The Ultimate Guide to Data Brokers: How They Work, Legalities, and Top Companies

In today‘s data-driven digital economy, every click, swipe, and purchase generates valuable information about our interests, behaviors, and preferences. But have you ever wondered who is collecting all this data, and what they are doing with it? Enter data brokers – the largely invisible companies that specialize in harvesting, analyzing, and selling consumer data.

In this comprehensive guide, we‘ll dive deep into the world of data brokers – what they are, how they operate, the laws that govern them, and the major players in the industry. We‘ll also explore the benefits and risks of data brokerage, and what you can do to protect your data. Let‘s get started.

What is a Data Broker?

A data broker is a company that collects personal information about consumers from a variety of sources, processes and analyzes that information to make inferences about individuals, and sells that information to other companies. The Federal Trade Commission (FTC) defines data brokers as "companies that collect information, including personal information about consumers, from a wide variety of sources for the purpose of reselling such information to their customers for various purposes."

Data brokers collect data from both online and offline sources, including:

  • Online tracking: Using cookies, web beacons, and other tracking technologies to follow individuals‘ online activities across websites and devices.
  • Public records: Accessing government records like voter registrations, motor vehicle records, criminal records, and property records.
  • Purchase history: Gathering data on individuals‘ purchases from retailers, catalogs, and other consumer-facing businesses.
  • Social media: Scraping public posts and profile information from social platforms.
  • Surveys and sweepstakes: Collecting self-reported data through online and offline surveys, contests, and sweepstakes.

The data broker industry is vast and complex, comprising thousands of companies. According to a 2014 FTC report, one data broker alone had 3,000 data segments for nearly every U.S. consumer. Here are some key stats on the industry:

  • The global data broker market was valued at $200 billion in 2020 and is projected to reach $345 billion by 2026. (Source: Global Market Insights)
  • In the U.S. alone, there are an estimated 4,000 data brokerage companies. (Source: WebFX)
  • Acxiom, one of the largest data brokers, has data on 2.5 billion consumers worldwide, including nearly every U.S. adult. (Source: Acxiom)

How Data Brokers Work

The basic business model of data brokers is to collect as much data as possible on as many people as possible, analyze and package that data, and sell it to other businesses. Here‘s a more detailed breakdown of their process:

  1. Collection: Data brokers gather data from a wide range of sources, both online and offline (as described above). They may purchase data from other companies, scrape public records and websites, or collect data directly from consumers.

  2. Processing: Once collected, the raw data is processed and analyzed to create detailed profiles of individuals. This may involve cleaning and normalizing data, merging data from multiple sources, and using statistical models to make inferences and predictions about individuals.

  3. Packaging: The processed data is then packaged into various products, such as marketing lists, risk assessment reports, and people-search databases. These products are often customized for specific industries or use cases.

  4. Sale: Finally, data brokers sell their products to a wide range of clients, including marketers, financial institutions, employers, landlords, and even government agencies. Clients use this data for purposes like targeted advertising, credit scoring, background checks, and fraud detection.

Here‘s a visual representation of the data brokerage process:

Data Broker Process Diagram

It‘s important to note that data brokers often operate behind the scenes, and many consumers are unaware of their existence or the extent of their data collection. While some data brokers offer opt-out options, the process is often difficult and must be repeated with each company.

The Legal Landscape of Data Brokerage

Data brokerage is a largely unregulated industry, particularly in the United States. There is no comprehensive federal law governing data brokers, and most existing laws focus on specific sectors like credit reporting or health data.

The Fair Credit Reporting Act (FCRA) regulates data brokers that provide consumer reports used for employment, housing, or credit decisions, but it doesn‘t cover data used for marketing or other purposes. The Health Insurance Portability and Accountability Act (HIPAA) protects personal health information, but only when handled by specific covered entities like healthcare providers and insurers.

In recent years, some U.S. states have started to take action. The California Consumer Privacy Act (CCPA) and the Vermont Data Broker Law require data brokers to register with the state and provide consumers with access to their data and the ability to opt out of its sale. However, enforcement has been limited.

In contrast, the European Union‘s General Data Protection Regulation (GDPR) sets strict rules for the collection, processing, and sale of personal data. Under GDPR, data brokers must have a legal basis for processing data, provide clear notice to individuals, and obtain explicit consent for certain uses. Individuals also have the right to access, correct, and delete their data.

The following table summarizes some key laws and their applicability to data brokers:

Law Scope Applicability to Data Brokers
FCRA Credit reporting Applies only to data used for credit, employment, or housing decisions
HIPAA Health data Applies only to covered entities handling health data
CCPA California consumers Requires registration, access, and opt-out rights
Vermont Data Broker Law Vermont consumers Requires registration and security measures
GDPR EU citizens Requires legal basis, notice, consent, and individual rights

As data privacy concerns continue to grow, we can expect to see more legislation around data brokerage in the coming years. The U.S. Congress is currently considering several data privacy bills, though their prospects remain uncertain. At the same time, industry groups are pushing for self-regulation and arguing that data-driven innovation benefits consumers.

Top Data Brokerage Companies

The data brokerage industry is dominated by a handful of large players, though there are thousands of smaller companies operating in niche markets. Here are profiles of some of the top data brokers:

  1. Acxiom: One of the oldest and largest data brokers, Acxiom has data on 2.5 billion consumers worldwide, including nearly every U.S. adult. They collect data from a wide range of sources and offer products for marketing, risk mitigation, and people search. In 2018, Acxiom was acquired by advertising giant Interpublic Group for $2.3 billion.

