In selling it for marketing purposes. The Senate Commerce committee recently held a hearing on the issue. The committees chairman, West Virginia democrat jay rockefeller, called the practice, quote, revolting. [inaudible conversations] the committee will come to order. There are, at this point, two people sitting at the dais, and theyre two wonderful people, but id be pleased if there were more. Senator blumenthal and senator pryor. Senator markey, senator fischer, senator warner will be here. But this is the day that we almost vote on the budget actually. We dont quite. We always find ways to do it. You have a motion to proceed, then off motion to whatever, and then tomorrow at some point we vote on the budget. Just be grateful youre in private life. [laughter] okay. Youre all welcome. The disclosures about u. S. Intelligence activities over the past few months have sparked a very public debate in this country about what kinds of information the government should be gathering and how we protect the privacy of americans who have done nothing wrong. The snowden disclosures have harmed our countrys national security, but they have made americans think more than they usually do about how their lives both online and offline, can be tracked, monitors and analyzed. People are aware of that. Not to the extent tear so accustomed to being videotaped on everything they do. Were still going through that adjustment period. Im glad were talking about these privacy issues in general and today. Weve all benefited from the Rapid Advances this computing technology, but we also cherish our personal freedoms. We always use that word, cherish, our personal but we do. And its a complicated subject. And we want to be able to protect ourselves and our loved ones from the unwanted gaze of the government and our neighbors. Whats been missing from this conversation so far is the role that private companies play in collecting and analyzing our personal information. A group of companies known collectively as data brokers are gathering massive amounts of data about our personal lives and selling this information to marketers. We dont hear a lot about the private sector data broker industry, but its playing a large and growing role in our lives. Let me provide a little perspective. In the year 2012, which you will recall was last year, the data broker industry generated 156 billion in revenues. Thats more than twice the size of the entire intelligence budget of the United States government. All generated by the effort to learn about and sell the details about our private lives. Whether we know it or like it or not. Makes no be difference. One of the largest data broker companies, ax on, recently boasted to its investors that it can provide insight into approximately 700 million customers worldwide. When government or Law Enforcement agencies collect information about us, they are restrained by our constitution and our laws, and they are subject to the oversight of courts, inspectors general and the United States congress through, um, the Intelligence Committee in the senate and the house. Identify served on ive served on the Intelligence Committee since before 9 11, and i can declare to you absolutely without a single thought that the protection that nsa provides to security and secrecy is far better than what were going to be talking about today. They have rules, they have all kinds of judges and hoops that you have to jump through, the fbis involved, doj. Its all its very tight. And every day you read the paper youd think it doesnt exist. Its just the government gone wild with. But marley wild. But particularly when it comes to domestic which is called section 215, its very tightly monitored, and theres never content, theres never email, and theres never a name. Theres never a name. Theres just a telephone number. But data brokers go about their business little or no oversight. While there are laws on the books that protect the privacy of Americans Health and financial information, they do not cover data brokers marketing activities. Collecting consumers information for marketing purposes is not a new business. For decades before the internet was invented, retailers, marketers and, yes, political candidates compiled mailing lists that a they used to send catalogs, coupon books or other materials to their potential customers. But the day broker Industry Data broker industry has been revolutionized in recent years by the tremendous advances in computing and data analysis. And aserers spend as consumers spend more and more time socializing and shopping online, they are generating rich new streams of personal data to collect and analyze. On the part of the data brokers. These days data brokers dont just know our address, our income level, our political affiliation most probably, they probably know the weight of everybody in the family. They have collected thousands of data points about each one of us, and were simply not aware of it except in theory. They know if you have diabetes or suffer from depression. They know if you smoke cigarettes. They know your realizing habits, your browsing habits. They know how much you and your family members weigh. And they may even know how many whiskey drinks you have consumed in the last 30 days. We wont reveal that we wouldnt reveal that kind of information, would we . Of course not. No. [laughter] like the pieces of a mosaic, data brokers combine data points like these into startingly detailed and intimate profiles of American Consumers. Under current laws we have no right to see these pictures of ourselves that these companies have criminated. No right. For the past year, this committee has been trying to bring some muchneeded oversight to the data broker industry. Wheres the copy of our report . Oh, its under here. I got it. Um, we