Press Release from March 1, 2000 (ftc.gov):
Firm is Ordered to Stop Illegal Sales of Consumer Reports to Target Marketers
The Federal Trade Commission has ordered the Trans Union Corporation to stop selling consumer reports in the form of target marketing lists to marketers who lack an authorized purpose for receiving them under the Fair Credit Reporting Act (“FCRA”). In a unanimous opinion authored by Commissioner Mozelle W. Thompson, the FTC determined that “Trans Union’s target marketing lists are . . . consumer reports under the FCRA” and concluded that Trans Union is violating the FCRA by selling this information to target marketers who lack one of the “permissible purposes” enumerated under the Act. The Commission’s decision applies to a number of Trans Union’s target marketing list products including its Master File / Selects products, its modeled products and its TransLink / reverse append products.
Trans Union is based in Chicago, Illinois, and is one of the three national credit bureaus, or consumer reporting agencies, in the United States. It currently handles data on approximately 160 million consumers. As a consumer reporting agency, Trans Union receives detailed credit information about millions of American consumers from numerous credit grantors including banks, mortgage companies, credit unions, auto dealers and others. Trans Union compiles this information into consumer reports and sells the reports to credit grantors nationwide.
In addition to its credit reporting business, however, Trans Union also sells a variety of target marketing lists through its subsidiary, Performance Data. Using the consumer information it collects, Trans Union creates lists of the names and addresses of specific categories of consumers and sells them to target marketers who in turn solicit the consumers to purchase goods and services.
The FTC enforces the FCRA, the statute that controls the activities of consumer reporting agencies. The FCRA protects the privacy of credit information by limiting the circumstances under which a consumer reporting agency can disclose a consumer report. For instance, the FCRA allows consumer reporting agencies to furnish consumer reports where a consumer has authorized the disclosure or for purposes such as the extension of credit or employment or insurance applications.
This case began in 1992, when the Commission filed an administrative complaint alleging that Trans Union violated Sections 604 and 607(a) of the FCRA by “compil[ing], for sale to clients, lists of consumers, based in whole or in part on information contained in its consumer reporting database . . . .” Administrative Law Judge Lewis F. Parker upheld the allegations in a 1993 summary decision that the Commission affirmed in 1994. The United States Court of Appeals for the District of Columbia Circuit thereafter remanded the case to the Commission for further findings and, after a full trial, Administrative Law Judge James P. Timony issued an Initial Decision and Order on July 31, 1998. Judge Timony held that counsel for the FTC provided sufficient evidence to show that Trans Union’s lists are “consumer reports” under the FCRA and that Trans Union disclosed them to entities which lacked a statutorily-defined permissible purpose for obtaining them. Such disclosure violated Sections 604 and 607(a) of the FCRA. Trans Union appealed both rulings to the Commission.
In reaching its decision that Trans Union’s sale of target marketing lists violated the FCRA, the Commission applied a two-pronged analysis. It determined:
Trans Union’s target marketing lists qualify as consumer reports if they communicate information that: (1) bears on a consumer’s ‘credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living and (2); is ‘used or expected to be used or collected in whole or in part’ to serve as a factor in determining credit eligibility.
Because the Court of Appeals had already determined that “tradeline” information contained in Trans Union’s lists met the first prong of the definition, the Commission focused on the second prong and “reviewed record evidence detailing the various factors lenders use in evaluating credit eligibility . . . in particular . . . the factors that are important in calculating credit scores – - a tool that many lenders use in evaluating credit eligibility.” The Commission also “examined the factors that are important to lenders offering credit in prescreening promotions.”
Based upon the full record presented by the parties at trial, the Commission held that much of the information disclosed by Trans Union in its lists – - including the fact that a consumer has a credit relationship with a creditor – - “is the type of information that is ‘used’ and/or ‘expected to be used’ in whole or in part for the purpose of serving as a factor in establishing a consumer’s eligibility for credit.” The Commission also found that although demographic information such as name, address, mother’s maiden name and social security number did not meet the definition of a consumer report, age information bears on a consumer’s credit capacity and is used in credit eligibility decisions and therefore does constitute a consumer report.
Since the Court of Appeals had previously determined that target marketing was not one of the permissible purposes set forth in the FCRA, the Commission concluded that Trans Union cannot lawfully sell those lists that meet the definition of a consumer report to its target marketing customers.
Trans Union argued that Section 604 of the FCRA was unconstitutional and enforcing it violated the First Amendment. The Commission held, however, that the FCRA’s restriction on Trans Union’s sale of consumer reports does not violate the company’s constitutional right to freedom of expression and that the FCRA is not unconstitutionally vague under the Fifth Amendment.