  2. Oracle Data Cloud: Oracle, best known for its database software, has become a major player in data brokerage through a series of acquisitions. The Oracle Data Cloud combines data from online tracking, offline purchases, and other sources to create detailed consumer profiles used for targeted advertising.

  3. Experian: One of the "Big Three" credit bureaus, Experian also operates as a data broker, selling consumer data for marketing and other purposes separate from its credit reporting business. In 2017, Experian paid a $3 million FTC fine for deceptively selling marketing lists to identity thieves.

  4. Equifax: Another major credit bureau, Equifax made headlines in 2017 for a massive data breach that exposed the personal information of 147 million people. Like Experian, Equifax also sells consumer data for non-credit purposes through its IXI division.

  5. CoreLogic: CoreLogic is a leading provider of property data, with information on nearly every U.S. property. They collect data from public records, MLS listings, and consumer databases to create detailed profiles used by real estate, mortgage, and insurance companies.

These are just a few examples of the many companies operating in the data brokerage space. Other notable firms include Transunion, Innovis, LexisNexis Risk Solutions, Intelius, and PeekYou.

Benefits and Risks of Data Brokerage

Data brokerage is a controversial practice, with proponents arguing that it enables valuable innovation and critics warning of privacy risks and potential misuse. Here are some of the key benefits and risks:

Benefits:

  • Targeted Marketing: Data brokers allow marketers to reach consumers with more relevant and personalized messages, improving the effectiveness of advertising.
  • Risk Assessment: Data brokers provide financial institutions, landlords, and employers with information to assess risk and prevent fraud.
  • Public Safety: Law enforcement agencies can use data broker information to locate suspects and investigate crimes.

Risks:

  • Privacy Violations: The extensive collection and sale of personal data by brokers can feel like a violation of individual privacy, even when that data is technically public.
  • Discrimination: The use of data broker information for decisions like credit, employment, and housing can enable discrimination and perpetuate inequalities.
  • Data Breaches: As massive repositories of sensitive information, data brokers are attractive targets for hackers and can be the source of major data breaches.
  • Inaccuracies: The data collected by brokers can be inaccurate or out-of-date, leading to incorrect decisions when that data is used by clients.

A 2014 survey by the Pew Research Center found that 91% of adults "agree" or "strongly agree" that consumers have lost control over how personal information is collected and used by companies. At the same time, a 2018 Accenture survey found that 73% of consumers are willing to share more personal information if brands are transparent about how it is used.

This underscores the need for data brokers and their clients to be upfront about their data practices, provide clear notice and choice to consumers, and implement strong security measures to protect data. At the same time, policymakers must continue to grapple with how to balance data-driven innovation with individual privacy rights in an increasingly digital economy.

What You Can Do

As a consumer, it can feel like you have little control over how your data is collected and used by brokers. However, there are steps you can take to protect your privacy and limit the spread of your personal information:

  1. Opt Out: Many data brokers offer opt-out options, allowing you to request that your data be removed from their databases. However, you must opt out with each company individually, and not all brokers offer this option. The World Privacy Forum maintains a list of data broker opt-outs as a starting point.

  2. Use Privacy Tools: Web browsers like Brave and extensions like uBlock Origin can help limit online tracking. VPNs and secure email services can also help protect your data from being intercepted by third parties.

  3. Be Selective: Be cautious about providing personal information, especially when signing up for contests, surveys, or free products. Read privacy policies carefully to understand how your data will be used and shared.

  4. Protect Your Accounts: Use strong, unique passwords for all your online accounts and enable two-factor authentication where available. Regularly check your credit reports for signs of identity theft.

  5. Support Privacy Legislation: Contact your representatives and voice your support for stronger data privacy laws and regulations around data brokerage.

As a business looking to use data broker services, it‘s important to carefully vet potential partners and ensure their practices align with your values and legal obligations. Key questions to ask include:

  • What data do you collect, and from what sources?
  • How do you ensure data accuracy and security?
  • Do you provide notice and choice to consumers?
  • How can individuals access and correct their data?
  • What legal compliance measures do you have in place?

By conducting due diligence and prioritizing ethical data practices, businesses can leverage the power of data while respecting consumer privacy.

The Future of Data Brokerage

Looking ahead, the data brokerage industry is poised for continued growth as the digital economy expands and more of our lives move online. At the same time, the industry will likely face increased scrutiny and regulation as privacy concerns mount.

One major development to watch is the rise of alternative data marketplaces built on blockchain technology. These decentralized platforms aim to give consumers more control over their data and compensate them for its use, while still enabling data-driven innovation. Projects like Ocean Protocol and Datum are pioneering this approach.

Another trend is the use of machine learning and AI to analyze and extract insights from ever-larger datasets. This could enable more sophisticated targeting and prediction by data brokers, but also amplifies risks around bias, fairness, and transparency in algorithmic decision-making.

As data becomes an increasingly valuable asset, the role of data brokers as intermediaries between consumers and businesses will only grow in importance. The challenge for the industry will be to operate with greater transparency and accountability, while still enabling the many benefits of data-driven innovation.

For consumers, the future of data brokerage will likely bring both greater privacy risks and greater opportunities to control and derive value from their personal information. As awareness of these issues grows, we can expect to see more individuals taking steps to protect their data and advocating for their rights.

Ultimately, the future of data brokerage will be shaped by the ongoing dialogue between industry, policymakers, and the public. By working together to strike the right balance between innovation and privacy, we can harness the power of data while respecting the rights of individuals in a digital world.