Protecting Data Analytics from Litigation

In earlier days, data analytics revealed individually identifiable customer patterns, but as data sets have grown, data analytics have shifted from forecasting about individual consumers to forecasting about demographics and the general population. But according to the Federal Trade Commission, rote algorithms, the engine of data analytics, can lead to unintended results that give rise to discrimination.

In January the FTC published a report addressing that issue: Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues. This report aims to educate businesses on laws relevant to big data analytics, including the Fair Credit Reporting Act (FCRA), Section 5 of the Federal Trade Commission Act and various federal equal opportunity laws. It serves as a reminder that the FTC has broad jurisdiction to regulate e-commerce.

The linchpin of the FTC position is that under the FCRA, when aggregators and marketers compile “nontraditional” information to build a consumer credit profile in order to make employment and housing decisions, they become the equivalent of a credit reporting agency that is creating credit reports. In the FTC’s view, this implicates the FCRA, even though the “credit reports” may be demographic and not individual.

The FTC report underscores that big data brings big problems. The bottom line is that the powerful algorithms making data analytics possible are no longer simply complex numbers on paper. Rather, they are a door through which the FTC can enter your business and examine potential violations of federal law.