7 ms·

Could a Bank Deny Your Loan Based on Your Facebook Friends?

48 points by tjr 11y ago

imgabe 11y ago
Could they? Sure, I guess. Is doing so going to be a more reliable indicator of creditworthiness than existing measures? Not necessarily. Many groups of friends can have wildly varying levels of income and financial responsibility, especially among younger groups of people who all went to high school together then diverged into different careers later.
- rmah 11y ago
  If used at all, it will be in addition to current inputs to the risk scoring model, not a replacement.
deleted 11y ago
[deleted]
percept 11y ago
"Penury.io (YC W17) brings an innovative new approach to social lending."
rm_-rf_slash 11y ago
I've lent people money. Friends, too. Usually that's a tough situation. I live by the maxim that "if you loan money to a friend, be prepared to lose the money or the friend." Still, you want to help your friends out, right? Thing is, sometimes those friends (or other folks) have friends who enable them. Maybe it's to go out to the bars at night or buy a new game so they can play together. It's hard to predict what their impact will be, at least with the information most of us have to work with. Now, suppose I did have a considerable amount of information, such as Facebook would. I could make more accurate predictions, but there will always be gaps. I always feel uncomfortable having personal conversations over Facebook because I always feel like someone's looking over my shoulder. Or maybe I don't want the communication remembered. Either way, it's a blank spot that can't be confirmed or denied, so it will always be an imperfect, some might say discriminatory measure. I'm reminded of the scene in Gattaca when the protagonist is born and instantly a doctor preforms a DNA test to show all the disadvantages he's statistically likely to experience in life: asthma, ADHD, and so on. I'm starting to feel like that's becoming the case today, but with personal history instead of genetics. You can't escape your genome but you can grow up and change yourself from the immature person that made mistakes as an adolescent. Still, the record remains. Something doesn't feel right about all of this.
- taurath 11y ago
  This is pretty much the core of privacy that we're losing - the ability to reinvent ones self. At age 18 I left just about everything I knew behind, and I'm not sure it'd be possible to do so now. We have things like bankruptcies that go off of your record in 7 years - I'll bet if given the choice banks would love to see them forever. Full information is not always a good thing - it almost always ignores people's ability to be flexible.
- Silhouette 11y ago
  Something doesn't feel right about all of this. I think that's because our societies have evolved over many centuries with the basic truth that past indiscretions would tend to be forgiven and forgotten in time. For the first time ever, in literally the space of one generation, we have created both mainstream infrastructure that allows unprecedented monitoring of individuals and mainstream infrastructure that never forgets. It's going to take further generational change to adapt to those new possibilities and decide how -- and even if -- we should use that technology. In the meantime, sadly, varying degrees of bad things are going to happen to a lot of people with varying degrees of innocence through little or no fault of their own. My greatest concern is that many people in our societies who have the loudest voices in the media and the greatest power through running governments and to some extent big businesses also have very little understanding of the technology and its implications. They have bizarre incentives that promote doing some bad things with it, and little accountability for (or maybe even awareness of) the potential risks they take on our behalf, and worst of all they're convincing ordinary people who don't work with the technology and understand its implications that this is all OK and to be expected.
  - outofcuriosity 11y ago
    We could boycott networks & technologies that infringe upon our ability to exist as private individuals and to self-determine: Don't use the wifi toothbrush or the Fitbit, don't use Facebook or Twitter, stay connected with friends using email or (!) the postal service. Use less technology and gain more freedom. Alternately, market collusion and the unquenchable desire of people to sell their information in exchange for Javascript-enabled friendships will force us into a grim future where the mistakes of the people we love & an assortment of bureaucratically-mandated sensors impede our pursuit of happiness. Perhaps it's time to draw our lines in the sand.
superuser2 11y ago
Car insurance is making its way towards variable pricing on how much and how well you drive. Health insurance will inevitably start to care about what you eat and how much you exercise. Technology enables much more accurate and precise assessment of risk, and businesses with a lot of money riding on good risk assessment (banks, insurance companies) would be stupid not to take full advantage of that. If markets tend towards efficiency, this will happen. And I'm not sure that's a bad thing. Being young and male, I pay for the sins of my demographic category in car insurance premiums. I'd much rather pay for my actual driving style. Similarly, credit risk can probably be assessed by actual spending behavior rather than history. If you find it uncomfortable that lending institutions and insurance companies might act in the most rational, efficient manner, consider whether you're really comfortable with capitalism.
- signal11 11y ago
  > I pay for the sins of my demographic category in car insurance premiums Does your insurer offer lower premiums if you get a "black box" attached to your car and can demonstrate you drive safely? Asking because I'm curious -- car insurance rates for young men are very high and this was mentioned as a possible mitigation.
  - oh_sigh 11y ago
    Yup. It's not even young men who are screwed over. I'm a 31 year old man with a flawless driving record(zero accidents, zero tickets), having driven over 400k miles over the past 14 years, and yet I still pay more in insurance than my 19 year old female cousin who already has rear ended a person in the 2 years she has been driving.
    - superuser2 11y ago
      You probably drive a nicer car than she does? But still, definitely.
    - chrisBob 11y ago
      That is only a fair comparison if you live in the same area. Where you live impacts your insurance cost a lot.
zeveb 11y ago
> 'However, it seems pretty unlikely to me that a scoring system rooted in the community you’re a member of is going to be helpful.' It seems incredibly likely to me that one's social set are going to influence one's actions, e.g. the type of food one eats, the fashions one wears—or one's likelihood of defaulting on a loan. What would be surprising would be were it otherwise.
- greggman 11y ago
