A bipartisan group of eight lawmakers opened a probe today into the privacy practices of data brokers, companies that compile databases of consumers and then sell them to third parties, including marketers.
A multibillion dollar business often invisible to consumers, data brokers—a loose term to describe any company that puts together a list of consumers—have become an essential part of many marketers' playbooks.
The investigation, led by Reps. Ed Markey (D-Mass) and Joe Barton (R-Tex.), the co-chairs of the Congressional Privacy Caucus, follows damning reports in The New York Times about the personal consumer information compiled by Axciom Corp., one of the largest direct marketing database firms.
"By combining data from numerous offline and online sources, data brokers have developed hidden dossiers on almost every U.S. consumer," the lawmakers wrote in letters sent to Axciom and nine other companies Wednesday.
In addition to Axciom, Epsilon (Alliance Data Systems), Equifax, Experian, Harte-Hanks, Intelius, Fair Isaac, Markle and Meredith Corp. received letters.
The list of companies that received the lawmakers' letter is an odd assortment, mixing credit reporting businesses (Equifax and Experian) with direct marketing database companies (Acxiom and Harte-Hanks) and publishing firms like Meredith that sell magazine subscription lists to marketers.
"The credit reporting businesses are already governed by existing law [Fair Credit Reporting Act]," noted Marc Roth, a partner with Manatt, Phelps & Phillips.
The congressional investigation builds on questions raised by the Federal Trade Commission in its final privacy report released in March. In the report, the FTC called for legislation that would make data brokers more transparent. The FTC has also begun to investigate the database collection practices of several companies, settling its first data broker case in June with Internet company Spokeo.
But as the government and lawmakers continue to look at data brokers, they could run into a big problem just defining what a data broker is.
That broad definition has the marketing industry both confused and alarmed since the direct marketing database companies aggregate information for marketers, while credit reporting firms provide precise consumer information.
"In this era of big data, there is no way to define what a data broker is," said Linda Woolley, the Direct Marketing Association's acting president and CEO. "Big data is the coin of the realm in marketing right now, and everyone wants to know their consumer better in order to cater to their needs. Even Joe's pizza on the corner is a data broker."
Marketers and database marketing firms, Woolley explained, already follow strict guidelines that govern the use of consumer databases and limit it to marketing purposes. "If it's not used for marketing purposes, it shouldn't be used," Woolley said.
"The industry may want to take a pro-active approach, like the DMA, to stave off legislation," said Roth.
The lawmakers have given the nine companies a long list of questions, from where the companies get the data to what kinds of consumer information they collect. Companies have until Aug. 15 to respond.
Harte-Hanks said in a statement it will provide Congress with relevant information, but that the lawmakers have it wrong. "Contrary to the implication of the letter, Harte-Hanks does not own a database of consumer information that we sell or license to others. Harte-Hanks does provide a variety of data services (such as address correction, change of address updates and analysis) to our clients, and in doing so we commonly act as a steward of information owned or licensed by our clients for marketing purposes," said Brian Dames, Harte-Hanks executive vp of customer solutions. "We are committed to operating in compliance with our legal obligations and using best-practices specific to consumer privacy and data protection for the information we support and the geographic locations we serve."