FTC Settlement With Spokeo Signals Focus On Data Brokers

Company agrees to pay $800,000 settlement

The Federal Trade Commission today settled its first case with an Internet data broker, an industry the FTC said lacks transparency on the Internet.

Spokeo, a company that calls itself a people search engine and sells its data, agreed to pay $800,000 to the FTC to settle charges that it violated the Fair Credit Reporting Act when it marketed consumer profiles to companies that used them for employee screening.

It's the first FTC case addressing the sale of Internet and social media data for employment screenings since the FTC put data brokers on notice in the agency's final privacy report released in March. It could also be one of the first of many aimed at data brokers.

The FTC alleged that Spokeo was operating as a consumer reporting agency and violated the FCRA because it failed to disclose the source of its data or allow consumers to dispute the information to correct any false data. In addition to paying the FTC $800,000, Spokeo must not misrepresent its data, must give users a chance to correct information, and must disclose its sources.

The case could well be the FTC's opening salvo against data brokers, said Marc Roth, a partner in the advertising, marketing and media practice of Manatt, Phelps & Phillips. "[The Spokeo case] brings together a perfect storm of issues on the FTC's plate and puts teeth in their bite," Roth said. "The FTC needs to show Congress there are cases out there of consumer abuse."

Spokeo had been under investigation by the FTC since 2010 when the Center for Democracy and Technology filed a complaint against Spokeo, charging that its data was inaccurate. From 2008 to 2010, Spokeo marketed profiles of its users to human resources professionals, job recruiters, and others as an employment-screening tool. The company also created and posted endorsements of its services from its own employees, without identifying their connection to the company.

In a blog post, Harrison Tang, Spokeo's founder and president, said the company never intended to act as a consumer-reporting agency. "We have made changes to our site and our internal business practices in order to ensure we don't infringe upon the FCRA's important consumer protections, and to ensure an honest and transparent service that will continue to be easy for our customers to use," Tang wrote. "We also believe our industry must listen to the public and work with policymakers to act on consumer privacy interests."

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