have been pushing the data brokers to answer the same kinds of questions Many Americans have been asking the government since the snowden disclosures. What information are you collecting about us . And how are you using the information . Todays hearing is the first time were publicly discussing that we are learning what we are learning in this investigation. The Commerce Committee staff has also prepared a report for me and for the Ranking Member on the progress of this investigation. It is thus. More to come. I ask unanimous consent to put a copy of this report in the record of this hearing. One of the things that we have learned in this investigation is the data brokers engage in unobjectionable activities. They do what marketers have always done, they help businesses find potential customers. But we have also found some practices that raise some serious Consumer Protection concerns. In particular, im disturbed by the evidence showing the data broker segment americans categorize them into categories, name those categories based on their incomes, and then they sort economically vulnerable customers into groups with names like rural and barely making it. Not making it up, thats one of their categories. Tough start, young single parents. Rough retirement, small town and rural. Seniors. And zero mobility. I want to know how and why data brokers are putting American Consumers into categories like these, and i want to know which companies are buying these lists to target their marketing to these groups. Maybe its totally innocuous and benign. I dont start out accepting that, but maybe it is. Thats why were doing this investigation. Some Company Companies in the data broker industry have responded positively to our oversight efforts. When i became chairman here several years ago, we went over to henry waxman and stole a couple of his best people and set up an investigations p unit which for some reason we never had. And we gave ourselves subpoena power. For some reason wed never done that. Its a powerful tool when youre doing investigations, which is what we tend to do if here. I want to know which companies are buying these lists to target their marketing to those groups. Some companies in the data broker industry have responded very positively to our oversight efforts. They have provided complete answers to my questions, even the tough ones over the past year. But several of the largest data brokers, specifically axion, epsilon and experian, are continuing to resist oversight. Just resist it. To date, they have not given me complete answers about where they sell get their Customer Data on consumers and to whom they sell it. Im putting these three companies on notice today that i am not satisfied with their responses, and im considering further steps. And i have steps that i can use. That i can take to get this information. We have oversight over this activity in american commerce. And if you do oversight whether its over intelligence or whether its over this, you do it seriously, and you do can it with a purpose, and you want to get the truth. So im putting these companies on notice that im not satisfied, and i have further steps that i can take to get this information. And i want to assure them that oversight efforts in this committee that we have started will continue. I call now on my distinguished friend from a similar urban state [laughter] thats right. Senator john thune. Well, thank you, mr. Chairman, for holding this hearing, and thank you also to the witnesses for coming here today. Our economys increasingly data driven, and data brokers play a growing role in facilitating the goods and services to consumers. Data or information brokers are companies that collect data including personal information about consumers from a wide variety of sources such as public records, web sites and retailers and resale such information for purposes of identifying the customer bes identity to reventing fraud. As the chairman noted, the purpose of the inquiry has been to better understand the industry, and and i look forward to todays hearing as we focus on how the information collected by day that brokers is used for marketing purposes. Without question, datadriven marketing can provide benefits and greater convenience to consumers, can lower the cost of products and services because businesses can target marketing more precisely. It can also help businesses sell products that consumers actually want. Datadriven marketing is one important reason many of us are able to use Search Engines in our email accounts for free. And it promotes the targeting of resources to reduce the amount of junk mail and catalogs that arent tailored to a consumers particular interests, at least that is the goal. Put simply, this industry is at the center of something the Commerce Committee cares about, mrs. In todays economy, datadriven marketing is used across financial, insurance, automotive, technology, health care, its even used by profits, dub nonprofits, governments and campaigns. Data resources helped the president s reelection in 2012. As well hear from the Marketing Data industry, theyre also helping to fuel job creation and Technical Innovation in our slowlyrecovering economy. And while the industry creates many benefits, this hearing will also explore important questions about the privacy implications of data brokers activities including issues of transparency, profiling and concerns about allegations of differential pricing. Questions have also been raised about whether consumers are aware of the instances in which their personal information may be collected, bought and sold resulting this calls for more transparency into day broker practices. Advocates have also raised concerns that data brokers create profiles of individual consumers based on the aggregation of