Lenders use Facebook to decide approvals, experts say

Credit agencies look to your Facebook page to see what you’re spending on clothes or travel rather than using more traditional, tightly regulated scoring methods when deciding loan applications.

So say experts at the University of Georgia, who say big data now enables more sophisticated modeling programs that include the use of social media without even needing to ask. This is part of a growing trend to consider non-financial factors when assessing creditworthiness.

Traditional credit scoring is based on a person’s demonstrated ability to incur debt and repay it, but all of that is changing with computers’ ability to analyze data, and social media is proving especially useful for those who don’t. don’t have an extensive credit history.

Increasingly, lenders are extracting information from public records or social media accounts to build a credit profile without the knowledge of borrowers.

Credit agencies check your Facebook page to see what you’re spending on clothes or travel rather than using more traditional, tightly regulated scoring methods to decide loan applications, according to experts at the University of Georgia.

Lindsay Sain Jones, a financial regulation researcher at the University of Georgia (UGA), said: “There is also fringe alternative data that companies collect without your permission.

“Some companies specialize in pulling data from online sources — your LinkedIn and Facebook profiles — and feeding their credit model.”

In this case, borrowers do not know what criteria they are being assessed on and have no way to dispute inaccurate information.

Jones, who is an attorney and assistant professor of legal studies at UGA Terry College of Business, said: “There is no appeal process.

“With your traditional credit score, you can appeal inaccurate information. Suppose you had a credit card with Bank of America and your report says you were charged. If you didn’t, it There is a process to appeal this error per the Fair Credit Reporting Act They should address your concerns.

There’s no way to appeal if the lender doesn’t like how often you travel or buy clothes, she said.

The problem, according to Jones, is that the systems developing these alternative scores can be like a black box.

With the amount of personal data available increasing, Jones says it’s time to review the operation and regulation of the credit scoring system.

She said: “While the use of alternative credit data is touted as a way to expand access to credit – an admirable goal – its use has sometimes resulted in disproportionate negative impacts on borrowers from sheltered classes and has enabled accurate marketing of predatory lending to vulnerable borrowers.

Jones and co-author Janine Hiller of Virginia Tech argue in a new paper that Congress should institute new regulations to prevent alternative credit-reporting services from abusing consumer data in the credit-reporting system. country. Their article, “Who’skeeping score?: Oversight of Changing Consumer Credit Infrastructure,” is available in the April 2022 issue of the American Business Law Journal.

New alternative credit scoring systems present challenges not covered by the Fair Credit Reporting Act or the Equal Credit Opportunity Act.

These rules give consumers access to data that affects their credit score and prevent discrimination against borrowers based on race or gender. However, they do not directly apply to some alternative credit data and prevent Americans from accessing the credit system.

In their paper, Jones and his co-author argue that further regulation of financial reporting entities – both large credit bureaus and new data collectors – is needed in the same way as gas providers. , electricity and water regulate their services. They argue that participation in the credit system has become as necessary as telephone or electricity.

While companies developing alternative credit-reporting services claim their products allow underserved populations to access these vital services, the opaque nature of their operations makes them ripe for predatory lending practices, Jones argues.

With the new products, borrowers don’t know what information is used to calculate the score, so they can’t dispute incorrect information.

Some credit reporting agencies offer consumers a “credit boost” in exchange for access to their utility or rental payment history. But there are few regulations on what agencies can do with that information and how long they can retain it, according to Jones.

She said: “So as a candidate you’ve technically given them permission to do it, but you’re in a vulnerable position.

“Your loan was declined. You still need the loan. So you give them all your data, and you may earn as little as a single point on your credit score or not at all. You may or may not have a best chance of getting your loan, and what they do with that data is all in the fine print.”

Jones and his co-author also worry that many of the lifestyle data points that lenders correlate with creditworthiness may be related to race, gender, age, socioeconomic status, to a person’s zip code or where they attended college. It is almost impossible to successfully challenge this type of disparate impact within the framework of the ECOA.

One agency pulled information on how often people pay for gas at the pump versus inside the store. People who paid at the pump were considered more creditworthy.

Jones said: “There are all sorts of factors that can be correlated to solvency, but that doesn’t mean they should be used.”

She argues that there is a need to expand access to lending markets, but access should come with the same protections that apply to traditional credit data.

Jones said, “Where do you draw that line?

“Are you opening up new credit opportunities for people, or are you exploiting the vulnerable?”

This story was provided to Newsweek by Zenger News.

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