In recent years, a new class of “big data” brokerages have touted themselves as an alternative to traditional credit reporting and background check agencies.
In lieu of credit activity supplied by lenders — like whether you pay your credit card balances off and if you pay the full amount or just the minimum each month — these companies cobble together a rough outline of an individual's professional and financial history based on their Internet searches, social media profiles, and mobile app usage.
However, a new report confirms what regulators have long argued about the merits of big data. It rarely, if ever, paints an accurate picture of a consumer’s creditworthiness.
The National Consumer Law Center, an advocacy group for low-income Americans, tested a handful of data-gathering websites that have been known to sell information about consumers to businesses and employers as a means of judging their credit history.
“Our concern is not how consumers use these sites but how lenders and businesses use the sites to determine credibility for credit [and employment],” Persis Yu, an NCLC staff attorney who co-authored the report, told Yahoo Finance. “There’s a lot of bad data out there about folks and it’s really hard to track it down.”
Fifteen NCLC employees attempted to retrieve their personal data from four major data brokers — Spokeo, Intelius, eBureau, and ID Analytics. More than half of the participants found their reports rife with errors — including incorrect e-mail addresses, phone numbers, job histories, and salary estimates.
Going after the underbanked
One group of consumers whose information these data brokerages are targeting are those without much of a financial history. There are more than 64 million unbanked consumers in the U.S. — people who haven’t established enough credit to generate a credit score. By selling data to short-term lending institutions and employers, big data brokerages say they can offer insights on an untapped swath of consumers.
But those insights can often be based on flawed data.
In one case in the NCLC’s study, an employee’s salary was listed as more than double the actual amount by one firm, while another employee’s salary was reportedly halved. Some couldn’t find their reports at all. Because big data gathered by these sites are entirely dependent on how much information consumers reveal about themselves online, it can be difficult to develop a holistic picture of any individual. And as it stands, there are no regulations in place to enforce accurate reporting standards, such as the ones credit reporting bureaus must adhere to.
“From purchase histories to search topics, a completely unedited and unmediated version of a person emerges,” Yu writes in the report. “This data is incredibly valuable to marketers and there are few restrictions on such data in the U.S. This data can be bought and sold at will.”
So long as consumers continue to update their Twitter, Facebook and LinkedIn pages and browse the web, there’s no stopping these sites from compiling that data in whatever way they like. But regulators are attempting to crack down on firms that try to sell that data to employers and financial institutions that have a vested interest in attracting underbanked consumers (namely, payday lenders).
The challenge in change
Since 2012, the Federal Trade Commission has been investigating the data gathering practices of nine major data brokerages, including the four tested by the NCLC. The agency fined Spokeo $800,000 in June 2012 for allegedly selling consumers’ personal information for use by potential employers in job screenings.
They're currently lobbying Congress to require all big data brokerages to offer opt-out options for consumers. One of the issues with big data aggregators is that it’s almost impossible for consumers to correct inaccurate information, unlike traditional credit reports.
“As an aggregator of public information, Intelius does not have the ability to make corrections to those individual records,” Intelius told us in a statement.
Big data has its flaws, but there’s no denying the financial reporting industry as a whole could use a makeover. Credit reporting bureaus have plenty of their own issues to work out, beginning with the fact that there are some 42 million credit errors on reports today.
“Credit bureau data is roundly criticized by everyone from the FTC to consumer advocates, but credit bureau data is considerably more accurate, complete and predictive than information collected from Internet searches and social media sites,” said John Ulzheimer, president of consumer education at CreditSesame.com.