sensitive and sometimes personal data including health conditions. These are important issues, and i look forward to the discussion today n. Rapidly changing marketplace, the federal trade commission has done important work concerning data brokers and related privacy issues including developing educational efforts. Theyve also brought Enforcement Actions under the ftc act and the fair Credit Reporting act. The ftc is also completing a study about practices in the data broker industry and will provide recommendations to Congress Based on their findings next year. I look forward to their testimony, the Government Accountability office has recently produced a report on the day broker industry which i understand will be splitted as part of the submitted as part of the record for this hearing. Ill be asking our witnesses how practices for marketing purposes may impact consumers both positively and negatively. Im also entered if hearing from our witnesses how the industry can work to balance the privacy concerns of individuals with the information needs of businesses and our economy. While ive expressed my thanks, i do want to add a special note of thanks to tony hadley from experian. This query has included letters to several consumerfacing web sites. Having only one of those companies testify is a good way to keep the number of witnesses manageable. Mr. Hadley, im sure many of the other companies are also grateful for your willingness to help advance our understanding of the data broker industry. [laughter] i know i certainly am. So i want to thank you again, mr. Chairman, for having this hearing, and i do look forward to hearing from our witnesses. Thank you, senator thiewrntion very much. Senator thune, very much. Well have well, ill. Just o one by one. Jessica rich. Ms. Rich is the director of the bureau of Consumer Protection at the federal trade commission. And ill go down the line. Could you give your testimony, leads . Chairman rockefeller, Ranking Member thune [inaudible] youve got to push the little button. [inaudible] its called technology. Yes. I assure you, i know something about technology. Um, im jessica rich, director of the bureau of protection at the federal trade commission, and i really appreciate this opportunity to present testimony. This is a highly opportune time to examine the practices of data brokers aztec logical developments have allowed for the dramatic increase in the collection and use of consumers information. Data brokers collect consumers personal information from a wide variety of sources and resell it for a variety of purposes without most consumers ever knowing of their existence, much less the variety of practices in which they engage, and many of these practices as you noted fall outside of the scope of existing laws. I know this committee is well aware of the lack of transparency of data broker practices. Chairman rockefeller, we commend you for your leadership on this issue and stand ready to work with the committee and with congress on ways to improve the transparency of day broker practices. The report you released today is a Key Initiative in this effort as is the study you requested from gao. At the ftc, our work on data broker practices goes back to the 1970s. For decades policymakers have expressed concerns about the transparency of companies that buy and sell consumer data. Indeed, the existence of Companies Selling consumer data for credit and other eligibility determinations invisibly and behind the scenes led to the enactment in 1970 of the fair Credit Reporting actment since then the commission has been active in examining the practices of data brokers. Weve used three primary tools in this effort. First, we bring Enforcement Actions when Company Practices violate the law. Perhaps our most well known data broker case involved choice point in which we obtained 10 million in Civil Penalties and five million in redress for consumers. We allege they implements lax privacy and security procedures resulting in sensitive Consumer Report information p ending up in the hands of known identity thieves. More recently, we entered into that Consent Decree with online data brokers. According to our complaint, they collected personal information from hundreds of online and offline sources including social networks and combined that data into details profiles. We allege they marketed these profiles for use by with Human Resource departments in hiring which made it subject to the fair Credit Reporting act, but it failed to awide by the accuracy and privacy requirements. The order contains strong unjunkettive relief and an 800,000 civil penalty. Second, the commission conducts research and issues reports addressing data broker issues. For example, our 2012 privacy report made best practices and legislative recommendations for Consumer Privacy including specific relations regarding recommendations regarding data brokers. The report reiterated a Longstanding Commission recommendation that data brokers provide consumers with access to the data they maintain, and depending on how the data is used, the ability to correct it. More recently, in order to shine a light on the industry, we issued orders requiring nine day brokers to provide us information regarding how they collect and use data. The commission is close to completing a report based on this information and expects to release it in the coming months. And in the spring of next year, we plan to host a series of privacy workshops including a seminar on whats called alternative scoring products offered by day that brokers. That is, products that Companies Use to predict Consumer Behavior and shape how they market to particular consumers. Our final tool is educating businesses and consumers on privacy issues in the practices of data brokers. For example, we recently sen