Explainer: Why Financial Services Have Laxer Marketing Regulations

How it Works: Media privacy is a highly confusing jumble of state, federal and even local legislation. Marketers are restricted in most cases from harboring personally-identifiable information and using it to track consumers for marketing purposes, unless consumers explicitly opt-in via a privacy and marketing agreement. Marketers, by law, are essentially restricted to compiling data on consumers anonymously, without storing personal identifiers such as their name or information that can be used to officially identify them. That said, there are many ways to track a consumer without knowing his or her name. The penalties for violation can be stiff, ranging from fines to even felony charges. Financial services companies operate on a different playing field. They can access records of consumers as far back as 20 years. Unless consumers explicitly contact these companies and offer proof that the information held is incorrect, that information remains as a numerical tag following the consumer across virtually every financial transaction that employs credit or personally identifiable information such as social security numbers in the transactions processing.

How it Happened: Financial services institutions are considered the engines of the economy, even though Web marketers also play a critical role in keeping the economy moving by helping to get products, goods, services into the hands of buyers. The operation of the financial services industry is dependent on consumer’s personal data being as freely exchanged and traded as a currency, although consumers themselves must request and in some cases pay, to access their own data stores. The industry wields virtually as much power as the government to track, store and transfer information on consumers’ financial histories and activities to virtually any party that they wish to receive it. During the 1960s, when data files on consumers held by banks included everything from “reported sexual deviance” to drinking habits in addition to religious, employment and financial information, a national backlash arose and led to cries of McCarthyism from many corners of the political spectrum. This led to the introduction of The Fair Credit Reporting Act of 1970, the first American regulation placing limits on the information that could be collected and held by banks. The information that it restricted was primarily lifestyle indicators — religion, sexual orientation, political alliances, etc. The logic was that none of these elements should impact a bank’s decision to grant a loan or give credit.These indicators and other demographic information are what marketers use to target consumers with products and services. During the 1970’s, when legislation was enacted to monitor banks’ lending practices to social minorities, things like ethnic background, gender and age became permissible for banks to store as indicators of their purportedly fair lending practices to consumers. Marketers outside the financial services industry were left out in the cold, with very little data to work with except complicated methods of aggregating guesswork. Legislation in the Reagan era in the 1980s made it a lot easier for banks and financial institutions to trade, lend and create unconventional financial instruments as well as to transfer consumer data. Many of the restrictions on how consumers could be tracked, and for how long, fell by the wayside as heavy regulation of financial institutions began to be seen as bad for the economy and financial institutions. Also the perception that more accessible credit, ranging from home loans to credit cards for teens, would pull the country out of an economic crisis by encouraging shopping stuck in the minds of politicians, pundits and consumers, and the financial services industry took full advantage of the country’s mood. This mood created an emphasis on transparency within successive administrations and the FTC, rather than privacy. Virtually any use of consumer data was permissible for marketing or other service offers if consumers opted-in via a privacy agreement. That shift from data privacy to transparency culminated in 1996, when amendments to the FCRA of 1970 dissolved most state protections of consumer information, and effectively set up the FCRA as a superseding body, removing the state’s right to limit financial institutions’ use of consumer information. The amendments also gave financial services marketers sweeping powers to collect information on consumers and launch individually-targeted campaigns that could range from unsolicited offers of credit to new mortgages.

Why it Matters: The recent privacy backlash against digital marketing practices such as behavioral targeting was one fueled by a lack of understanding of the limits of digital marketers’ power over consumer data. The lack of true transparency on the part of other institutions that collect far more information than marketers has helped to promote the mythology of the “creepy” marketer hoarding personal data on millions of consumers in order to promote a new product line. Although resilient cookies and other industry black hat tactics do exist, even the most offensive methods of consumer tracking pale in comparison to the legal power of financial institutions, and financial services marketers, to collect and trade highly detailed, personal data on consumers.

Analysis: Financial institutions have enormous power over consumer data, more than consumers hold themselves in some cases. Consumers cannot delete their own financial data files from publicly accessible records or even access their own financial records files at will without payment to an agency. Digital marketers, on the other hand, are attempting to finely-target their offers of goods and services to consumers who will actually read and interact with the ads that they are serving. Having greater access to consumer data reduces waste and creates better ad experiences for consumers. It will always seem unfair to online marketers that they’re held to such higher standards, but that’s unlikely to change anytime soon.