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Privacy Wackiness Knows No Bounds

4/1/14

By Ken Magill

Via the Consumer Eagle, so-called “alternative scoring,” where retailers and other industries score consumers to try and predict what they’ll want to buy, is privacy advocates’ latest boogeyman.

As usual, they can’t cite a single case of actual harm. They just know it’s not fair. Apologies for the long excerpt, but their arguments must be read in full to completely appreciate the scope of their idiocy:

Alternative scoring, also referred to as “e-scoring” or “predictive scoring,” is a rating system used by retailers and other industries to predict customer trends and behavior. Companies use scores for a variety of purposes, including the likelihood of fraud, credit risk, marketing, and advertising.

But, because the practice of alternative scoring is largely unregulated, some consumer advocates say it can be discriminatory and violate privacy. Consumers are often not aware that scores are being obtained and do not have access to their scores, said Jeffrey Chester, executive director of the Center for Digital Democracy, a nonprofit digital privacy and consumer protection advocacy organization.

“It’s an ongoing violation of privacy,” he said. “Companies are creating report cards, dossiers, profiles about [consumers] that tell others if they are a good customer or a bad customer. Because there are no safeguards, it’s being used to determine customer service.”

Chester and Ed Mierzwinski, consumer program director and senior fellow at the U.S. Public Interest Research Group, have been tracking the use of alternative scoring and examining the privacy aspects for several years.

While their research has largely focused on alternative scoring in the financial sector as a predictor of obtaining loans or credit, Chester and Mierzwinski say its use in marketing and retail can also be discriminatory because scores may determine eligibility for retailers’ offers.

Determine eligibility for retailers offers? Let’s think about how that scorecard would look: Do they have the money? Check. Are they likely to want my stuff? Check. Bingo!

Wow. That’s terrifying. Better get the Federal Trade Commission involved.

In comments filed with the FTC, Chester and Mierzwinski wrote, “The growing use of so-called ‘e-scores’ -a form of invisible (to the consumer) online ratings – can help determine our credit worthiness, ‘lifetime value,’ or even the prices we pay. These e-scores can be used to blacklist or engage in discriminatory practices against individuals or even groups of consumers.”

According to [Rachel Nyswander] Thomas, [executive director of the Data-Driven Marketing Institute and vice president of government affairs for the Direct Marketing Association], retailers use alternative scoring in this way to reward loyalty, not to predict eligibility for an offer. She said the biggest impact is providing customers with relevant offers.

But Chester said this amounts to discrimination. “[Alternative scoring] is making decisions about you, and evaluating and assessing you, which may not be in your interest.

And, Chester said, because the Fair Credit Reporting Act, which regulates the collection and use of some consumer information, does not cover some areas of alternative scoring, he sees no upside for the consumer who is “at the mercy of the algorithm of the machine.”

“I don’t think there are any benefits under the present system,” he said. “It’s non-transparent, purposefully opaque. Until there are basic rules of fairness, there is no upside for the consumer.”

In the world according to Jeff Chester, merchants reaching likely prospects more efficiently and presenting customers and prospects with offers more tailored to their interests presents no upside to the people receiving those offers.

So a new company with a wildly successful, previously unknown treatment for baldness being able to buy lists of bald people and tell them about a new hope to re-grow their hair offers them no upside.

And in the world according to Chester and Mierzwinski, companies should not be able to offer a higher level of service to their best customers. Goodbye airlines rewards programs.

If we lived in a part of the world with no alternatives, Chester and Mierzwinski might have a point. But we don’t.

If there is a group of people with the means to buy a particular product or service that is being underserved by the current producers of that product or service, some alternative producer of that product or service will step in and attempt to get their money. That is, as long as they can get access to the information needed to reach those people.

We’re not talking employment, housing or credit discrimination here. Those activities are already regulated.

If Chester and Mierzwinski have their way, startups will find it more difficult to reach underserved segments of the population with their wares and those segments of the population will remain underserved.

And Chester and Mierzwinski call themselves consumer advocates.

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