Alert: FTC Sniffing Around Data Brokers

data broker laws
The FTC is on the lookout for so-called unscrupulous data brokers.

This year, the nation’s consumer watchdogs are on the lookout for unscrupulous data brokers. Specifically, the FTC is concerned about (a) adherence to privacy and due diligence standards outlined in the Fair Credit Reporting Act, and (b) the commodification of inaccurate personal information and its effect on consumers.

What Are Data Brokers?

Data brokering is a booming business. We’re talking multi-billion booming. Basically, data brokers collect information about you, me and everyone we know. Then they sell the juicy data to product marketers, potential employers, insurance agencies, credit card companies and anyone else with a need for human behavioral data.

The Federal Trade Commission seems to be concerned with operations that market “quick and easy background checks.” For example:

  • Nanny background checkers;
  • Legal background checkers;
  • Companies that sell marketing data to credit card companies to facilitate sending out pre-approved cards; and
  • Rental history background checkers.

The FTC’s Undercover Op Against Data Brokers

Operation data brokers began when FTC staffers slipped into super-spy mode and posed as employers and creditors in search of information. The undercover FTC agents probed 45 companies that offered “quick and easy” background checks. All the targeted operations maintained websites and toll-free numbers.

Of the 45 companies, 10 received letters from the FTC urging executives to review FCRA statutes, consider the provisions in relation to their business operations, and implement appropriate changes if necessary. In other words, “hey data broker, there’s a good chance you’re not following FCRA laws, shape up or prepare for a costly FTC fine.”

The FTC is giving these 10 companies the chance to shape up before releasing investigative hounds, with the ability to doll out costly sanctions. When questioned by the media, FTC spokesperson Laura Berger was sure to exude a non-accusatory tone. Specifically, she implied the 10 companies’ oversight may simply be a simple HR matter that could be easily fixed.

FCRA For Data Brokers

The Fair Credit Reporting Act outlines a series of checks and balances that consumer reporting agencies must follow. The two main FCRA provisions:

  • Information brokers must notify the consumer, if he or she is the subject of a search.
  • In certain situations, the background checker must verify the requesting entity is authorized and requesting data for legitimate purposes.

But here’s the big FCRA loophole: if you want to establish a background check business, to avoid being fined, you can sometimes use conspicuous disclaimers that reveal your information is for “entertainment or marketing purposes only” and acknowledge that “some or all” of the information may be “old or inaccurate or both.” That said, if you distribute misinformation, and the person affected finds out, they can probably file a lawsuit against you and possible win – but it may not be considered a FCRA violation.

According to Laura Berger, the commission’s main concern is that consumers have the ability to “review, challenge and correct” inaccurate information distributed by data brokers.

This latest FTC effort is not the first time the agency has focused sights on data brokers. Just last year, the FTC ordered Acxiom and 8 other information merchants to disclose the type of data they collect and how it’s used – an uncomfortable proposition for data brokers with trade secrets to protect.

If you are a data broker with an online presence, contact Kelly Warner Law for a compliance audit of your operation.

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