• by Wendy Davis  @wendyndavis, May 27, 2014

The Federal Trade Commission is calling for new laws that would require online retailers and other “consumer-facing entities” to allow consumers to opt out of having their information shared with data brokers.

That proposal is among a host of recommendations issued Tuesday by the FTC in its 110-page report, “Data Brokers: A Call For Transparency And Accountability.”

The FTC also urges Congress to require data brokers to create a one-stop portal where consumers can view information about them, and opt out of having that data used for marketing purposes. Another FTC proposal calls for retailers to obtain people's opt-in consent before collecting and sharing “sensitive” information, including health information, with data brokers.

“We want to lift the veil of secrecy that shrouds data broker industry practices,” FTC Chairwoman Edith Ramirez said in a statement on Tuesday. She added that while data brokers offer some benefits, including facilitating tailored ads, the industry's practices raise troubling issues.

“We have concluded that there are serious privacy concerns with the data broker practices we examined,” Ramirez stated. One concern flagged by Ramirez centers on the types of sensitive audience segments that data brokers are creating. “What are the implications of consumers being categorized by their ethnicity, socioeconomic status, or health conditions?” Ramirez asked. “Does it mean many among us will be cut off from being offered the same goods and services, at the same prices, as our neighbors? Will these classifications mean that some consumers will only be shown advertisements for subprime loans while others will see ads for credit cards?”

The report itself says it's “particularly important” to allowing consumers to wield control over how their sensitive information is used.

The FTC says its investigation found that data brokers currently combine data from a host of sources -- online as well as offline -- in order to make “potentially sensitive” inferences about consumers. “Potentially sensitive categories from the study are 'Urban Scramble' and 'Mobile Mixers,' both of which include a high concentration of Latinos and African-Americans with low incomes,” the FTC says in a statement about its findings. “Other potentially sensitive categories include health-related topics or conditions, such as pregnancy, diabetes and high cholesterol.”

Data brokers also are using offline information in order to help marketers send people targeted online ads, the report states.

The report was based on a study of nine data brokers: Acxiom, CoreLogic, Datalogix, eBureau, ID Analytics, Intelius, PeekYou, Rapleaf and Recorded Future. An FTC representative said Tuesday that the agency defines data brokers as companies whose primary business is the collection of consumer information, and which then share that data for purposes including marketing, identity verification and fraud prevention.

The definition excludes companies that interact directly with consumers.

Earlier this year, Sens Jay Rockefeller (D-W.Va.) and Ed Markey (D-Mass.) introduced a bill that would allow people to opt out of having information about themselves collected by data brokers and sold for marketing purposes. That bill came a few months after Rockefeller criticized the data broker industry for offering to sell lists of potentially vulnerable groups like “payday loan responders” and “genetic disease sufferers.”

Privacy advocate Jeffrey Chester, executive director of the Center for Digital Democracy, says the FTC's proposals don't go far enough -- in part because they don't directly address how online companies, including ad technology platforms, also draw on data about consumers.

“The commission’s calls for greater transparency and consumer control are insufficient,” he writes in a blog post. “The real problem is that data brokers -- including Google and Facebook -- have embraced a business model designed to collect and use everything about us and our friends.”

The Direct Marketing Association responded to the report by stating that it supports “transparency and choice,” and that the self-regulatory group Digital Advertising Alliance already allows consumers to opt out of the use of their data for online behavioral advertising. The FTC's recommendation appears broader than the DMA's requirements, given that the FTC says online retailers should allow consumers to opt out of having their information shared with data brokers.

Peggy Hudson, DMA senior vice president of government affairs, added in a statement that the FTC's report “finds no actual harm to consumers, and only suggests potential misuses that do not occur.”