Selling Consumers Not Lists: The New World of Digital Decision-Making and the Role of the Fair Credit Reporting Act
Mierzwinski, Ed, Chester, Jeff, Suffolk University Law Review
Recently, the Federal Trade Commission (FTC) warned a little-known company, Social Intelligence Corporation, that its use of social-networking data to develop reports for employment purposes made it a consumer reporting agency (CRA) under the FCRA. While you may not have heard of this firm, you probably have heard of some of the other companies engaged in collecting and selling consumer information on the Internet. Those firms include the major CRAs: Equifax, Experian, and TransUnion, as well as Fair Isaac Corporation (FICO), the leading aggregator of information from CRAs into credit scores.
A new world has emerged for the marketing of financial products and services. The promotion and sale of credit cards, mortgages, investments, retirement funds, loans, and banking are increasingly taking place online. Financial-services companies are taking full advantage of multichannel opportunities to reach and drive consumer action wherever they are. From mobile phones, to social media, to online video; financial-services companies are deploying the latest digital tools to identify and retain customers, generate a variety of scores on them, sell products, and create new forms of loyalty and revenues.
Historically, the "Big Three" CRAs (Trans Union, Equifax, and Experian, also colloquially known as "credit bureaus") and FICO, led credit decision-making. The primary activities of the CRAs and scoring firms are regulated under the FCRA. (1) Yet the big CRAs have also long had unregulated marketing-list affiliates. In 1997, one of the Big Three, Equifax, spun off a data-broker firm, ChoicePoint (acquired in 2008 by Reed-Elsevier), specifically to avoid regulation as a CRA under the Act. (2) Many other firms operate as data brokers in the marketing-list business, or are regulated as CRAs. A growing number of firms sell ostensibly separate products in both markets, but the question remains: Do full firewalls separate databases from decisions or are these distinct lines of business morphing together?
The interplay of traditional CRAs, lenders, online data brokers, and interactive digital financial advertisers has blurred the line between the traditional definitions of CRAs and target marketing. The emergence of instantaneous online consumer-credit evaluations, which use traditional and new forms of scoring, coupled with an explosion of Internet-based profiling and lead-generation techniques, requires regulators and advocates to closely examine this new consumer landscape. The growing reliance on mobile phones, including "mobile wallets" (such as Google's) for financial transactions, makes the need for an examination of the contemporary marketplace even more imperative. (3)
The use of digital channels for financial services reflects the new realities of a younger generation of consumers--those who have grown up using the Internet and cell phones to conduct nearly all aspects of their lives. These consumers are at ease banking online, making mobile payments, and using the Internet to find offers for credit cards and home loans. (4) In 2011, banks, credit-card companies, and loan companies spent nearly $5.9 billion to advertise financial and credit services online, and greater spending is expected in the next several years as the digital-marketing system becomes increasingly formidable. (5) All of the major online marketing companies, including search engines like Yahoo, Bing, and Google, are significantly involved in generating revenue through online financial marketing. (6) For example, Experian, Capital One, State Farm, Allstate, Bank of America, and J.P. Morgan Chase were among the top buyers of search ads on Google in 2011. (7) Bank of America, Citibank, American Express, and other leading banks are targeting consumers through state-of-the-art digital advertising, focusing on, among other areas, consumer cell phone and Facebook use. (8) In addition to direct marketing via search engines and display advertisements, the financial industry uses online lead-generation techniques to identify prospects and produce sales. …