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FTC workshop looks at key data privacy issues

Computerworld
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(IDG) -- The U.S. Federal Trade Commission (FTC) is examining how companies exchange personal data and create profiles of consumers -- two issues at the heart of the ongoing debate between supporters and opponents of increased data privacy regulations.

Tuesday's one-day workshop focused on a practice that's integral to many businesses but largely invisible to their customers: the aggregation of personal information into large databases that are used to assemble a detailed picture of consumers. The data, gleaned from public records and transactions with retailers, includes things such as income, size of family, lifestyle interests and motor vehicle ownership.

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Business representatives at the workshop said detailed consumer profiles can be used to build relationships with customers and to reduce corporate costs by letting companies target their marketing campaigns more effectively. "Past behavior is the single strongest indicator of future behavior," said Lynn Wunderman, president and CEO at marketing data provider I-Behavior Inc. in Harrison, New York.

Privacy advocates conceded that there are benefits to sharing personal data between companies. But there still "is a need to bring consumers into the loop," argued Mary Culnan, a professor of management and information technology at Bentley College in Waltham, Massachusetts.

Many privacy notices posted on Web sites don't tell online shoppers that their personal data is being shared with companies that compile the information for profiling uses, Culnan claimed.

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FTC Chairman Robert Pitofsky said the workshop's goal was to educate the commission and spot issues that bear watching by its members. "We are not looking for enforcement targets," Pitofsky said, nor is the commission pursing legislative proposals. "We're trying to find out in a new area - a fast-changing, dynamic area -- what's going on."

But while Pitofsky said the workshop isn't meant to be a springboard for the implementation of any policies, Commissioner Orson Swindle -- the person who may chair the FTC once Pitofsky's term ends in September -- said additional laws regulating the exchange of data between companies may not be needed.

"I believe that issues related to the real harm that might be caused by this are well addressed by existing laws," Swindle said. He acknowledged that there is a "great distrust" between consumers and companies over the use of personal information, but he said the workshop "should enhance our understanding of the benefits of the free flow of information."

And Swindle's view could soon be the prevailing one on the commission. Members appointed by Democratic presidents currently hold a 3-2 majority on the FTC. But President Bush is expected to name a Republican to replace Pitofsky, who is one of the Democrats on the commission. That would swing the advantage in the other direction.

Swindle also warned of the possible economic consequences if data exchanges were restricted. In particular, he cited a study released yesterday by the Information Services Executive Council (ISEC) -- a New York-based affiliate of the Direct Marketing Association trade group -- that claimed opt-in requirements and other limitations could increase total costs at a catalog or online apparel retailer by 3.5 percent to 11 percent.

Michael Turner, the executive director of the ISEC, said at a briefing Monday that marketing costs for such retailers would increase because the consumer data they could receive wouldn't be as precise as the information they currently get. "If they can't use external information, they will have to increase their mailings to cast a broader net," he said.

The retail study was one of several released yesterday by the Online Privacy Alliance, a Washington-based group that advocates a set of self-regulatory privacy guidelines and has members such as Microsoft Corp., Bank of America Corp., Nestle USA Inc. and America Online Inc. The other studies included one by Ernst & Young LLP that claimed privacy restrictions could cost large financial services firms some $17 billion annually.

At the workshop, Rick Lane, director of e-commerce and Internet technology at the U.S Chamber of Commerce in Washington, urged government officials to not move toward any new privacy regulations until more is known about the potential harm that consumers may face from profiling activities. He also called for a cost-benefit analysis of those harms. "We don't have a lot of facts," Lane said.

The FTC scheduled the workshop last month in the wake of letters that were sent to the commission and other government officials by U.S. Sen. Richard C. Shelby (R-Alabama). Shelby expressed concern about a group of more than 70 companies that has proposed a standard method of pooling and exchanging data on consumer buying habits and other personal information (see "FTC to focus on consumer profiling at privacy workshop," link below).

Congress is considering at least a dozen bills that would affect online privacy, and many more have been introduced in various state legislatures. Privacy advocates are calling for increased regulations in order to protect personal privacy, but business groups have countered by proposing self-regulatory guidelines or a single national standard that would preclude individual states from setting more stringent requirements.



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