Equifax' Exit May Not Tame The Consumer BacklashEvan I. Schwartz
Some people are surprised to find out how much information about their lives is stored in corporate data banks. The level of detail goes well beyond their annual income and credit rating all the way down to their height, weight, and marital status. It's all in a computer somewhere and available, for a small fee, to total strangers. That's news to many consumers, but they're learning--and the backlash is growing.
Equifax Inc., a leading compiler of credit information, is feeling the sting. On Aug. 8, the Atlanta-based company, bowing to pressure from consumer groups, declared that it would no longer sell detailed, personal information about consumers to direct marketers, the folks who flood your mailbox with envelopes marked "urgent" or "value packet." "People see the use of this information as a privacy problem if it goes beyond credit purposes," says John A. Baker, Equifax senior vice-president.
Equifax really doesn't have much to lose by exiting the direct-marketing business. Its Consumer Marketing Database products brought in only about 1%, or $12 million, of the company's more than $1 billion in revenues last year, says Baker. The company, he adds, will keep its $250 million business of selling lists of creditworthy consumers to financial institutions trying to sell such things as MasterCard and Visa accounts.
RISKY BUSINESS. There's an important difference--other than revenues--between the business Equifax is keeping and the one it's dropping. The selling of data on consumers' creditworthiness to banks is part of Equifax' core business of credit approval. Few consumer advocates or legislators would block banks from using credit data to determine who should receive unsolicited credit-card applications. The trouble comes when Equifax and other credit-information collectors sell the same lists of creditworthy consumers, along with details about their shopping and lifestyle habits, to companies that hawk clothing, insurance, and other products.
It's worse than sneaky for credit bureaus to collect credit data for such purposes, according to the Federal Trade Commission. It says such practices should be illegal. And Congress may explicitly make them so. As early as September, consumer affairs subcommittee Chairman Esteban E. Torres (D-Calif.) plans to introduce legislation to strengthen and update the 20-year-old Fair Credit Reporting Act. Congress' target isn't all direct marketers: Hundreds of companies would be allowed to continue trading in consumer data.
But mixing credit data with lifestyle data could become a no-no. "We're concerned that this mixture smacks of a direct invasion of privacy," says Albert Jacquez, subcommittee staff director. The legislation may also ban the use of credit reports by employers when making hiring decisions, Jacquez says.
Besides trying to stave off sweeping new regulations, Equifax is also trying to distance itself from TRW Inc. and Trans Union Corp., its much bigger competitors in consumer data-base marketing. Both of those companies say they'll continue to mix credit data with personal information. That's a precarious business to be in, especially since six states filed suit against TRW in July, charging the Cleveland company with privacy violations as well as inadequate consumer service. TRW says the charges are groundless and is contesting them.
The Equifax exit won't visibly reduce the number of catalogs, special offers, or telemarketing calls received by the average consumer. But other companies might follow suit, and that could actually be good for business. A study published last year by Equifax found that 71% of Americans believe that they have lost all control over how information about them is circulated and used by companies. If consumers start feeling that they're regaining control, they might look more closely at all those sales pitches in the mail.