  • Jerryskids||

    I'm strictly a cash customer for all face-to-face transactions under $10k.

    I believe the NSA uses the term 'person of interest'.

  • ||

    Nice try motherfuckers but I have not forgotten about the NSAs criminal behavior.

  • Invisible Finger||

    Credit card companies have been doing this for over 50 years and the FTC is only concerned about this now?

    And I'd bet all the data brokers that have been around for 40 years (e.g. Equifax) are the go-to source for all the background checks government seems to love so much.

  • mathew6221||

    Start working at home with Google. It’s a great work at home opportunity. Just work for few hours. I earn up to $100 a day. I can’t believe how easy it was once I tried it out www.Fox81.com

  • Michael P||

    I will concede that concerns about online surveillance are overblown when every web site I visit gives me some way to opt out of web bugs -- even if that means a paid subscription -- and when web-site operators can only be compelled to turn over their business records after an adversarial court proceeding where the likely targets of the search have fair notice of the request and proceeding, and the opportunity to object. Similarly, I will be suspicious about offline surveillance until I can easily find out who will get information about any credit card or similar transaction I make, before I agree to the transaction.

    My first criterion aims to protect me from unwanted snooping by private organizations. My second criterion is, of course, aimed at government snoops. While FTC regulation will be far from the best way to crack either nut, proposed rulemaking is at least part of a conversation that addresses the problems.

  • Snowden-Nakamoto||

    The problem is social security numbers.

    Private companies are allowed to require that you provide one as a condition of service, and it is a federal criminal offense to substitute another number that preserves your privacy.

    This is a government-created problem. Either let people use any number they want when asked for an SSN, without criminal penalty, or else prohibit private companies from demanding criminal-penalty-protected identification numbers. These data brokers are getting a FREE RIDE from the state, and it needs to stop.a

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