Addressing Trans Union’s constitutional arguments, the Commission first rejected the contention that Trans Union’s lists deserved full First Amendment protection. Instead, the Commission applied the commercial speech analysis established by the Supreme Court in the Central Hudson, 447 U.S. 557 (1980), case. The Commission held that: (1) the government had a substantial interest in protecting the privacy of consumers’ personal credit information; (2) the FCRA’s restriction on Trans Union’s ability to sell its target marketing lists directly and materially advanced the government’s interest; and (3) the FCRA’s restriction is narrowly tailored.
Based on these findings and the substantial record in the case, the Commission voted 4-0 to issue the cease and desist order. Commissioner Thomas B. Leary did not participate in the decision.
Under the Commission’s rules, ex parte communications regarding this matter are barred until the Commission has disposed of any petition for reconsideration, or until the time for filing such petitions (14 days after service) has elapsed.
Copies of the Commission’s opinion and other documents in this case are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; toll free at 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
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Claudia Bourne Farrell,
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Final Order of the Commission from February 10, 2000:
UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
- Robert Pitofsky, Chairman
- Sheila F. Anthony
- Mozelle W. Thompson
- Orson Swindle
- Thomas B. Leary
In the Matter of
Trans Union Corporation, a corporation.
DOCKET NO. 9255
This matter has been heard by the Commission upon the appeal of respondent Trans Union Corporation from the Initial Decision and Order on remand, and upon briefs and oral argument in support of and in opposition to the appeal. For the reasons stated in the accompanying Opinion, the Commission has determined to adopt the Administrative Law Judge’s findings and conclusions to the extent that they are consistent with those set forth in the accompanying Opinion. Accordingly, the Commission enters the following order:
IT IS HEREBY ORDERED that, consistent with the terms of this opinion, respondent Trans Union Corporation, and its successors and assigns:
- a) Cease and desist from distributing or selling consumer reports, including those in the form of target marketing lists, to any person unless respondent has reason to believe that such person intends to use the consumer report for purposes authorized under Section 604 of the FCRA.
- b) Maintain for at least five (5) years from the date of service of this Order and upon request make available to the Federal Trade Commission for inspection and copying, all records and documents necessary to demonstrate fully its compliance with this Order.
- c) Deliver a copy of this Order to all present and future management officials having administrative, sales, advertising, or policy responsibilities with respect to the subject matter of this Order.
- d) For the five (5) year period following the entry of this Order, notify the Commission at least thirty (30) days prior to any proposed change in respondent such as dissolution, assignment, sale or change in control resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries, or any other change in the corporation that might affect compliance obligations arising out of this Order.
- e) Within one hundred and eighty (180) days of service of this Order, deliver to the Commission a report, in writing, setting forth the manner and form in which it has complied with this Order as of that date.
By the Commission, Commissioner Leary not participating.
Donald S. Clark
Issued: February 10, 2000
- 55 pages
- March 1, 2000
IV. FACTUAL BACKGROUND
A. Trans Union’s Business
Trans Union is a Delaware corporation whose principal place of business is located at 555 West Adams Street, Chicago, IL 60661. Trans Union’s primary business is credit reporting and it is a CRA under Section 603(f) of the Act. (Rodgers CX-191 at 27/3-7). As a CRA, Trans Union collects credit information about millions of American consumers from numerous credit grantors and others, compiles this information into credit reports and sells the reports to credit grantors nationwide. (Connelly 2588/19–2590/18; Pendleton 404/12–405/9; Johnson 1206/16–1209/7). Trans Union’s main competitors in the credit reporting business are Experian (formerly TRW) and Equifax. (Rodgers CX-191 at 47/10-12). These companies are also CRAs.
The millions of pieces of consumer information Trans Union receives every month are maintained in an extensive database called CRONUS. (Weith 1867/19–1870/9; Botruff CX 181 at 19/14-22).6 The information in CRONUS comes from credit grantors – - including banks, mortgage companies, credit unions and auto dealers – - collection agencies, public records and others. (Stockdale 873/22-25). The information is very current as Trans Union receives new data every day and updates CRONUS weekly. (Botruff CX 181 at 30/18–31/8). Information compiled on a specific consumer within CRONUS is called a consumer file.
In addition to its credit reporting business, Trans Union also sells a variety of target marketing products through its subsidiary, Performance Data (formerly Trans Mark and Trans Union Lists). Performance Data creates lists of the names and addresses of specific classes of consumers and sells them to target marketers who in turn solicit the consumers to purchase goods and services. Performance Data employs 46 people, including 10 salespersons. (Davis 37/25–38/4). At the beginning of 1998, Performance Data had 440 customers; during 1997, it generated over $34 million in sales. (Davis 48/8-10, 141/13-14). Performance Data’s sales comprise 2% of the target marketing industry. (Davis 3322/15-18). Hereinafter, unless otherwise noted, our references to Trans Union’s target marketing business include Performance Data’s activities.
