ONE of the fastest-growing uses of computerized credit
information today has nothing to do with banking, credit,
employment, or insurance. That use is marketing. "Before long, it
will account for one third of the credit bureaus' income," says
Robert E. Smith, editor of The Privacy Journal, which monitors the
Increasingly, credit bureaus are using their databases to
generate mailing lists for direct-mail and telemarketing campaigns,
a system called "target marketing." Advertisers use target marketing
to select a group of individuals likely to buy their products,
allowing them to spend more time and money on fewer prospects.
Using target marketing, an upscale jewelry store opening in a
neighborhood mall can rent a mailing list of the families within a
10-mile-radius who have annual incomes in excess of $100,000.
Another example of target marketing is the unsolicited offers many
people receive for "preapproved" credit cards. To generate these
mailing lists, companies like TRW, one of three major United States
credit-reporting bureaus, use sophisticated models that look at a
person's bill-paying habits to determine who would be a good credit
risk. The practice, also called pre-screening, has revolutionized
parts of the consumer banking industry.
"Banks tell us that 90 to 95 percent of their new accounts are
opened on the basis of pre-screening," said Jean Noonan, associate
director of the credit-practices division of the Federal Trade
Commission (FTC), in an interview before a recent "Privacy in the
'90s" conference in Washington. Since pre-screening may eventually
become the only way a consumer is offered a credit card, it is
important to ensure the accuracy of the information on which the
offers are made, she says.
High potential for abuse
The drafters of the Fair Credit Reporting Act (FCRA), the federal
law that regulates consumer reporting agencies, never anticipated
target marketing and pre-screening. "It is a use that has been made
possible because of technological advances since the act was
passed," says Mr. Smith.
The practices are "probably not" an invasion of privacy, says the
FTC's Noonan. Nevertheless, she is troubled by arguments made by the
credit-reporting industry in support of the practice.
"We are told that this information is extraordinarily useful to
marketers," says Ms. Noonan. "(But) the value of the information is
not where the debate should begin or end. The information that the
FCRA covers is useful to lots of people."
Before the FCRA was passed, private investigators could use
credit files to locate people; lawyers could use the files to
determine whether the target of a lawsuit would have enough money to
pay the settlement. These uses were halted by the FCRA. Today,
says Noonan, even the Federal Bureau of Investigation cannot get a
complete credit report.
Target marketing has a high potential for abuse: Lists of people
who are good or bad credit risks are readily bought and sold. The
FTC is investigating one company that marketed high-interest,
high-risk loans to people who were in financial trouble and behind
on loan payments.
Even if the lists were restricted to individuals whose credit is
good, problems would remain: "Take the scam artist who builds a list
of elderly women living alone with equity in their homes, and tries
to market a fraudulent home-equity loan," says Bonnie Guiton,
special adviser for consumer affairs to President Bush.
To get more-detailed information about consumers, companies have
started asking the consumers themselves. Many items like hair dryers
and toaster ovens come with "product registration" cards that invite
consumers to provide detailed personal profiles of their households,
income, hobbies, and other interests. Much of this information is
tabulated and resold by companies like National Demographics and
Lifestyles in Denver. …