Secret consumer scores threaten privacy and increase risks for ID theft victims

By Mark Pribish
Vice President and ID Theft Practice Leader

When it comes to ID Theft and data breach, most people only think about financial ID theft and their credit scores.

According to a new report released last month by the World Privacy Forum (WPF) - a public-interest research group with a focus on privacy and the data broker industry - consumers may want to learn more about their "secret consumer scores."

Consumer scoring, while not new, has increased in size and scope due to big data and technology. At the same time, consumer scoring is "largely unregulated either by the Fair Credit Reporting Act or the Equal Credit Opportunity Act where thousands of pieces of information about consumers' pasts predict how they will behave in the future."

The WPF report continues by stating "the scores are typically secret in some way. The existence of the score itself, its uses, the underlying factors, data sources, or even the score range may be hidden. Consumer scores with secret factors, secret sources, and secret algorithms can be obnoxious, unaccountable, untrustworthy, and unauditable. Secret scores can be wrong, but no one may be able to find out that they are wrong or what the truth is."

This is important to know because "victims of identity theft may be at particular risk for harm because of inaccurate consumer scores," according to the report.

In fairness to financial institutions, retailers and other users of consumer scoring - some of these consumer reports provide benefits that can help individual consumers.

For example, the idea of individual consumer modeling, in which retailers and creditors try to identify and separate profitable customers from unprofitable customers - along with predicting purchasing patterns and customer loyalty - can help consumers save money through discounted pricing and targeted sales.

Another example is the transaction score which is used to identify fraudulent credit/debit card use based on your regular credit/debit card buying habits, including the average dollar amount of each transaction, type of transaction and transaction location. If your transaction amount, type and/or location creates a red flag like using your debit card in China, your debit card company might decline future activity until they have spoken directly with you to confirm your travel to China or your debit card is being fraudulently used.

To conclude, here are some additional examples of consumer scores:

• Attrition risk score is a retention tool to help retain existing customers
• Bankruptcy score that measures the likelihood of your declaring bankruptcy
• Behavior score where good or bad behavior motivates the retailer or creditor to a specific action
• Churn score where many companies, such as wireless carriers and cable companies, create scores that predict how likely you are to take your business to a competitor
• Collection score determines which delinquent customer will pay off their past due amount
• Consumer profitability score predicts how quickly you will pay your debts
• Job security score where employment and unemployment data, economic trends and forecasts predict the probability that you will lose your job
• Medication adherence score predicts your likelihood of following a prescription plan and your doctor's orders
• Response model score can help a retailer anticipate purchasing patterns, enhance the customer experience, and cross-sell new products/services
• Revenue Score can predict how much revenue and profit will be generated through each customer

Not all consumer scores are bad. Consumer scoring offers benefits to both users and consumers. But regulators like the FTC need to make consumer scores public and transparent to the consumer.