As a CRA, Trans Union is in a special position. Trans Union has access to a vast array of very current and detailed consumer information from its credit reporting business which affords it a distinct advantage as a target marketer. Trans Union takes consumer information from CRONUS to create two primary databases called the Master File and the Standard Characteristics database. (Cabigon 1365/13-18; Kinsinger 2017/19-23; Weith CX-196 at 179/11-13). Trans Union offers different target marketing products based upon the information gathered in these two databases as well as data taken directly from CRONUS. See chart detailing Trans Union’s various target marketing products, appended hereto as Figure 1. For the reasons explained in detail infra p. 13, the fact that Trans Union uses CRONUS information in its target marketing business is significant because CRONUS information is far richer and more detailed than the data collected and used by non-CRA competitors who sell target marketing lists. Trans Union is also the only CRA that sells to target marketers an array of personal credit information obtained from its credit reporting database.
1. The Master File
The CRONUS-derived Master File is one of the databases Trans Union uses for target marketing. (CX-72-C). It contains information on 160 million people and 105-110 million households. (Weith 1859/8-18; CX-333). Trans Union updates the Master File three times per year. (Cabigon 1366/10-12; Davis 62/16–63/7).
In order for Trans Union to include a CRONUS consumer file in the Master File, thereby making the consumer’s name and address available for target marketing purposes, the consumer file must satisfy several minimum criteria. These criteria have changed over time. Prior to January 1998, each CRONUS consumer file had to show at least two open tradelines with one of the tradelines verified – - i.e., that some reported activity took place – - during the preceding 12 months. (Cabigon 1372/18–1373/7; CX-329-A; Weith CX-196 at 197/24–198/14). In addition, a qualifying tradeline could not be closed or an account about which there was a consumer dispute, and could not be a collection record or public record. These criteria are hereinafter referred to as the “pre-1998 Minimum Criteria.” (Weith CX-196 at 191/7-15, 227/1-5; Cabigon 1374/5-22).
In January 1998, in order to be included in the Master File, Trans Union began to require CRONUS consumer files to contain two tradelines active within the last six months or one tradeline active in the last six months with an address confirmed by an outside source. We refer to these later criteria as the “post-1997 Minimum Criteria” and both sets jointly as the “Minimum Criteria”. (Weith 1830/23–1831/4; Cabigon 1386/14–1388/7; CX-332-A; CX-339-A). As with the pre-1998 Minimum Criteria, the qualifying tradeline could not be a collection record or a public record. (Cabigon 1374/12-21; CX-332-A; CX-340-A).
Trans Union claims that the two tradeline, pre-1998 Minimum Criteria did not reveal consumer credit information and that the two tradeline minimum was only important because it confirmed, by two sources, the subject’s current name and address. TUAB at 11. Statements made by Trans Union during the relevant time and in its regular course of business, however, belie this simple characterization. For instance, Trans Union’s promotions boasted that the Master File is a list of “135 million financially active individuals” (emphasis added), that “[a]ny adult with at least two active tradelines is represented,” and that a person with no activity in a 12 month period – - i.e., making payments or establishing credit – - is dropped from the Master File. (CX-70-A; CX-69-A; CX-58-C). We agree with Trans Union’s written characterizations and find that the “two-tradeline minimum” criterion indicates more than just a confirmed address. It instead reveals a significant fact about consumers in the Master File, i.e., that they are current, at least somewhat active users of credit.
2. Trans Union’s “Master File / Selects” Product
While the Master File contains names, addresses and other demographic information on people who meet the Minimum Criteria discussed above, it also is frequently enhanced with the addition of other personal, often credit-related, information on each individual. This enhancement enables Trans Union to offer its target marketing customers the opportunity to select, from the 160 million consumer files in the Master File, names and addresses of a smaller set of consumers who meet certain criteria specified by the target marketing customer. The criteria Trans Union uses to create these subsets are called “indicators” or “selects,” and Trans Union generates half of them from its consumer reporting database CRONUS. (Cabigon 1438/12-25).
