Secret E-Scores Chart Consumers’ Buying Power
http://www.nytimes.com/2012/08/19/b...?_r=1&nl=todaysheadlines&emc=edit_th_20120819
So here’s a new score to obsess about: the e-score, an online calculation that is assuming an increasingly important, and controversial, role in e-commerce.
These digital scores, known broadly as consumer valuation or buying-power scores, measure our potential value as customers. What’s your e-score? You’ll probably never know. That’s because they are largely invisible to the public. But they are highly valuable to companies that want — or in some cases, don’t want — to have you as their customer.
Online consumer scores are calculated by a handful of start-ups, as well as a few financial services stalwarts, that specialize in the flourishing field of predictive consumer analytics. It is a Google-esque business, one fueled by almost unimaginable amounts of data and powered by complex computer algorithms. The result is a private, digital ranking of American society unlike anything that has come before.
Federal regulators and consumer advocates worry that these scores could eventually put some consumers at a disadvantage, particularly those under financial stress. In effect, they say, the scores could create a new subprime class: people who are bypassed by companies online without even knowing it. Financial institutions, in particular, might avoid people with low scores, reducing those people’s access to home loans, credit cards and insurance.
It might seem strange that one innovator in this sphere has blossomed here in St. Cloud, a world away from the hothouse of Silicon Valley. It is called eBureau, and it develops eScores — its name for custom scoring algorithms — to predict whether someone is likely to become a customer or a money-loser. Gordy Meyer, the founder and chief executive, says his system needs less than a second to size up a consumer and to transmit his or her score to an eBureau client.
Every month, eBureau scores about 20 million American adults on behalf of clients like banks, payday lenders and insurers, looking to buy the names of prospective customers.
The scores, he adds, are generated without using federally regulated consumer data and are not used to make credit decisions about consumers. (Using regulated credit data for marketing purposes could run afoul of federal law.)
Such assurances aside, consumer value scores have begun to trouble some federal regulators. One of their worries is that these scores, which have spread quietly through American business, measure individuals against one another, using yardsticks that are essentially secret.
“The scoring is a tool to enable financial institutions
to make decisions about financing based on unconventional methods,” says David Vladeck, the director of the bureau of consumer protection at the Federal Trade Commission. “We are troubled by these practices.”
Federal law governs the use of old-fashioned credit scores. Companies must have a legally permissible purpose before checking consumers’ credit reports and must alert them if they are denied credit or insurance based on information in those reports. But the law does not extend to the new valuation scores because they are derived from nontraditional data and promoted for marketing.