  Would it not end up penalizing the exceptions? I have a friend who grew up in a ghetto area. Most of the kids in his neighborhood didn't do much AFAIK. If it was assumed he would behave like the average person of his neighborhood he might not have made it out.
  - zeveb 11y ago
    > Would it not end up penalizing the exceptions? Yup, but so too do credit scores in general. If Harry was unlucky, lost his job and missed a few credit-card payments, then his credit card will suffer regardless of whether he is now actually likely to default; the trouble is that he is the type of person who will default. It's unfortunate, but that's what happens whenever one tries to categorize people. And it's unavoidable, even with extensive work in-person, as anyone who's ever been deeply disappointed or pleasantly surprised by a family member or close friend can tell. If Pete couldn't tell that his brother would steal his car, can he really be certain that a stranger won't default on his loan? All any of us can do is play the probabilities.
    - sksk 11y ago
      >> Yup, but so too do credit scores in general. If Harry was unlucky, lost his job and missed a few credit-card payments, then his credit card will suffer regardless of whether he is now actually likely to default While it is true but that's completely under Harry's control. Consumer unsecured credit is a volume game so it is not going to be possible to underwrite based on personal history. So you need to look at the historical behavior of similar people and the data will show he has a higher risk of default. That said, Harry can definitely improve this situation by getting a secured credit card from a credit union and build his credit back up. However, if he gets dinged for his friend, he has no way out of it without unfriending everyone from his prior life on Facebook. Lending can be more personal but the economics of unsecured lending makes this challenging. Credit unions get closest to this but the smaller ones who can provide such a service are struggling.
klean92 11y ago
Listen everyone! I have an excellent credit score, for 50cts I am your Facebook friend!
joesmo 11y ago
So would Facebook be asking people to share credit scores constantly? How do they plan to get said credit scores? As far as I know, no one can legally access my credit report without my permission. For people with multiple accounts, which Facebook account do they use? What if I don't have an account? Will I just be denied all loans? If they do manage to get the data, what makes them think this is a valid way to rate people's creditworthiness? It seems like an extremely random metric that measures nothing but is convenient for Facebook because of the type of data they collect. I don't see the moral angle because this is far-fetched speculation not rooted in reality. There are other companies who have tried to replace the current credit scoring with systems based on social data and they haven't gotten anywhere. Perhaps that might be because the best indicator of financial performance is past financial performance and nothing else?
dboreham 11y ago
I met a guy at a business networking event last year who worked for a company that generated loan scores from the text in your Facebook posts. He claimed they had a higher score quality than the old style credit scoring agencies. Note this is just the text you have typed in over time, not your set of friends.
- dynomight 11y ago
  This is where I believe things are heading... as I type into a text box.
nomercy400 11y ago
Could a bank deny you a loan if you don't have Facebook?
sksk 11y ago
I understand FCRA and ECOA very well and it is very unlikely we are going to get a different interpretation of these regs just because Facebook wants to get into the loan origination game. I see a number of issues: 1. Reason Codes: FCRA reason codes that the lender has to generate will be a PR nightmare if they decline the loan application based on Facebook data -- imagine a consumer getting a rejection reason as 'Your fiends have poor credit rating so we don't want to give you credit'. 2. Discrimination / Disparate impact: Most people who are poor also have poor friends and this type of analysis will lead to disparate impact that the article talks about and there is no way around it -- even if they get a slightly different interpretation of FCRA they are not going to solve disparity easily. 3. CRA Regulation around data quality: Credit Reporting Agencies (CRA) has specific mandates around providing accurate information about the the borrower. If a borrower thinks it is wrong, they can request the CRA to fix it through a dispute process -- this is a very time-intensive, expensive process for a CRA. I doubt Facebook would want to build a process for disputes and the disputes are going to be worse -- before I will say, I paid my credit card on time and you got it wrong to the credit bureau. Now I may say, I don't think my friend's rating is low and Facebook has to due diligence before they can claim it is correct. I can see a few ways they might go about this: 1. Second shot at approval as opposed to decline: A lender may reject an application and may choose to use Facebook data to give the borrower a second chance. This is better for the borrower and the regulators may be ok with this type of approach. Although they need to be careful with banks not suddenly changing their FICO Score cut off to something very high so they can fall back on this. 2. Only make it available internationally: not all countries have such strong protections around consumer credit data. Also, many countries don't have a robust credit bureau and this may actually help consumers. 3. Focus on alternative payday lending: CFPB is keen on opening up newer sources of data for certain segments that do not get any credit today. They may be open to this approach if fb can show that it will allow lenders to provide credit to people who they wouldn't have before. I have strong views about FCRA / ECOA and I feel most of the provisions in there are actually beneficial to the consumers. Even though my startup SimplyCredit is in the fintech space and would greatly benefit from relaxed regulation, I do think it is good to have strong consumer protection and that's why we don't use anything outside of what will be considered as 'payment behavior / financial management'. I cringe every time a new fintech company claims they monitor how fast you can type or analyze your github profile to give you credit -- either they say these things for marketing but really using it for underwriting or actually using it and breaking many provisions of FCRA. The last thing I want to do is decline a person with disability for typing slowly -- especially when the focus is to really help consumers and not to showoff your power to analyze such realtime data! Instead of data sources like Facebook, I would welcome a cleaner source of data with verified income and employment.
ccvannorman 11y ago
more information => de facto more discrimination. I don't like it, but i'm a responsible middle aged white male so I probably won't suffer.

