Barring a convincing case from the direct response industry, marketers stand to lose significant data sources under the strictest interpretations of the Gramm-Leach-Bliley Act. In a worst case scenario, at least one major information provider would consider eliminating its line of products to DMers.
According to FTC staff recommendations, which are more stringent than the measures in the original act, financial institutions would lose the ability to turn over nonpublic personal information to third parties without the consent of the consumer.
FTC staffers contend that any personally identifiable information provided to a financial institution, or which results from a transaction with a consumer or is otherwise obtained by such firms, is nonpublic personal information. In addition, the staff has expanded the types of data falling into this category, arguing that it is nonpublic even if publicly available from other sources.
The staff recommendations also broaden the definition of financial institutions from those proposed on Gramm-Leach-Bliley. One scenario includes personal property and real estate appraisers, retailers, career counselors for employees in financial occupations, real estate settlement services, travel agencies and manufacturers of computer hardware and software.
As they currently stand, the privacy provisions of Gramm-Leach-Bliley, which goes into effect on Nov. 13 of this year, would require financial institutions to follow the new rules detailed in the chart at right.
At press time, the DM industry was taking advantage of a comment period, scheduled to end March 31. “Our view is that the [FTC’s] definition of what is financial information is pretty broad,” says the Direct Marketing Association’s senior vice president, government affairs, Jerry Cerasale.
The DMA plans to argue for credit header information to continue to be free of the restrictions placed on credit report data.
If the restrictions go through in their most severe form, marketers’ options for data gathering will be limited. According to Jan Davis, executive vice president at Chicago-based Trans Union, retailers – both online and off – will have to rely more heavily on loyalty programs, telephone number reverse appends and capturing addresses off credit card slips to replace overlay information lost to their customer files.
Direct marketers of financial services and insurance products, Davis continues, will be forced to make hard offers of credit, as opposed to “invitation to apply” mailings, potentially eliminating lower income individuals and those with poorer credit ratings as targets.
Alternative data sources would likely result in less reliable name and address information, leading to more returned mail, less productive direct mail programs and – potentially – a drop in mail as a prospecting tool, says Davis.
But the legislation may cause marketers to become more reliant on building internal files, as opposed to using overlays. “With this hit, along with the transportation hit [expansion of the measures in the Driver’s Privacy Protection Act of 1994], marketers will have to learn to collect data direct from consumers,” says Harriet Heyman, vice president, general manager of Harte-Hanks List and Data.
“Retailers will need to collect data at the point of sale to build their databases,” she says. “List and data people will have to rely more on survey and self-reported data.”
Heyman sees consumer survey operations, such as Polk’s DataCap, Experian’s BehaviorBank, TargetSource and Carol Wright as increasingly providing information to fill in the gaps.
One possibility is that financial organizations that had been providing data to the direct marketing industry will reconsider whether the revenue they receive from doing so is worth the level of expense of managing customer privacy preferences – including the possibility of multiple tiers of opting in. If, en masse, they decide it isn’t, even the amount of permitted data available will be lessened.
Some compilers are more optimistic about the impact Gramm-Leach-Bliley will have on their ability to provide information. Don Hinman, a group leader at Little Rock, AR-based Acxiom, says the company’s primary consumer file, InfoBase, will not be severely affected by the new legislation.
“Very little of our data comes from financial institutions, in terms of what we sell,” says Hinman. “Credit header data contributes to two of 35 sources [that make up a consumer’s profile in InfoBase].”
Hinman does acknowledge that one of those variables in jeopardy would be presence of credit card, a highly valuable segmenter for direct marketers.
Under Gramm-Leach-Bliley, federal financial regulators would be required to establish rules no later than May 12. Marketers would then have until the November deadline to get themselves into compliance.
The FTC staff suggestions could also result in restrictions to data as basic as age information, according to Experian’s vice president for information policy and privacy, Marty Abrams. “Age is a very important segmenter,” says Abrams. “Two good sources have been driver’s license information and age from credit reporting databases.”
The FTC recently ruled against Trans Union regarding the firm’s appeal on an interpretation of the Fair Credit Reporting Act. In its decision, the FTC affirmed its position that anything beyond header data constitutes a credit report. The FTC also determined that age and date of birth is used for credit decisioning, and cannot be used for soft credit offers.
Since 1992, Trans Union has argued that demographic data gleaned from its files, such as the presence of a mortgage indicating home ownership, should not be regulated by the FCRA.
Strict interpretation of Gramm-Leach-Bliley would make Trans Union’s latest appeal of the FTC’s decision moot, according to Davis. “One of the reasons we are arguing with the FTC is because the FCRA is not clear about what a credit report is,” she says. “If these regulations get published [without being toned down], these guidelines will be pretty clear, and will impact our willingness to pursue [its appeal].”
Should that happen, Trans Union would attempt to transition marketers to firm offers of credit. For the target marketing business, says Davis, Trans Union would have to choose between pursuing alternative sources of data or exiting the business entirely.
The proposed restrictions come on the heels the “Shelby Amendment” to the Driver’s Privacy Protection Act of 1994, which was recently upheld by the U.S. Supreme Court.
The Shelby Amendment calls for state motor vehicle departments to get express permission from drivers before releasing data on them for marketing purposes. This shift, from an opt-out to an opt-in system, could limit the availability of age data and various vehicle identifiers now contained in DMV files. The Shelby amendment is set to go into effect on June 1.
What direct marketers would have to do under the Gramm-Leach-Bliley Act:
Disclose in clear terms their privacy policies regarding sharing of information with both affiliates and third parties.
Give consumers an opportunity to opt out of sharing nonpublic personal information with unaffiliated third parties.
Give consumers notice at the time they become customers of their privacy policy, and provide annual reminders during the customer’s relationship with the financial institution.
Establish safeguards for consumer record confidentiality.
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