On June 24, the Consumer Education Foundation (“CEF”), a California-based nonprofit consumer organization, filed a petition with the Federal Trade Commission requesting that it investigate the use of so-called “Secret Surveillance Scores” in the consumer market. The complaint alleges that consumer data points are covertly tracked and amassed by private firms to create a single Secret Surveillance Score that is generated by software algorithms to provide a “digital mugshot.” Neither the algorithm nor the Secret Surveillance Score is disclosed to the consumer.
The CEF alleges companies use Secret Surveillance Scores to predict consumer behavior in four areas: pricing, customer service, fraud prevention, and housing and employment. Secret Surveillance Scores are valuable to consumer-facing companies who use the scores to determine things like creditworthiness, the price consumers pay, whether to extend job offers, or approval for housing.
The petition cites a World Privacy Forum study that identified approximately 44 scores used to predict consumer behavior, including:
- The Medication Adherence Score, which predicts whether a consumer is likely to follow a medication regimen;
- The Health Risk Score, which predicts how much a specific patient will cost an insurance company;
- The Consumer Profitability Score, which predicts which households may be profitable for a company and hence desirable customers;
- The Job Security score, which predicts a person’s future income and ability to pay for things;
- The Churn Score, which predicts whether a consumer is likely to move her business to another company;
- The Discretionary Spending Index, which scores how much extra cash a particular consumer might be able to spend on non-necessities;
- The Invitation to Apply Score, which predicts how likely a consumer is to respond to a sales offer;
- The Charitable Donor Score, which predicts how likely a household is to make significant charitable donations; and
- The Pregnancy Predictor Score, which predicts the likelihood of someone getting pregnant.
The Scoring of America: How Secret Consumer Scores Threaten Your Privacy and Future, p. 18, World Privacy Forum (Apr. 2, 2014).
The scores have been compared by the industry to credit scores. Advocates argue, however, that unlike credit scores, there’s no transparency for consumers because they are unaware that the scores are created and used to predict their behavior.
The petition argues that the use of Secret Surveillance Scores is an unfair and deceptive practice under Section 5 of the FTC Act. The CEF requests the FTC to investigate “(1) how Secret Surveillance Scores are generated and applied; (2) which companies are generating and applying Secret Surveillance Scores; (3) which consumers are being targeted by companies using these scores; and (4) the impact of Secret Surveillance Scores on consumers and the marketplace.” The petition requests the FTC to enjoin companies from using Secret Surveillance Scores if it is determined that their use violates Section 5 of the FTC Act.
Troutman Sanders’ Financial Services Litigation practice group advises clients across the country on consumer reporting and FTC compliance. Please contact us if you have any questions.