48 points by tjr 11y ago

Could they? Sure, I guess. Is doing so going to be a more reliable indicator of creditworthiness than existing measures? Not necessarily. Many groups of friends can have wildly varying levels of income and financial responsibility, especially among younger groups of people who all went to high school together then diverged into different careers later.

rmah 11y ago
If used at all, it will be in addition to current inputs to the risk scoring model, not a replacement.

deleted 11y ago

[deleted]

percept 11y ago

"Penury.io (YC W17) brings an innovative new approach to social lending."

rm_-rf_slash 11y ago

I've lent people money. Friends, too. Usually that's a tough situation. I live by the maxim that "if you loan money to a friend, be prepared to lose the money or the friend." Still, you want to help your friends out, right? Thing is, sometimes those friends (or other folks) have friends who enable them. Maybe it's to go out to the bars at night or buy a new game so they can play together. It's hard to predict what their impact will be, at least with the information most of us have to work with. Now, suppose I did have a considerable amount of information, such as Facebook would. I could make more accurate predictions, but there will always be gaps. I always feel uncomfortable having personal conversations over Facebook because I always feel like someone's looking over my shoulder. Or maybe I don't want the communication remembered. Either way, it's a blank spot that can't be confirmed or denied, so it will always be an imperfect, some might say discriminatory measure. I'm reminded of the scene in Gattaca when the protagonist is born and instantly a doctor preforms a DNA test to show all the disadvantages he's statistically likely to experience in life: asthma, ADHD, and so on. I'm starting to feel like that's becoming the case today, but with personal history instead of genetics. You can't escape your genome but you can grow up and change yourself from the immature person that made mistakes as an adolescent. Still, the record remains. Something doesn't feel right about all of this.

