Profiling of Customers and Consumers - Customer Loyalty Programmes and Scoring Practices

Profiling is increasingly being applied to customers and consumers. The main purposes are risk assessment and fraud prevention, for example in the financial sector and the housing industry (also called scoring) and advertising and market research, for example via customer loyalty programmes. Within this article both areas of application of profiling practice are described and analysed concerning the technical and legal aspects, especially with respect to the European Data Protection Directive 95/46/EC (hereafter, the abbreviation D 95/46 EC is used).In the first section of this chapter general types of customer loyalty programmes (two party and three party contracts) are described. The legal aspects, elaborated in detail in the study “Kundenbindungssysteme und Datenschutz”,commissioned by the “Verbraucherzentrale Bundesverband e.V. (vzbv)” and carried out by the Independent Centre for Privacy Protection (ICPP) are mapped to the corresponding articles of the D 95/46 EC and summarised. This section concludes with a good practice example, the LN-Card, a customer loyalty programme that can be used by the readers of a local German newspaper, the “Lübecker Nachrichten” (LN). This programme was awarded with a regional privacy seal in 2004.In the second section of this chapter a definition of scoring and a general description of credit scoring practices is given, which highlights the difference between credit scoring applied by a credit institute and credit scoring operated by a credit information agency (third party service). In this context the most common criteria employed in the scoring process will be described. This is followed by a technical classification of the scoring practices and a legal analysis focused on three aspects. These aspects include criteria that have to be met to achieve a scoring practice that complies with Article 7 of D 95/46 EC, conditions under which scoring becomes an “automated individual decision” in the context of Article 15 of the D 95/46 EC and the need for transparency from the perspective of the customer.