FTC examines privacy issues raised by data collectors

The Federal Trade Commission (FTC) is examining how companies exchange personal data and use it to develop profiles of consumers. Such practices, integral to many businesses, are largely invisible to the public.

The FTC is divided on the issue and hasn't yet taken a position on the consumer protection questions that may be involved when companies aggregate personal information to assemble a detailed picture of their customers. The information, which is gleaned from public records and retail databases, can include demographic information such as income, size of family and lifestyle interests.

These data aggregators aren't collecting this information to be "nosy," said Lynn Wunderman, president and CEO of marketing data provider I-Behavior in Harrison, N.Y. "They are looking to establish a relationship with a customer."

But if businesses are restricted from accessing consumer data, then companies (and, in turn, customers) will suffer from inflated marketing costs, argued Michael Turner, executive director of the Information Services Executive Council, a New York-based affiliate of the Direct Marketing Association.

For instance, detailed consumer information lets apparel retailers market their products to consumers with more precision, he said. But if privacy rules impose restrictions and barriers to data collection, those limitations could increase the prices consumers pay when they buy from catalog or online apparel retailers by 3.5 percent to 11 percent, Turner said.

If retailers "can't use external information, they will have to increase their mailings to cast a broader net," said Turner. Restrictions could drive smaller companies out of business, he said.

Privacy advocates concede that there are business benefits to sharing personal data among companies. Still, others maintain that there "is a need to bring consumers into the loop," argued Mary Culnan, a professor of management and IT at Bentley College in Waltham, Mass.

Many privacy notices posted on retail Web sites fail to inform online shoppers that their personal data is being shared with companies that compile the information for profiling purposes, Culnan claimed.

FTC Chairman Robert Pitofsky said the commission isn't preparing any policy or legislative recommendations on this issue.

"We are not looking for enforcement targets," Pitofsky said. "We're trying to find out in a new area - a fast-changing, dynamic area - what's going on."

But FTC Commissioner Orson Swindle, who may take over as chairman when Pitofsky's term ends in September, said additional laws regulating the exchange of data among companies may not be needed. Swindle is a Republican; Pitofsky is a Democrat.

"I believe that issues related to the real harm that might be caused by this are well addressed by existing [consumer protection] laws," Swindle said. He acknowledged that there is a "great distrust" between consumers and companies regarding the use of personal information.

Swindle's view may soon become the prevailing one for the commission. Members appointed by Democratic presidents currently hold a 3-2 majority on the FTC. But President Bush is expected to name a Republican to replace Pitofsky, which would swing the advantage in the other direction.

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