Trans Union’s target marketing customers use the Master File / Selects product in two ways. Some customers provide a list of consumers to Trans Union and purchase Master File select information regarding those customers. (Davis 33/22-25). Other customers request that Trans Union extract from the Master File names and addresses of those consumers who satisfy criteria selected by the customer. (Davis 34/1-5). In other words, Trans Union’s target marketing customers can choose from a menu of selects and ask for a tailored list of consumers’ names and addresses who, for example, have a bank card, an open mortgage, but never have obtained short term (30/60/90 day) financing. Trans Union sells these lists for one-time use by its customers either by rental or by license and charges a “base price” per thousand names, with additional charges per thousand based on the selects that the customer has chosen. (Davis 44/6-24, 64/6-22, 65/3-14).
Prior to October 1997, when it made certain changes in its business practices (see infra pp. 10-11), Trans Union permitted its target marketing customers to order from the Master File lists of the names and addresses of consumers who had the following types of credit accounts:
- Automobile – - indicating whether the consumer has an auto loan or lease not more than five years old; a second auto loan or lease not more than five years old; and for the most recent first and second loan or lease, the open date, expiration, and loan type, and range indicating high credit value (i.e., highest amount ever owed);
- Bank Card – - indicating whether the consumer has an open bank card, including the open date of the most recent bank card account;
- Premium Bank Card – - indicating whether the consumer has an open premium bank card, defined as a bank card with a credit limit that exceeds $9,999, and the open date of the most recent premium bank card account;
- Department Store Card – - indicating whether the consumer has an open department store card account, including the open date of the most recent department store card account;
- Finance Tradeline – - indicating whether the consumer has an open account with a finance company, the open date of the most recent account with a finance company, and whether the account type is a mortgage or auto finance loan;
- “30/60/90 day” Finance Tradeline – - indicating whether the consumer has a open account with a finance company with a 30, 60, or 90 day loan term;
- Mail Order – - indicating whether the consumer has an open account with any of a number of mail order companies;
- Mortgage – - indicating whether the consumer has a first mortgage and/or second mortgage; for the most recent first and second mortgage, the open date, closed date, loan type (refinance, secured mortgage, secured home improvement loan); and range indicating high credit value;
- Student Loan – - indicating whether the consumer has a student loan, the type of loan, the open date of the most recent student loan, whether it is closed, and the high credit amount (range); and
- Upscale Retail Card – - indicating whether the consumer has an upscale retail card, based upon the National Retail Federation’s listing of “prestigious” stores, and the open date of the most recent upscale retail card.
Trans Union also offered its target marketing customers the option to purchase other types of “inferential” selects, including:
- Head of Household – - identifying the person in the household with greatest number of tradelines;
- Length of Residence – - identifying people who have maintained their residence for more than a certain period of time based on duration that credit grantors report on person at that residence or based on mortgage open dates;
- Singles – - identifying people without joint credit accounts; and
- Drivers – - identifying individuals with either an auto loan or a tradeline with a business that issues gas cards and thus presumably own or lease a car.8
The record contains ample evidence of how Trans Union’s customers used the Master File / Selects product. For example, Mercantile Mortgage Co. obtained information from Trans Union to advance its telemarketing promotion which offered homeowners who had been denied credit elsewhere the opportunity to reduce their monthly mortgage rates by refinancing their mortgage, thereby freeing up funds for “home improvements,” a “new car,” or a “dream vacation.” (CX-18). Mercantile purchased from Trans Union a list of consumers in Mercantile’s area of business (Ohio), with telephone numbers (necessary for telemarketing promotion), who also had single or multiple mortgages (an important minimum eligibility factor) and credit with a finance company. Id.
The difference between Trans Union’s target marketing products and those its competitors sell is perhaps best described in Trans Union’s own words: Trans Union states that its Master File contains “the freshest” and “most comprehensive” data due to its “robust and extensive source of the original credit based information” and that Trans Union has the largest data file of consumer credit information in the United States. (CX-268-A; CX-264-A; CX-75-B). Trans Union further describes the Master File as the “richest source of individual-level data available” (CX-321-J), and asserts that its database is “kept fresh and current by nearly two billion updates supplied by credit grantors every month.” (CX-72-B). Finally, Trans Union touts its advantage over other target marketing list providers, due to its ability to capitalize on the information in its credit reporting database. Trans Union boasts that it is:
“a unique provider of credit-based marketing information. Our database is unmatched when compared to traditional direct marketing vehicles on the market today.” (CX-260-B).
“[N]o one offers you a greater source of true individual-level data than we do . . . . This unique resource includes financial and behavioral data on over 140 million consumers . . . This information is not only current, it is also highly accurate . . . . All information is based on actual behavior – - not self-reported or neighborhood values. Even our estimates – - of income, net worth, income producing assets, and home market value – - are modeled from actual observations for each individual in our file. (CX-83-C).
Such statements by Trans Union provide insight into the nature of the data it collects as a CRA and sells to target marketers.