Compete, a Web analytics company that uses tracking software to collect data on consumers’ browsing behavior, reached a settlement with the Federal Trade Commission over charges that it failed to disclose the extent of the information it collected.

The agency alleged that Compete collected data from more than four million consumers by misleading them into downloading its software. The company suggested that consumers join a “Consumer Input Panel” found at a Compete Web site ( Compete told consumers that by joining the panel, they could win rewards by sharing their opinions about products and services, according to the FTC complaint.

But after the software was downloaded onto a consumer’s computer and the “Community Share” feature was enabled, Compete captured information about consumers’ online activity, such as the search terms, username and passwords they used and Web sites they visited. Sensitive information – such as credit card and financial information and Social Security numbers – was also gathered. The company created reports from the data collected and sold it to third parties seeking to improve their Web sales and traffic, according to the FTC complaint.

Compete violated the FTC Act by failing to disclose to consumers that it would collect such detailed information, the agency alleged. It also made false and deceptive promises in statements such as “All data is stripped of personally identifiable information before it is transmitted to our servers.” In reality, Compete failed to remove personal data before transmission and transmitted sensitive information from secure Web sites in readable text.

Under the terms of the consent order, Compete agreed to obtain consumers’ express consent before collecting any data from software they downloaded and to make full disclosure of all the information it collects. Further, the company will delete or anonymize the already collected data and will provide directions to consumers on how to uninstall its software.

To read the complaint against Compete, click here.

To read the consent order, click here.

Why it matters: Compete also licensed its software to other companies that collected data about consumers once it was downloaded. Licensee Upromise settled with the FTC earlier this year after the agency said it similarly failed to disclose to consumers the extent of the information collected by its Toolbar feature.