Tricky Trade-off: Are loyalty cards compromising your privacy?

BURLINGTON, Vt. (WCAX) Who doesn't like a deal? Customer rewards programs promise them, and they sure are popular -- American consumers have 3.8 billion memberships. But there can be some risks.

Spending money, but saving money at the same time -- many customers call it a 'win win.' Loyalty, or customer rewards cards and apps, offer that. And many people love them. And retailers love them too. Some studies show they can keep customers coming back. But experts say the bigger prize may be what you're giving the store.

"When customers decide to sign up for a loyalty card they give personal information, whether it's an email, a phone number -- obviously your name," said Marie-France Nelson, who teaches marketing at St. Michael's College.

She says retailers take that personal information and combine it with your shopping patterns -- what you're buying, when you're buying it -- and create a profile. They use that to better target you with coupons, discounts, and other offers you might actually use, and getting you to spend more. "That's really important for them to have that information to be able to offer the right product," Nelson said.

It's good for retailers, and she says for customers looking for convenience and good deals.

Reporter Kristin Kelly: But there is a downside?
Marie-France Nelson: Absolutely... Consumers need to know they are giving up their privacy.

That's the trade-off. You're allowing intense digging into your spending habits in exchange for those discounts, and experts say retailers can really discover a lot about you.
One example that stunned some customers and privacy advocates -- a 16-year-old Target shopper in Minnesota who was buying a certain kind of moisturizer and nutritional supplements.
"Target was able to figure out that she was expecting," Nelson said.

Target sent coupons to her for baby-related items. Her dad accused the store of promoting teen pregnancy, only to learn then from his daughter she was actually pregnant. "That's how much information they knew," Nelson said.

"I think there there are a lot of concerns," said Chloe White with the ACLU of Vermont. She says beyond the tracking retailers do for their own purposes, some then sell the information they've gathered on you to other companies called data brokers. "These databrokers buy, sell, and analyze your information, and they will divide it into different categories or scores."

Depending on your spending habits, zipcode, and activity on social media, you can end up on multiple lists; for example -- single urban dads or romance novel enthusiasts. And privacy advocates say even on lists of people with potential credit or health risks. Data brokers sell the lists to anyone who wants them -- marketers, banks, and more. Even scammers have bought data looking for targets. "What if an employer starts getting scores?" White said.

She says the way you're categorized by big data could impact the interest rates you're offered on loans. Or if you end up on a health risk list it could even jeopardize whether you get a job interview. "They think this person might be out of work a lot of times. 'I don't want to give them all this time off,'" White said.

And once data brokers have you're info, you no longer control it.

Reporter Kristin Kelly: Under law, you have a right to see your own credit report, but you do not have a right to see what big data has on you?
Chloe White No, you don't.

So with no way to even see if the info collected on you is correct, or how it's being used, consumers are left with a choice. "There is a cost, and the customer has to make up their mind whether or not they want to give up their privacy," Nelson said.

State and federal laws can help protect you from predatory lending practices or discrimination, but privacy advocates say because everything big data does is private, you won't know if you're being discriminated against because of information that was collected about you. Vermont is now looking at possibly regulating data brokers. A special committee is set to release recommendations to lawmakers next month.