Curb on Sale of Consumer Data Upheld

WASHINGTON â€”  In a victory for privacy advocates, a federal judge has upheld a proposed government regulation that would effectively end the long-standing practice by credit bureaus of selling consumers’ names, addresses and Social Security numbers to marketers, information brokers and others.

Industry groups are likely to appeal the decision by District Judge Ellen Segal Huvelle, which was disclosed Monday by the Federal Trade Commission. If the decision is upheld, the rule--issued by the FTC last year and set to take effect in July--would work dramatic changes in the way businesses rely upon the credit bureaus’ databases for everything from updating junk-mail lists to locating debtors.

“It’s going to set a higher barrier for the privacy of this kind of information,� said Robert Gellman, a privacy consultant in Washington.

Credit bureaus and information brokers, who filed suit last year to block the FTC rules, warned that the court decision may have unintended consequences.

“There are many beneficial uses for this information,� said Clark Walter, a spokesman for Trans Union, the Chicago-based credit bureau. He said the databases are used to find fugitives, parents who owe child support, missing heirs and runaway children. “How these particular functions would be affected remains to be seen,� Walter said.

At the heart of the dispute is the top portion of consumer credit reports, known as the credit “header,� which is typically limited to a person’s name, address, birth date and Social Security number. The header does not include financial information about credit history or bank accounts, which can be released only to creditors and others with a legal right to see it.

Because it has been considered less sensitive, credit header information has been sold for years. Customers include marketing firms, law enforcement agencies, private investigators and journalists.

Last year, the FTC issued rules to prohibit credit bureaus from continuing to sell the information unless consumers had first been given an opportunity to block the practice. The agency said the rule was mandated by Congress as part of a 1999 financial modernization law, which called for new privacy protections for consumers’ financial information.

The Individual Reference Services Group, a trade group of information companies, argued that the FTC had misinterpreted the law. “We don’t think a name and address is ‘financial information’ under the statute,� said Ronald Plesser, attorney for the trade group. The companies also argued that the rules violated their constitutional right to free speech.

The FTC countered that any personally identifiable information provided to financial institutions, even if available from other public sources, should be covered by the law.

The disclosure of Social Security numbers, in particular, raised the hackles of privacy advocates, who say the practice has led to an increase in identify theft and other fraud.

In her ruling, dated April 30, Huvelle said the regulations were lawful and constitutional. “This gives consumers more control over how their information is used,� said John Daly, assistant general counsel at the FTC.

The decision marks the latest defeat for credit bureaus and information brokers, whose operating environment is increasingly hostile.

A federal appeals court ruled last month that Trans Union may no longer sell marketing lists based upon certain financial characteristics, such as consumers with three or more credit cards, culled from credit reports.

The FTC banned the practice in 1992, saying it violated federal laws prohibiting the use of credit information for marketing purposes. The other two major credit bureaus halted the practice, but Trans Union continued to sell such lists.

If credit bureaus are prohibited from selling credit header data, businesses will probably turn to other sources, such as the change-of-address database at the U.S. Postal Service or voter registration records.