taurath 11y ago
This is pretty much the core of privacy that we're losing - the ability to reinvent ones self. At age 18 I left just about everything I knew behind, and I'm not sure it'd be possible to do so now. We have things like bankruptcies that go off of your record in 7 years - I'll bet if given the choice banks would love to see them forever. Full information is not always a good thing - it almost always ignores people's ability to be flexible.
Silhouette 11y ago
Something doesn't feel right about all of this. I think that's because our societies have evolved over many centuries with the basic truth that past indiscretions would tend to be forgiven and forgotten in time. For the first time ever, in literally the space of one generation, we have created both mainstream infrastructure that allows unprecedented monitoring of individuals and mainstream infrastructure that never forgets. It's going to take further generational change to adapt to those new possibilities and decide how -- and even if -- we should use that technology. In the meantime, sadly, varying degrees of bad things are going to happen to a lot of people with varying degrees of innocence through little or no fault of their own. My greatest concern is that many people in our societies who have the loudest voices in the media and the greatest power through running governments and to some extent big businesses also have very little understanding of the technology and its implications. They have bizarre incentives that promote doing some bad things with it, and little accountability for (or maybe even awareness of) the potential risks they take on our behalf, and worst of all they're convincing ordinary people who don't work with the technology and understand its implications that this is all OK and to be expected.
- outofcuriosity 11y ago
  We could boycott networks & technologies that infringe upon our ability to exist as private individuals and to self-determine: Don't use the wifi toothbrush or the Fitbit, don't use Facebook or Twitter, stay connected with friends using email or (!) the postal service. Use less technology and gain more freedom. Alternately, market collusion and the unquenchable desire of people to sell their information in exchange for Javascript-enabled friendships will force us into a grim future where the mistakes of the people we love & an assortment of bureaucratically-mandated sensors impede our pursuit of happiness. Perhaps it's time to draw our lines in the sand.

superuser2 11y ago

Car insurance is making its way towards variable pricing on how much and how well you drive. Health insurance will inevitably start to care about what you eat and how much you exercise. Technology enables much more accurate and precise assessment of risk, and businesses with a lot of money riding on good risk assessment (banks, insurance companies) would be stupid not to take full advantage of that. If markets tend towards efficiency, this will happen. And I'm not sure that's a bad thing. Being young and male, I pay for the sins of my demographic category in car insurance premiums. I'd much rather pay for my actual driving style. Similarly, credit risk can probably be assessed by actual spending behavior rather than history. If you find it uncomfortable that lending institutions and insurance companies might act in the most rational, efficient manner, consider whether you're really comfortable with capitalism.

signal11 11y ago
> I pay for the sins of my demographic category in car insurance premiums Does your insurer offer lower premiums if you get a "black box" attached to your car and can demonstrate you drive safely? Asking because I'm curious -- car insurance rates for young men are very high and this was mentioned as a possible mitigation.
- oh_sigh 11y ago
  Yup. It's not even young men who are screwed over. I'm a 31 year old man with a flawless driving record(zero accidents, zero tickets), having driven over 400k miles over the past 14 years, and yet I still pay more in insurance than my 19 year old female cousin who already has rear ended a person in the 2 years she has been driving.
  - superuser2 11y ago
    You probably drive a nicer car than she does? But still, definitely.
  - chrisBob 11y ago
    That is only a fair comparison if you live in the same area. Where you live impacts your insurance cost a lot.

zeveb 11y ago

> 'However, it seems pretty unlikely to me that a scoring system rooted in the community you’re a member of is going to be helpful.' It seems incredibly likely to me that one's social set are going to influence one's actions, e.g. the type of food one eats, the fashions one wears—or one's likelihood of defaulting on a loan. What would be surprising would be were it otherwise.

greggman 11y ago
Would it not end up penalizing the exceptions? I have a friend who grew up in a ghetto area. Most of the kids in his neighborhood didn't do much AFAIK. If it was assumed he would behave like the average person of his neighborhood he might not have made it out.
- zeveb 11y ago
  > Would it not end up penalizing the exceptions? Yup, but so too do credit scores in general. If Harry was unlucky, lost his job and missed a few credit-card payments, then his credit card will suffer regardless of whether he is now actually likely to default; the trouble is that he is the type of person who will default. It's unfortunate, but that's what happens whenever one tries to categorize people. And it's unavoidable, even with extensive work in-person, as anyone who's ever been deeply disappointed or pleasantly surprised by a family member or close friend can tell. If Pete couldn't tell that his brother would steal his car, can he really be certain that a stranger won't default on his loan? All any of us can do is play the probabilities.
  - sksk 11y ago
    >> Yup, but so too do credit scores in general. If Harry was unlucky, lost his job and missed a few credit-card payments, then his credit card will suffer regardless of whether he is now actually likely to default While it is true but that's completely under Harry's control. Consumer unsecured credit is a volume game so it is not going to be possible to underwrite based on personal history. So you need to look at the historical behavior of similar people and the data will show he has a higher risk of default. That said, Harry can definitely improve this situation by getting a secured credit card from a credit union and build his credit back up. However, if he gets dinged for his friend, he has no way out of it without unfriending everyone from his prior life on Facebook. Lending can be more personal but the economics of unsecured lending makes this challenging. Credit unions get closest to this but the smaller ones who can provide such a service are struggling.

