Data protection registrar Elizabeth France has warned institutions that basing admissions on student postcodes could fall foul of the Data Protection Act 1998.
She told members of the Universities and Colleges Information Systems Association earlier this month: "If you are going to do it I suggest you talk to us."
Using postcodes is not illegal, but institutions could end up having to explain to applicants that they were rejected because of where they live. If such use is considered unfair, the Data Protection Agency could order institutions to stop. Under the act "an individual is entitled on request to an explanation of the logic behind automated decisions".
According to Phil Boyd, senior compliance manager for education at the Data Protection Agency, selection or shortlisting for admission to a university would be regarded as an automated decision if it were carried out by computer without human intervention. Students would then have the right to demand an explanation. The institution would be legally bound to provide one and reconsider the decision.
Large amounts of information can now be extracted from a postcode. The London company CACI has a database called Acorn that identifies clusters of the population where people are likely to have similar lifestyles and purchasing habits.
Acorn is based on census data including home and car ownership, employment, ethnicity and health.
Acorn distinguishes 54 types of area. Type 54, the poorest, is described as "multi-ethnic, high unemployment, overcrowding". In London, it is only found in Tower Hamlets. Type 54 areas have 3.1 times the national level of unemployment, but the inhabitants have a surprising fondness for video cameras and wine bars.
World of Leather uses Acorn to select profitable sites for stores. The Scotsman newspaper uses it to decide which areas should receive marketing material.
The Data Protection Agency regards these as acceptable uses, but is concerned that career-altering decisions might be based on postcode data. "We would question whether it was fair to use that sort of technique to make significant decisions about people," Mr Boyd said.
In cases where the data protection registrar considers data have been used unfairly, an enforcement notice can be served. Appeals against this are heard by an independent tribunal. Either side can make a further appeal which is decided by the courts.
This is an inherent problem with any database based only on census data. The Office for National Statistics lumps census data into "enumeration districts" of about 150 households before releasing it. The reason? Data protection.