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Title: Card's Customers Get Right to Privacy

Subhead: American Express sells lists based on buying habits

Author: Albert B. Crenshaw, Washington Post

Journal: San Francisco Chronicle, 5/14/92, page A1
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Full text:
Washington

In a settlement that could become a model for privacy protection 
across the country, American Express Co. agreed yesterday to inform its 
20 million card holders that it tracks their buying habits to compile 
marketing lists that it sells to other merchants.

In its agreement with the New York state attorney general's 
office, the credit card company also said it will make clear to card 
holders that they may choose not to be included on such lists.

The settlement underscores how, to an ever-increasing extent, 
computers allow lenders and merchants to collect information about their 
customers and use it for purposes other than simply tracking a 
transaction for billing purposes. The legal system is just beginning to 
grapple with the implications of this use of the computer.

American Express, for example, can sift through its card holders' 
transactions, sorting them by categories, such as frequent air travel, 
car rental or use of hotels. From that information, it can create a list 
that can be offered to airlines, hotels and others interested in 
marketing to travelers.

Yesterday's settlement is believed to be the first such agreement 
with a credit-card issuer.

American Express is apparently one of the most advanced users of 
this technology. An aide to New York Attorney General Robert Abrams said 
Abrams' office has been questioning large credit issuers in New York but 
so far has found none with as elaborate a program as that of American 
Express.

According to Abrams' office, American Express divides its card 
holders into six tiers, ranging from the least affluent, "value-
oriented" customers to the most affluent, which it calls "Rodeo Drive 
Chic."

The company has used these lists in joint marketing ventures with 
such firms as American Airlines, Hertz Corp. and Marriott 
Corp., Abrams said. In these ventures, the companies devise special 
promotions that are mailed to card holders by American Express.

"A consumer who pays with a credit card is entitled to as much 
privacy as one who pays by cash or cheek," Abrams said in a statement. 
"Credit card holders should not unknowingly have their spending patterns 
and lifestyles analyzed and categorized for the use of merchants fishing 
for good prospects."

Abrams also said he has proposed that New York enact a law 
requiring all credit granters who use customer information for marketing 
to disclose it and to offer customers the option of having their names 
removed from any such lists.

Several bills also have been introduced in Congress that would 
protect consumer privacy, but so far, none has been enacted. Current law 
is generally interpreted as allowing such marketing, although with some 
restrictions.

An American Express official said the company has long offered 
card holders the opportunity to remove their name from marketing lists 
and has disclosed to all new card holders and old ones periodically that 
their names might be used "or marketing. "This is kind of a 
reaffirmation of that policy," she said.

An aide to Abrams said, however, that the card company's warnings 
were not clear.

Alan F. Westin, professor of public law and government at Columbia 
University, said he thinks the kind of agreement reached between 
American Express and Abrams' office represents the direction regulation 
in this area is taking.

"One of the principles that is beginning to emerge is that when 
information is collected from a consumer directly" by a merchant or 
credit granter, "there is an obligation to disclose any additional uses 
of that information beyond the immediate transaction," Westin said.
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