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For the White House and the politicians now digging into the issue, the biggest assembler of data on the lives of ordinary, law-abiding people lives right under their noses, it is the federal government.

Nobody knows for sure how much data the federal government collects. A subcommittee of the Senate Judiciary Committee has spent four years studying the problem and will soon publish a 4,500 page description of the process which places the number of federal data banks at between 800 and 900. Some 54 different federal agencies are involved.

One might get some idea of the size of the federal operation by considering a proposal for a new nationwide computer system recently put forward by the General Services Administration.

It would involve about $100 million worth of new equipment that would replace 60 older computers now run by GSA or the Department of Agriculture.

One of the more excitable members of Congress, Rep. John E. Moss, D-Calif., has charged that the system would allow the government to assemble "dossiers on any individual or institution."

But Dennis Bracy, a GSA computer specialist says the public should not be alarmed. An elaborate system of "passwords" and code numbers will prevent people who are allowed in one section of the new system from getting into other parts of the system.

"We are not going to be able to know what's in Agriculture's computers and they are not going to know what is in ours," he added.

Despite the system's size, according to Bracy, it will amount to "about 1 percent of the government's computer capacity."

The question of how to control people who control data is one that has bothered some government officials since the computer hardware selling boom of the late 1960s left Washington awash in data systems.

Last summer, a panel of experts commissioned by the Department of Health. Education and Welfare to study the problem, concluded that computers have proved to be spectacular at solving some types of problem and are of little or no use in others.

Nevertheless, wherever they were installed, they were kept busy. "The successes were so spectacular," the HEW panel noted, "that the prestige of having a largescale data processing capacity often prompted managers to keep the computers running, even at a financial loss."

Keeping computers running sometimes involves feeding them more data than they should have. For instance, the HEW study mentions the case of the National Driver Register, operated by the Department of Transportation, which is suprosed to flag drivers with bad traffic records who attempt to get drivers licenses from more than one state.

Rather than going over their records to pick out the more flagrant violators, the states who contributed to the system found it easier and cheaper just to punch in all license applications.

The result, according to the study, was a kind of "dragnet effect." matching 5.000 applicants a day with records of traffic violations in other states. Because of the over abundance of data the matches were so imprecise that the 5.000 "hits" by the computer often had to be winnowed down to 500 by DOT staff. The mismatch of data by one computer is a problem that could be catastrophically compounded if someone found a common language that could jump data out of dezens of different government data banks at once.

The HEW panel concluded that the "common language" already exists to a considerable extent in the use of an individual's Social Security number as an identifier for other purposes.

Originated as an easy way to keep track of survivor benefits and retirement pay under the Social Security Act in 1935, the idea of using the numbers for people spread like wildfire.

Today the federal government uses Social Security numbers to keep track of unrelated programs involving: aliens, Indians. soldiers, high school students, welfare cases, civil servants, taxpayers and people who buy or sell securities. States use it on drivers licenses and many banks use it to identify accounts. Because the willy-nilly use of the Social Security number would "enhance the likelihood of arbitrary or uncontrolled linkage of records about people," the HEW panel called for the government to stop using the number as a universal identifier and to develop safeguards to keep unauthorized persons from using it to penetrate government data banks.

These and other conclusions of the HEW report have been translated into legislation by Rep. Goldwater and Edward I. Koch, D-N.Y. It is pending before Congress.

The report, called "Records, Computers and the Rights of Citizens" is also being championed by the ACLU, which has accused HEW of continuing to expand the role of the Social Security number despite its report.

As far as the ACLU is concerned, the privacy issue might as well be called "Son of Watergate."

The ACLU's interest in privacy, according to Douglass Lea, head of the organization's privacy project, was considerably accelerated by the discovery of the "enemies lists" and other items among the evidentiary baggage associated with Watergate-including recent White House transcripts—that show the Nixon administration was aware of the potential damage a government might create by using its files on certain individuals.

The problem, the organization discovered, was that even with the example of Watergate, few people were aware of how large the public and private apparatus for tracking people's lives had really become.

