Forget “you are what you eat.” When it comes to your trustworthiness as as borrower, you are who you know … online.
Social networks are now being used by some lenders to evaluate whether you’re likely to pay them back.
The New York Observer reports that, while this methodology is still a few years away from common use by major banks, smaller institutions such as microlender Lenddo already use an algorithm based on input from a person’s various social networks to determine her creditworthiness. And more are likely to adopt the practice in the future.
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Here’s the kicker: The information used by the algorithm isn’t just what you’ve made public—the banks are requiring your login information. Everything you can see, they can see. And they could even potentially send messages to your contacts.
From the perspective of the banks, “birds of a feather flock together.” They want to reach more customers likely to use their products through you. For a consumer who wants a loan, banks having more information isn’t necessarily better—especially when it’s open to interpretation.
What an Algorithm Can See
When you register with a bank that uses a system like this, you would be required to verify your login info for your social networks, like Twitter, Facebook or LinkedIn. Information from the accounts would then be fed into the algorithm, and, using what it could glean from your social media profile and networks, the bank would pass judgment on your borrowing merit. The algorithms, still in development, are closely guarded secrets at present, but they’re essentially a way of crunching even more complex factors to assess how big of a credit risk you might be. As Lenddo’s CEO recently put it, “There’s no reason there shouldn’t be thousands of engineers working to assess creditworthiness.”
So, What’s the Problem?
The fear isn’t so much that the information gleaned from your networks will affect your actual score, but that gaining access to extraneous information that’s currently illegal for a lender to request (like race, marital status and receipt of public assistance) will contribute to systematic discrimination known as “redlining,” where certain segments of the population could be refused loans or charged higher rates based on racial, sexual or other prejudice.
Even seemingly innocuous social info can be damaging to customers. In one case, a Canadian woman’s disability payments for depression were revoked after her employer’s insurance company saw pictures of a beach vacation she’d posted on Facebook. While insurance fraud is common, in this instance, the 29-year-old woman’s doctor had advised her to exercise and socialize with friends. Then, without any notice, the checks stopped coming.
Why Your Networks Matter to Financial Institutions:
1. To Leverage Your Connections
This means that banks will both judge you on your friends and use you to make new ones of their own. Their logic? If your friends are upstanding citizens who pay off their loans, you will be, too. And, reciprocally, if you’re responsible, they’re ripe for targeted marketing. Banks can’t message your friends directly, but they can gather names and contact information from the profiles of people in your social circle.
2. To Make Sure You Pay
As anyone who has read “Confessions of a Shopaholic” knows, avoidance is a key tactic when dodging bill collectors. But when the people you owe are authorized to contact your Facebook connections about unsettled accounts, it’s a different story. Although this wouldn’t be any institution’s first course of action, it’s within Lenddo’s rights to post on your own public Facebook wall that you’re behind on payments. And you have to agree to that when you sign up—it’s part of the terms and conditions.
What Can We Do?
Keep an eye on the developments. At the moment, the algorithms are still about three to five years away from public adoption, so there’s no need to panic. But keep in mind that no matter how adept your manipulation of Facebook privacy settings, they’re ineffective to someone who can login as you. If the social network algorithm enters mainstream use, the only real way to eliminate judgment is to refuse to sign those papers to grant lenders access to your networks.
As Dan Tynan of PC World puts it: “Will you be legally required to give your bank access to your Facebook, Twitter, LinkedIn profiles when you need credit? Probably not. But they won’t be legally required to approve your loan, either.”
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