The fact that advertisers track what consumers do online is common knowledge, but federal regulators raised alarms Tuesday about just how much data are being collected and how they're used to profile consumers.
Data brokers are grouping Americans based on race, income, hobbies and medical conditions, according to a report released Tuesday by the Federal Trade Commission calling for legislation that would restrict the industry and make it more transparent.
The report acknowledged that data brokers can help consumers find relevant products by grouping them in categories such as "dog owner" and "expectant parent." But the agency found that other categories consumers fall into focus on ethnicity and income levels.
The groups "urban scramble" and "mobile mixers," for example, have high concentrations of low-income Latinos and African Americans. Another set flags medical conditions, including groups such as "diabetes interest" and "cholesterol focus."
Nearly every U.S. consumer is being tracked this way, and the data can be used to target advertising, deny business services and more, the FTC said.
"We don't really know very much about how these segments are used, because the system is so complicated," FTC Commissioner Julie Brill said.
The FTC based its analysis on information ordered from nine major data brokerage firms. Among the recommendations from the FTC was legislation that would require data brokers to provide consumers with the data collected about them and allow consumers the opportunity to know what inferences are made based on those data.
The FTC also called for lawmakers to require retailers to be more transparent when data brokers' information is used to deny consumers services.
Online privacy advocates welcomed the report's findings.
Jeffrey Chester, executive director of the Center for Digital Democracy, called the report a "wake-up call" about an "out-of-control digital data collection industry."
"The report reveals the largely invisible Big Data-driven complex that regularly spies on every American, comprehensively following our activities both online and off," he said.
Private companies have for decades helped advertisers and other businesses target consumers, but online tracking has allowed the industry to grow rapidly.
The report acknowledged that data tracking can help consumers in various ways, including, for example, helping them "find and enjoy the products and services they prefer."
But the collection also poses risks. "The extent of consumer profiling today means that data brokers often know as much — or even more — about us than our family and friends, including our online and in-store purchases, our political and religious affiliations, our income and socioeconomic status," FTC Chairwoman Edith Ramirez said in a news release.
The FTC found that data brokers collect and store billions of data points covering nearly all American consumers. One of the data brokers the FTC examined holds information on more than 1.4 billion consumer transactions, according to the report.
The brokers collect information through online and offline sources, including consumer purchase data, social media activity, warranty registrations, magazine subscriptions and religious and political affiliations.
Those data are then analyzed and used to make inferences about consumers, including their political leanings and age.
For example, a category cited in the report called "rural everlasting" includes singles older than 66 with "low educational attainment and low net worths."
The categories can have a mixed effect for consumers.
The report cited a group called "biker enthusiasts," saying the designation could help consumers by providing them with more relevant ads but could also harm them with insurance providers looking to flag risky behavior.
The nine data brokers included in the FTC's analysis are
One commissioner said the opaque system of profiling creates the potential for, say, a consumer who data brokers believe has cancer to be denied a long-term cellphone plan without the consumer's knowing why.
A trade association for the industry criticized the report, saying it highlighted real-world benefits provided by data brokers while citing only "theoretical" harm.
"One interesting thing about this report is that after thousands of pages of documentation submitted over the two years of thorough inquiry by the FTC, the report finds no actual harm to consumers, and only suggests potential misuses that do not occur," said Peggy Hudson, a vice president at the Direct Marketing Assn.