"These things tend to come on cat's paws," asserts Lea who has been assembling a kind of glossary on what people can do if they know the right numbers.

A knowledgeable businessman, for instance, can tell from the code on certain credit cards whether a person pays his bill promptly.

The code on a veteran's discharge form can tell a knowledgeable employer whether the man had such problems as bed wetting or homosexuality, Lea discovered.

But businessmen do not have to depend on cracking government codes to find out about people's private lives. There are enormous private organizations who make their living doing that.

In theory, most of these are regulated by the Fair Credit Reporting Act, passed by Congress in 1970 to protect consumers against inaccurate or misleading credit reports.

Loopholes written into the law, however, still do not permit a consumer to see the results of a credit investigation done on him.

The problem has recently been aggravated by major oil companies who have been trying to get out of the credit card business and are looking for convenient reasons to deny further credit to card holders, according to Sheldon Feldman, assistant director for special status of the Federal Trade Commission which is charged with enforcing the law.

Once credit is denied, for whatever reason, the denial becomes part of the grist for credit reports that are bought and sold. Under the law, according to Feldman, a consumer is entitled to know which company's report on him results in a denial of credit.

Finding out why credit was denied, however, can be a big problem. "The law is fuzzy on that," says Feldman. "You can get them to look at your report and tell you what they think might be derogatory among the information in it. But you can't see it if they won't let you."

Opening a credit file would reveal, among other things, the company's system for grading credit risks, something that, according to Feldman, is "very jealously guarded."

Who does get to see credit reports? Almost any businessman who wants to buy one. Mike Wallace, the CBS news correspondent, once tested the system by printing up a letterhead for a nonexistent company and asking 20 credit bureaus for reports on various individuals. Ten responded with full reports without asking any questions.

Early this year, Gordon Forbes, a lawyer for the Minnesota Railroads Association, decided he needed to know more about Mrs. Betty Henry, a woman who has been campaigning for tougher state legislation on railroads.

He purchased a report on the woman from the Retail Credit Company, the nation's largest credit research firm. The incident caused a considerable flap in the Minnesota legislature, but Forbes could not understand why people were getting so excited.

"There was nothing secret about the ordering of the report," he noted in a news conference, "and it was done in accordance with my previous, routing requests in the handling of legal matters in my law practice."

How are reports prepared? The most extensive files on the average consumer are usually developed when he asks for life insurance. Somewhere in the dense thicket of words on the policy he signs is an authorization for the investigation. Insurance companies want to know much more about an applicant besides how he pays his bills. Reports for insurance companies can involve checking neighbors to see if he drinks too much, has an unhappy home life, engages in dangerous sports or has any other life-shortening traits that would not endear him to insurance company actuaries.

In the trade, the Retail Credit Co. of Atlanta, Ga., is to insurance credit investigations what General Motors is to the automobile. Retail Credit says it has over 33,800,000 investigative reports on people.

Exactly how Retail Credit does its reporting is a matter of some controversy. Recently, several former company investigators told a Senate subcommittee that the company requires as many as 20 cases to be completed daily by one investigator and sets quotas for the production of derogatory material.

To meet the caseloads, the former employes said, they often had to use unverified records and sometimes even concocted information that went into the files.

Retail Credit has denied their charges. The company is also contesting charges by the FTC that company investigators use fraudulent means to obtain information and sometimes do not interview "sources" listed as having been interviewed.

Because the company is so big (it has 1,500 offices throughout the country) it is difficult to avoid dealing with Retail Credit. If you don't buy life insurance, you are likely to run into the company when you apply for credit from a local store.

Retail Credit has a subsidiary called Credit Bureau Inc. which has 80 offices, including one in Washington, that sell credit information to local businesses. Thus, if you apply for a credit card, for instance, the business will turn around and get your history of paying your bills and records of related court problems from Credit Bureau Inc.

And even if you don't buy life insurance and don't ask for credit from anyone, you could still have Retail Credit looking into your life.

Mahlon A. Barash, of Arlington, Va., discovered this last summer when a woman who identified herself as a representative of "Welcome Neighbor" appeared on his doorstep.