klean92 11y ago

Listen everyone! I have an excellent credit score, for 50cts I am your Facebook friend!

joesmo 11y ago

So would Facebook be asking people to share credit scores constantly? How do they plan to get said credit scores? As far as I know, no one can legally access my credit report without my permission. For people with multiple accounts, which Facebook account do they use? What if I don't have an account? Will I just be denied all loans? If they do manage to get the data, what makes them think this is a valid way to rate people's creditworthiness? It seems like an extremely random metric that measures nothing but is convenient for Facebook because of the type of data they collect. I don't see the moral angle because this is far-fetched speculation not rooted in reality. There are other companies who have tried to replace the current credit scoring with systems based on social data and they haven't gotten anywhere. Perhaps that might be because the best indicator of financial performance is past financial performance and nothing else?

dboreham 11y ago

I met a guy at a business networking event last year who worked for a company that generated loan scores from the text in your Facebook posts. He claimed they had a higher score quality than the old style credit scoring agencies. Note this is just the text you have typed in over time, not your set of friends.

dynomight 11y ago
This is where I believe things are heading... as I type into a text box.

nomercy400 11y ago

Could a bank deny you a loan if you don't have Facebook?

sksk 11y ago

I understand FCRA and ECOA very well and it is very unlikely we are going to get a different interpretation of these regs just because Facebook wants to get into the loan origination game. I see a number of issues: 1. Reason Codes: FCRA reason codes that the lender has to generate will be a PR nightmare if they decline the loan application based on Facebook data -- imagine a consumer getting a rejection reason as 'Your fiends have poor credit rating so we don't want to give you credit'. 2. Discrimination / Disparate impact: Most people who are poor also have poor friends and this type of analysis will lead to disparate impact that the article talks about and there is no way around it -- even if they get a slightly different interpretation of FCRA they are not going to solve disparity easily. 3. CRA Regulation around data quality: Credit Reporting Agencies (CRA) has specific mandates around providing accurate information about the the borrower. If a borrower thinks it is wrong, they can request the CRA to fix it through a dispute process -- this is a very time-intensive, expensive process for a CRA. I doubt Facebook would want to build a process for disputes and the disputes are going to be worse -- before I will say, I paid my credit card on time and you got it wrong to the credit bureau. Now I may say, I don't think my friend's rating is low and Facebook has to due diligence before they can claim it is correct. I can see a few ways they might go about this: 1. Second shot at approval as opposed to decline: A lender may reject an application and may choose to use Facebook data to give the borrower a second chance. This is better for the borrower and the regulators may be ok with this type of approach. Although they need to be careful with banks not suddenly changing their FICO Score cut off to something very high so they can fall back on this. 2. Only make it available internationally: not all countries have such strong protections around consumer credit data. Also, many countries don't have a robust credit bureau and this may actually help consumers. 3. Focus on alternative payday lending: CFPB is keen on opening up newer sources of data for certain segments that do not get any credit today. They may be open to this approach if fb can show that it will allow lenders to provide credit to people who they wouldn't have before. I have strong views about FCRA / ECOA and I feel most of the provisions in there are actually beneficial to the consumers. Even though my startup SimplyCredit is in the fintech space and would greatly benefit from relaxed regulation, I do think it is good to have strong consumer protection and that's why we don't use anything outside of what will be considered as 'payment behavior / financial management'. I cringe every time a new fintech company claims they monitor how fast you can type or analyze your github profile to give you credit -- either they say these things for marketing but really using it for underwriting or actually using it and breaking many provisions of FCRA. The last thing I want to do is decline a person with disability for typing slowly -- especially when the focus is to really help consumers and not to showoff your power to analyze such realtime data! Instead of data sources like Facebook, I would welcome a cleaner source of data with verified income and employment.

ccvannorman 11y ago

more information => de facto more discrimination. I don't like it, but i'm a responsible middle aged white male so I probably won't suffer.