The Federal Trade Commission (FTC) recently issued a report outlining a number of legal concerns for businesses to consider regarding their use of big data analytics – namely, the process of collecting, organizing, and analyzing large sets of data through the application of sophisticated computer algorithms to discover useful information. The report makes it clear that the FTC intends to rely on its existing enforcement authority to pursue exclusionary or discriminatory practices by companies using big data unlawfully.
“Big data’s role is growing in nearly every area of business, affecting millions of consumers in concrete ways,” said FTC Chairwoman Edith Ramirez. “The potential benefits to consumers are significant, but businesses must ensure that their big data use does not lead to harmful exclusion or discrimination.”
The FTC report, Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues, is the product of the FTC’s 2014 workshop on how the use of big data analytics impacts consumers, particularly with regard to how businesses put the information to use once it is collected. As the report highlights, the FTC recognizes that the staggering amount of data that businesses can now collect regarding consumers can be used to provide benefits to underserved populations, including increased educational attainment, access to credit through non-traditional methods, specialized health care for underserved communities, and better access to employment. However, the FTC also warns that big data is prone to abuse. In support, it cites businesses that use big data to offer misleading offers or scams to the most vulnerable prospects or target ads, particularly for financial products, to low-income consumers who may otherwise be eligible for better offers but may never receive them because of the misuse of such data.
The FTC report highlights several existing laws that may apply to big data practices, suggesting that the agency believes that it already has the tools it needs to combat such discriminatory or exclusionary practices. The FTC Big Data Report specifically cites compliance concerns regarding the Fair Credit Reporting Act (FCRA), Federal Trade Commission Act (FTC Act), and the Equal Credit Opportunity Act (ECOA).
What does the report mean?
For businesses that compile big data that will be used for eligibility decisions (such as credit, employment, insurance, housing, government benefits, and the like), the FTC highlights the FCRA’s accuracy and privacy provisions. For creditors using big data analytics in a credit transaction, the report underscores the need to comply with the requirement to provide statements of specific reasons for adverse action.
For companies that use or otherwise rely on big data analytics in a way that might adversely affect people in their ability to obtain credit, housing, or employment, the FTC suggests the following considerations:
- Are you treating people differently based on a prohibited basis, such as race or national origin?
- Do your policies, practices, or decisions have an adverse effect or impact on a member of a protected class, and if they do, are they justified by a legitimate business need that cannot reasonably be achieved by means that are less disparate in their impact?
In summary, the FTC report makes clear that it will continue to monitor areas where big data practices could violate existing laws, including the FTC Act, the FCRA, and ECOA.
Accordingly, businesses should expect the agency to increase its enforcement actions in these areas.