Barash and his wife, Leah, were new in the Washington area and the woman gave them free gifts and told them about local churches, schools and stores. She also managed to ask them about their income, estimated expenditures, number of credit cards and occupations.

According to Barash, the woman did not tell them about Credit Bureau, Inc.. until his wife spotted the company's name on a brochure, 20 minutes into the interview.

For Barash, the "welcome" to the Washington area was a troubling incident. "My wife would never have let her in if we knew who she was. I got pretty hot about it the more I thought about it."

For the FTC, Barash's complaint was an old story. The agency brought a cease and desist order against Credit Bureau, Inc. of Washington in 1971 after similar complaints. The order requires the hostesses to identify Credit Bureau, Inc. FTC lawyers are now investigating the new complaint.

According to James Perkins, assistant vice president for Credit Bureau's national operations, the agency is following the order to the letter.

The 25 Welcome Newcomer "hostesses" who work for Credit Bureau, Inc., in the Washington area are trained to identify themselves right away, he explains. And if a person never asks for credit, according to Perkins, then the Welcome Newcomer service will not tell Credit Bureau, Inc., about him. And Credit Bureau, Inc., in turn, does not exchange information with the insurance files of the parent company, Retail Credit.

Company policy assures that "no files are mixed," Perkins explained to a reporter.

Although some of its methods may not be fully understood to the public, retail credit operates like the public library compared to another giant of the private investigation industry that is based on a computer system in Boston.

This is the Medical Information Bureau, known as the MIB to insurance men, who use the system to determine if there is any reason why an individual would not be a good medical risk for life insurance.

According to the executive director, Joseph C. Wilberding, the MIB has files on 11 million Americans and accumulates more than 2.2 million new files annually.

In most cases that data has come unwittingly from consumers who have agreed to permit a life insurance company to gain access to their medical records in order to buy life insurance.

Seven hundred insurance companies pool such information with MIB. If they have found evidence that the consumer has alcoholism, sexual deviation, psy

chiatric problems, or a criminal record in his past history, that information is likely to go to the MIB.

Each type of problem is identified with a code number which member companies can use to query the MIB system.

The function of the MIB has proven to be fascinating to men like Sen. William Proxmire, D-Wis., who have been worrying about the privacy problem.

In Senate hearings last fall, Proxmire asked Wilberding if the Nixon administration could have saved itself the anguish of having to break into the office of Daniel Ellsberg's psychiatrist if it was familiar with the MIB.

"What could happen,' ," theorized Proxmire, "is something like this. If the 'plumbers' had been a little more thoughtful, what they could have done was to get an insurance company to determine the psychiatric code numbers, and then they could have gone to the insurance companies . . . and on the basis of having gotten that information without having to rifle files or break in or go through all the ramifications that have caused such distress to the President of the United States."

Proxmire's idea was unsettling to Wilberding who protested that the MIB makes "spot checks" that would prevent such a query from happening. "Who does the spot checking?" asked Proxmire.

"Our staff," replied Wilberding.

"How many people on the staff do you have doing that?" asked Proxmire. "One, and we are expanding it," responded the MIB executive.

Besides expanding their one-man force that polices the system, MIB has done a number of other things after the encounter with Proxmire to make the public more aware of their operations.

Now, for the first time, according to the company, insurance applicants will be able to read about the MIB and its operations before they sign for insurance. Applicants may also ask the MIB to disclose information on their personal files.

But Proxmire intends to press for a law on the subject because under the current law the MIB is covered by a loophole that exempts medical data banks from federal regulation.

Despite the prospect of more federal law on the subject, people who yearn for the privacy of the "good old days" in the commercialized world of 1974 are dreaming.

"You can't function in this country and be left alone because you need things like life insurance and credit," asserts the FTC's Feldman.

And Feldman and other critics of the investigatory industry are quick to point out that cheap life insurance and cheap credit cannot exist without efficient systems to give companies enough data to make intelligent decisions on risks.

Thus, the tiny threads, the webs of information that mark our lives will still be collected.

Because the politics of privacy are running strong, however, Congress may soon make the consumer more aware of the process and set down a set of ground rules.

