According to experts credit organizations look at your Facebook page to see what you spend on clothes or travel.
Facecrooks: Credit Agencies To Look At Clothing And Travel Purchases On Facebook To Decide On Loans
Credit organizations are looking at your Facebook page to see what you spend on clothes or travel rather than using more traditional and strictly-regulated rating methods when deciding on loan applications.
That is according to experts at the University of Georgia, who say that big data now make it possible for more sophisticated modelling programs that include using social media without even needing to ask. It is part of a growing trend of taking into consideration non-financial factors when rating creditworthiness.
Traditional credit scoring is based on a person’s demonstrated ability to take on debt and pay it off.
But all that is changing with the ability of computers to crunch the data, and social media is proving particularly useful for those without an extensive credit history.
Increasingly, lenders are scraping information from public records or social media accounts to build a credit profile without borrowers’ knowledge.
University of Georgia (UGA) financial regulation researcher Lindsay Sain Jones said: “There are also fringe alternative data that companies gather without your permission.
“There are companies that specialize in pulling data from online sources – your LinkedIn and Facebook profiles – and feed into their credit model.”
In this case, borrowers do not know what criteria they are evaluated on and do not have a way to contest inaccurate information.
Jones, who is an attorney and assistant professor of legal studies at the UGA Terry College of Business, said: “There’s no appeals process.
“With your traditional credit score, you can appeal inaccurate information. Say you had a credit card with Bank of America, and your report says that you had a charge off. If you didn’t, there’s a process for appealing that error set up by the Fair Credit Reporting Act. They have to address your concerns.”
There is no way to appeal if the lender does not like how often you travel or buy clothes, she said.
According to Jones, the problem is that the systems developing these alternative scores can be like a black box.
With the pool of personal data available growing, Jones argues that it is time to take a second look at how the credit scoring system works and is regulated.
She said: “While use of alternative credit data is touted as a means to broaden access to credit – an admirable goal – its use has, at times, resulted in disproportionately negative impacts on borrowers in protected classes and allowed for precision marketing of predatory loans to vulnerable borrowers.”
Jones and co-author Janine Hiller of Virginia Tech argue in a new paper that the US Congress should institute new regulations to prevent alternative credit scoring services from abusing consumer data in the nation’s credit reporting system. Their paper, ‘Who’s keeping 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 allow consumers access to the data that affects their credit score and prevent discrimination against borrowers based on race or gender. However, they do not directly apply to certain alternative credit data and leave Americans unable to access the credit system.
In their recent paper, Jones and her co-author argue further regulation of financial reporting entities – both large credit bureaus and new data collectors – is needed in the same way gas, electric and water providers regulated their services. They argue participation in the credit system has become as necessary as having a phone or electricity.
While companies developing alternative credit reporting services argue that their products give underserved populations access to these vital services, the opaque nature of their operations makes them ripe for abusive lending practices, Jones argues.
With new products, borrowers do not know what information is used for calculating the score, so they cannot contest erroneous information.
Some credit scoring agencies offer consumers a ‘credit boost’ in exchange for access to their utility or rental payment histories. But there are few regulations on what agencies can do with this information and how long they can keep it, according to Jones.
She said: “So, as an applicant, you’ve technically given them permission to do this, but you’re in a vulnerable position.
“Your loan has been denied. You still need the loan. So, you give them all of your data, and you may gain as little as a single point on your credit score or none at all. You may or may not have a better chance of getting your loan, and what they do with that data is all in the fine print.”
Jones and her co-author are also concerned that much of the lifestyle-related data points lenders correlate with creditworthiness can connect to race, gender, age, socioeconomic status, a person’s ZIP code or where they attended college. Successfully challenging this kind of disparate impact under the ECOA is nearly impossible.
One agency pulled information on how often people pay for gas at the pump versus paying inside the store. People who paid at the pump were deemed more creditworthy.
Jones said: “There are all kinds of factors that can be correlated with creditworthiness, but that doesn’t mean they should be used.”
She argues there is a need to expand access to lending markets, but access should come with the same protections applied to traditional credit data.
Jones said: “Where do you draw that line?
“Are you opening up new credit opportunities for people, or are you preying upon vulnerable people?”