Selling consumers not lists: the new world of digital decision-making and the role of the Fair Credit Reporting Act.

Author:Mierzwinski, Ed
Position:Symposium: Credit Reporting and Credit Scoring

    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. In 2011, advertisers spent $1.5 billion using forms of this little-known practice. (9)

    While the FTC has recently signaled that the FCRA would continue to regulate certain activities in the new world of Internet-based financial services, many other practices affecting consumers on a daily basis may not be, unless additional regulatory or legislative action is taken. This Article provides an overview of the new marketplace and points out that many firms and activities presumed not to be regulated under the FCRA, upon further review, should either be regulated under the Act, or under a similar, parallel regulatory regime.

    1. The Blurring of the Line Between Credit Offers and Marketing

      Contemporary digital-marketing practices are blurring the boundary separating marketing credit from offering it to a consumer. Interactive marketing techniques employ powerful new ways to influence consumer decision-making. Financial-services and credit-card companies stealthily "shadow" individual consumers across cyberspace, watching every click they make and engaging in predictive modeling to help the firm more precisely segment and identify customers to target. The capabilities of online tracking enable the creation of "rich audience profiles," based on an analysis of a user's on-site behavior, which can be combined with an abundance of outside information. This includes intent data captured online that enables marketers to identify whom they consider better qualified prospects, sending consumers advertising shaped by their unique profiles. Armed with a digital dossier of a consumer's interests, background, and behaviors and an arsenal of powerful analytical tools, financial-services companies can unleash sophisticated and highly personalized marketing campaigns. Round-the-clock and automated audience-buying techniques allow companies to offer real-time sales and financial advertisements to consumers at critical points in their decision-making process. (10)

      The convergence of "Big Data" computer techniques enabling the monetization of insights, combined with advances in online ad technologies, permits financial marketers to make instantaneous decisions about consumers' creditworthiness, the types of products to be offered, and the rates they might pay. (11) New forms of data analytics are used to predict consumers' economic future prospects and to decide whether they are valuable enough, over the long term, to offer attractive credit-card rates or other favorable terms. (12) Computer-assisted behavioral analysis enables marketers to more accurately predict how consumers spend money and whether they can safely manage debt. Through prediction and optimization engines, companies can probe deeply into consumers' personal behaviors to understand not only what they are doing, but how they might behave under different circumstances. An ad for an offer can be placed instantly after an individual has been evaluated as a prospect. Offers can be customized based on a consumer's online activity, which includes directing ads at consumers seeking, for example, payday loans. These digital-data techniques permit effective consumer prescreening. (13)

    2. Financial Marketing in the Facebook Era

      Advocates and policymakers need to address these changes in financial marketing, especially given the realities of today's Internet-based consumer financial marketplace. Indicative of how consumer behaviors have dramatically changed, social networks and mobile phones are the new go-to place for consumers searching and applying for mortgages, credit cards, and college loans. As a 2011 Mortgage Bankers Association presentation explained, "[m]obile makes online lending accessible anywhere, anytime," and because "[l]oan applicants are online all day ... loan officers need to be mobile too." (14) Mortgage companies describe a typical day for a loan applicant checking her Facebook page while simultaneously checking on interest rates and the status of her application. They note that consumers will "update [their Facebook] status to Homeowner" when their mortgage is approved (which they confirm online), and then might connect to LinkedIn and "apply for new job to pay [their] mortgage." (15)

      Banks, credit-card firms, and loan companies scour Facebook pages to glean insight into potential targets. They also establish pages on Facebook, promoting the ubiquitous "Like" button, and engage in marketing campaigns to gain access to consumer data. Consumers are urged to "like" credit bureaus and banks on Facebook, triggering access to some or all of the data associated with a user's account. (16)

      The growth of real-time marketing and online decision-making presents both opportunities and risks to financial-products consumers. (17) While on one hand a consumer can now easily obtain more information to better evaluate a specific company or service and engage in comparison shopping, on the other hand, the powerful digital-targeting techniques designed to influence decision-making may actually limit the ability of consumers to make reasonable choices. Today, the average consumer would need a Ph.D. in data mining and psychology to effectively navigate the financial landscape in the digital era. (18)


    Online lead-generation companies play a crucial role in the digital marketing of financial services. "Leads," potential customers for products or services, and "hot leads," people deemed ready to buy or to sell, are valuable commodities. One payday lead generator (which to the average consumer appears to be offering the loans), for example, sells leads to the actual payday lenders for $9 each. (19) Companies use a variety of advertising and search-engine-optimization techniques to lure consumers into providing their information so their profiles can be sold as prospects to financial...

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