As for the "good old days," they really weren't that private. Most novels and plays of the bygone era of small town America show that the most intimate details of peoples' lives were often a staple currency for town gossips.

The difference is that people used to have a measure of control over those who felt the need to gather such data. You could see them, confront them, even punch them in the nose if their reports were wrong.

Those days are gone forever.

[From the Washington Star-News, June 15, 1974]

NEXT: THE CASHLESS SOCIETY (BUT WILL YOU LIKE IT?)

(By John Holusha)

A checkout clerk at the Hinky Dinky supermarket in Lincoln, Neb., is ringing up a load of groceries.

As he finishes, the shopper hands him a small plastic card. The clerk picks up a nearby telephone which is attached to a small keyboard terminal.

He dials a number. A soft, feminine voice comes on the line. "Proceed."

The clerk puts the card in the terminal and begins pressing buttons, which are arranged like those on a touch-tone telephone.

“Withdrawal request for one-zero-zero dollars, zero-zero cents," the voice says. "Proceed."

A few more keys are punched.

"Transaction completed."

The clerk has been talking to a computer. He has just withdrawn $100 from Lincoln's First Federal Savings and Loan Association so the shopper can pay for her groceries and have some cash for other purchases.

With a bit more button pushing he could have deposited a paycheck, automatically credited the price of the groceries to Hinky Dinky's account, held out some cash and put the remainder of the wages in the shopper's savings account.

This is the world of electronic funds transfer (EFT), loosely called the "cashless society."

It is the system that is going to free us from our old paper-bound ways of handling and spending money, its backers believe. They include computer companies, big bankers and major retailers.

Others have reservations. Consumer leaders and civil libertarians feel there are basic questions concerning privacy, security and consumer rights that must be answered before the nation rushes headlong from paper to electronic impulses. But the trend is unmistakable. In San Francisco and Atlanta you can have your paycheck deposited directly in a bank and have the bank automatically deduct to pay fixed bills like mortgages and insurance.

In Upper Arlington, Ohio, when you shop at certain stores, the money shifts from your account to the stores' instantly.

Plans are afoot to develop a national electronic payments system.

Behind the movement is compelling economic necessity. The American Bankers Association says it costs $10 billion a year to process checks. And at the rate the usage of checks is increasing, they fear they'll be drowned in paper in a few years.

Retailers have never solved the problem of dealing with checks. They know they can't expect people to carry large amounts of cash, particularly in big cities. But a foolproof system to detect phony checks (an estimated $1 billion yearly) has yet to be devised. With electronic payment, the money is in their account at the moment of sale.

Makers of computers, terminals and all the other appurtenances of data Processing see bulging order books for the rest of their days.

The Lincoln experiment, temporarily halted by protests from local banks that an S&L is poaching on their preserves, is only a small, tentative step toward the use of electronic money.

What the future may hold is to be demonstrated starting later this year in Pittsfield, Mass., a community of 77.000 nestled in the picturesque Berkshire hills. Pittsfield will become the first city in the nation where a family will be able to take care of virtually all its needs without using checks or more than pocket cash. The system designed by a leading proponent of EFT, Dale Reistad of New York, will work like this:

Emplovers will send rolls of magnetic tape with payroll information to a computer center. The center will electronically direct the pay to employee accounts in any of the six banks, S&Ls or credit unions participating. The choice of institution is the employee's.

Then when he goes shopping, the employe uses a plastic card. Each institution's card will have different markings but will "look" the same to the terminal. Virtually every store and service establishment in Pittsfield is to be in the system except for two big national chains, which have company policy problems, and bars and liquor stores, which weren't asked.

At first the system will be off-line. That is, records of purchases will be held until the end of the day and then run through the banks to adjust the balances. Eventually Reistad hopes it will go on-line, so the shift of funds takes place immediately.

The advantage to consumers is convenience and the fact that checking accounts can pay interest in Massachusetts. Being spared long sessions trying to balance a checkbook will also be a relief to some.

A different sort of inducement is offered by a big savings bank in Wilmington, Del. A 2 percent discount on everything but food.

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