Read Case 6.2: Information Handling at ChoicePoint. Answer the following questions and submit the completed assignment to your instructor.

What are the major benefits of ChoicePoint’s data collection?
What are some of the possible harms of ChoicePoint’s data collection?
Some would argue that personal data collection is necessary for business to succeed today. Others would argue that personal data collection is an invasion of individual privacy. Take one of these positions and defend it.
CASE 6.2 Information Handling at ChoicePoint

As the chief executive officer and chairman of ChoicePoint, Derek V. Smith believed that the company’s business of collecting information on virtually every American and providing it to customers was a great public service. He asserted that “ChoicePoint is built on the premise that the responsible use of information will reduce risk and make the world safer and more secure.”56 However, some critics think that ChoicePoint and the information collection industry as a whole pose great hazards.

Based in Alpharetta, Georgia, a suburb of Atlanta, ChoicePoint was formed in 1997 as a spin-off from Equifax, the giant credit reporting company. Under Mr. Smith’s leadership, ChoicePoint bought more than 70 information-gathering companies over the next seven years to amass billions of pieces of data on individual Americans. This information included motor vehicle records, credit histories, insurance claims, birth and death certificates, marriage and divorce decrees, criminal actions, civil judgments, and real-estate transactions. Among the customers for ChoicePoint’s services were banks, insurance companies, debt collectors, landlords, private investigators, law enforcement agencies, and the federal Department of Homeland Security. By 2004, the company provided more than 100,000 individual, corporate, and government customers with reports, which generally cost between $5 and $15 each and which generated around $1 billion in annual revenues.57

Aside from generating profits for ChoicePoint and its main competitors, Acxiom and Lexis-Nexis, computerized data collection and dissemination produces many benefits that are expressed in the company’s motto, “smarter decisions, safer world.” Business transactions are quicker and more secure when both parties know each other. In Mr. Smith’s view, easy access to reliable personal information helps restore a lost America in which neighbors in small towns knew each other and could conduct business with confidence.58 With the advent of centralized computer databases of personal information, the approval of applications for jobs, loans, credit cards, insurance policies, housing rentals, and the like can be done much more quickly than in the past. In addition, ready information enables banks and credit card companies to combat fraud, which benefits consumers by reducing costs. Costs are also reduced when companies use information in ChoicePoint reports to avoid hiring problem employees. Although law enforcement agencies have their own databases, which include nonpublic information gained by eavesdropping and other kinds of surveillance, they can prevent or solve crimes more effectively when they have access to the additional public information offered by commercial firms. ChoicePoint and other private companies are useful to law enforcement and Homeland Security officials because they can collect some information that government agencies cannot because of public sector privacy laws.59

These benefits of the data collection industry are offset by some possible harms. Many critics point to the contribution of the industry to the problem of identify theft, which claimed 8.3 million victims in 2005 or 3.7 percent of all American adults.60 Identity theft, which some call “data rape,” affects people’s sense of security as well as their pocketbook. In addition to incurring out-of-pocket losses, which may include lost wages, legal fees, and the payment of fraudulent debts, victims of identify theft may also encounter delays in accessing bank accounts, denial of credit, harassment from debt collectors, and the hassle of clearing credit records. It is difficult to determine the extent to which identity thieves obtain personal information from data collection companies. A 2005 report found that more than half of all victims did not know how the thieves had obtained their personal information, and that the information in 16 percent of identity theft cases was stolen by family members and acquaintances.61 Still, the few breaches of security that have occurred at data collection companies result in the unauthorized release of personal information on large numbers of people.

Critics also charge that commercial data collection is a threat to privacy. Most of the information provided by ChoicePoint and other companies is drawn from records in government offices and courthouses, which have long been available to the public. However, people’s privacy has been preserved in the past by the fact that the personal information from these scattered sources has been costly and time-consuming to acquire. With the advent of large computers, though, it is possible to make information about individuals readily available in one place for anyone with a legitimate need to know. One consequence of this development is that damaging information, such as an arrest record, may follow an individual throughout life, thereby creating what some critics call a “scarlet letter” society, in which people’s transgressions are publicly displayed for all to see. However, defenders of the data collection industry question whether the inability to escape from one’s past constitutes a violation of privacy. Mr. Smith argues that there is a big difference between privacy and anonymity. “Yes we have a right to privacy. But in this society we can’t have a right to anonymity.”62

In February 2005, ChoicePoint acknowledged that serious security breaches had occurred. The company notified 163,000 people that data thieves, posing as representatives of legitimate businesses, had gained unfettered, round-the-clock access to the company’s computerized records.63 Although ChoicePoint employs sophisticated technology to keep hackers out of their computer system, the thieves exploited gaps in the company’s verification procedures to register as customers. At least 800 cases of identity theft were known to have resulted from these data losses.64 In their defense, ChoicePoint executives argued that the rogue customers were sophisticated enough to get business licenses and other credible documents. However, a report by the Federal Trade Commission (FTC) concluded that the company was lax in its procedures and had overlooked obvious “red flags.”65 For example, ChoicePoint did not question applications that had incomplete or contradictory information, that listed residences or commercial mail services as addresses and cellular telephone numbers as contacts, and that were sent from fax machines in public locations, such as Kinko’s stores. In some instances, the submitted documents showed that the company’s incorporation or tax registration had been suspended or cancelled.66 One information security consultant observed, “It was a well-known fact back then that ChoicePoint would do business pretty much with anyone who came along.”67

Following this acknowledgment of security breaches, ChoicePoint was severely criticized by privacy groups. The human rights organization Privacy International bestowed its 2005 Lifetime Menace Award on the company.68 The Electronic Privacy Information Center (EPIC) filed a complaint with the FTC and called for a congressional investigation, which was subsequently undertaken. Faced with this outpouring of criticism, Mr. Smith and other ChoicePoint executives were forced to consider their response. How should the company deal with the 163,000 individuals whose personal information has been improperly released to data thieves? What steps should ChoicePoint take to improve its security and ensure that the personal information of every American is safe? And, finally, could the company defend its business model of collecting and disseminating personal information for paying customers?

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