What information is the government buying about you?

October 30, 2013: 12:35 PM ET
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The federal government can use the salary and pay information provided by The Work Number to determine a person's eligibility for a variety of government benefits.
NEW YORK (CNNMoney)

A commercial data broker that tracks and stores the employment and salary information of millions of Americans has a big, new customer — the federal government.

Recently, the U.S. government started using a database called The Work Number as part of a pilot program that helps it determine who is eligible for government benefits like food stamps and Social Security disability benefits, according to a report by the nonprofit World Privacy Forum.

Owned by credit bureau, Equifax, The Work Number's database houses 54 million active salary and employment records, and more than 175 million historical records, according to the company. The firm collects payroll data from more than 2,500 U.S. employers and then sells it to companies like credit card issuers, property managers and auto lenders.

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Last year, the federal government started using The Work Number's database as part of its "Do Not Pay Business Center," a pilot program launched by the U.S. Treasury Department aimed at reducing fraud and other improper government payments. While it's unclear which agencies are taking part in the Do Not Pay program, the database could be used to determine income eligibility for most federal government benefits, from housing aid to disaster assistance, said Pam Dixon, executive director of the nonprofit World Privacy Forum.

A Treasury Department spokesperson wasn't immediately available for comment.

Meanwhile, social service agencies on a state level are already using the massive database to check income eligibility for welfare and other state-run aid programs, according to The Work Number website.

The problem is, many workers don't know how their information is being shared. Some employers obtain consent before turning over payroll data to The Work Number, but others make reporting the information mandatory, said Dixon. "You sign up, thinking [your information is] being used to verify your salary by an employer," Dixon said. "Meanwhile, it's going to the U.S. government."

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There are also a host of privacy concerns, according to Dixon and report co-author Robert Gellman, an attorney specializing in privacy rights.

One of the biggest worries: Commercial databases, like The Work Number's, do not have to meet the same strict privacy and accuracy standards that government-operated databases, such as the Social Security Administration's Death Master File, do. Yet, federal agencies are using the information anyway. As a result, they say there is no guarantee that the information is accurate.

"What happens if a commercial data broker has really messy files because a person has an identify theft problem and then that information is used by law enforcement or used to determine government eligibility?" Dixon asked. "These people will fall through the cracks and end up really getting hurt."

Related: Buy a dead person's identity from Social Security for $10

An Equifax spokeswoman said that ensuring the accuracy of its information is "paramount to the success of The Work Number" and "is an enormous responsibility" that is also required under the Fair Credit Reporting Act, which governs consumer credit information. She added that workers can also review their information and dispute any errors.

Yet despite consumer protection laws, financial products like credit reports remain riddled with errors, Dixon said. A recent FTC study found that as many as 42 million Americans have errors on their credit reports. Other commercial marketing databases, which are subject to few regulations, are also home to incorrect information.

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Under a regulation issued earlier this year by the U.S. Office of Management and Budget, The Work Number will need to meet some privacy and accuracy standards before it can become a permanent part of the Do Not Pay program -- a big win for privacy advocates.

However, Dixon is worried the rule won't go far enough since it doesn't provide all of the strict government protections and won't apply to other government uses of commercial databases.

"There could be real consequences at this point," she said.

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