Want a loan? Be careful who you friend on Facebook, as banks begin moving towards using social media data to evaluate credit.
The principle is that “birds of a feather flock together,” reports The Observer’s BetaBeat. Who you’re connected to, in theory, helps determine your creditworthiness. If your friends have defaulted, you are more likely to default, goes the theory, and that could affect the interest rate you’re offered — or if you’re offered a loan at all.
Social media data, however, would give banks access to a lot more information than is traditionally included in a loan application, including data they aren’t legally allowed to ask for.
But there’s a nightmare scenario: if banks learn how to use social media, they could gather information they aren’t allowed to ask for on a credit application — including race, marital status and receipt of public assistance — or worse, to redline segments of the social graph.
Aside from data that could be used to discriminate, mining social data could mean that hyperbolic tweet about being broke from a few years back could come back to haunt you when you go to apply for a loan.
This isn’t just a distant dream for banks; it’s already beginning on a small scale. Hong Kong micro-lending startup Lenddo requires at least three social connections to apply for a loan. The company’s CEO told The Observer:
“We think that in the age of the Internet you should be able to establish your reputation and your identity through your social graph, through your on- and offline community, and use that to get access to financial products and information.”
Your social presence can be your downfall too; borrowing money gives Lenddo the right to notify your friends and family via social networks if you fail to repay your loan.
The move toward using social data in banking comes as online sharing is growing and the idea of privacy is, according to some arguments, diminishing.
When it comes to online privacy, [Movenbank founder Brett] King subscribes to the Mark Zuckerberg school of thought: standards are evolving, and the world will be better for it. (As long as you’re connecting and sharing, only good things can happen to you!) “Our view of what ‘private’ is, is changing,” Mr. King said. “We make friends with people we barely know!”
As people become more entrenched in social media, and the ability to easily share their lives and information with their connections, it’s only natural that businesses are going to want to capitalize on the data available.
But stories like this should be getting more attention; credit scores and loan applications aren’t just another app to install. There are reasons banks aren’t allowed to ask for information that could be used to discriminate against people, and scraping that information from social media doesn’t make it any more ethical. Using such data also doesn’t take into account the myriad reasons for creating and maintaining social connections that may have nothing to do with your ability to repay a loan.
Source: The Underreported Story