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Privacy Pirates

Capital One Financial's savvy data-mining operation comes under fire. What's in their wallet?



With its well-tended grounds, the sprawling 316-acre office park off Capital One Drive in Goochland County has the look and feel of a military base. Six modern structures house some 8,000 Richmond-area workers for $16 billion Capital One Financial, the fourth largest issuer of Visa and MasterCards in the United States.

The innocuous office park is the epicenter of some of the most significant and sophisticated computer-based consumer research in the country. Many of Capital One's Richmond area workers are manipulating Web-generated information that goes to the heart of what potential customers might want in credit and can afford, allowing the advertising-savvy company to ask “What's in your wallet?”

CapOne's dominance in data manipulation is one reason why it has survived the recent financial crisis better than its competitors. During the meltdown it racked up better default rates than credit giants Bank of America, Citigroup and American Express. But there are still questions about how it handles Web-related privacy.

The company says it only gathers information left by customers who voluntarily visit its website. “We do not use data capture from other sources,” says Pam Girardo, a company spokeswoman. CapOne may later trade certain information about individuals unless they click onto the company's site and telephone a number to opt out.

But CapOne does use services and information from other companies that may not have the same rules. According to The Wall Street Journal, one is a New York data mining company called {x+1} Inc. that makes money trolling the Web looking for information on individuals. It may acquire the information on anonymous individuals by installing cookies or other Web-based surveillance means to find out their marital status, income level, preferences for cars and restaurants and so on.

The individuals are not identified, but {x+1} Inc. or the companies to which it sells data could make a reasonable guesses as to their identities, the Journal reports. Once done, companies can make an assessment whether and how the targets should be pitched for credit cards.

Officials with {x+1} could not be reached for comment, but John Nardone, the company's chief executive, is often quoted on business websites, using new 'Net-speak jargon: “Survey-results data can be used to segment customers and place them in different parts of the purchase funnel. Typically, attribution is defined as what drove a conversion event, which is usually defined as a sale.”

That might sound like something out of “Avatar,” but it works for {x+1} Inc. The Journal says that the company can get from $30,000 to $200,000 a month for its technology.

Girardo says Capital One does not use the company's data on potential customers, but it does buy {X+1}'s help in customizing its Web page.

How worried should consumers be about Web-based invasions of their privacy? It depends, says Steve Baker, a veteran technology journalist who wrote the 2009 book “The Numerati,” which explores data mining. Capital One is noted for manipulating data to find customers more likely not to default on credit card debt, Baker says.

How far it goes in terms of privacy is balanced by how expensive it is to data mine the customer. “They are measuring things by hundredths of a cent,” he says. So how much are they going to spend just to make someone a credit card offer, he asks: “In the industry it is called ‘boiling the ocean.' A card offer might not be worth it, but a mortgage offer might be.”

Despite its reputation for efficiency, Capital One has been accused of being overzealous in going after customers with Web or mail offers. The West Virginia attorney general has filed a lawsuit against Capital One for targeting poor people with bad credit scores and then setting them up for late and other punitive fees.

Charli Fulton, a senior assistant attorney general in Charleston, says the lawsuit was filed earlier this year and accuses Cap One of “lending to people with bad credit and then setting them up to default.” She claims that CapOne offered poor people with bad credit a card with a limit of $200. If they did well on payments, CapOne would offer a second card instead of increasing the limits on the first one, increasing the chances of late payments, she says. Data manipulation wasn't involved, Fulton says. Baker says to pitch to the poor, “all you need to do is look at the ZIP code.” CapOne declined comment.

Meanwhile, CapOne continues its data-based juggernaut. It is expanding its local presence by buying two buildings in Innsbrook for $17 million.

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