
Could a Bank Deny Your Loan Based on Your Facebook Friends? - tjr
http://www.theatlantic.com/technology/archive/2015/09/facebooks-new-patent-and-digital-redlining/407287/?single_page=true
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superuser2
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.

~~~
radmuzom
How is this relevant to the article at all? As a credit risk modeller, we
already use spending behaviour to assess credit risk; and I am pretty sure the
insurance industry does too. No retail portfolio can be tailored to the
individual level (or the methods are not that sophisticated yet); hence the
average behaviour of your demographic _will_ matter whether you like it or
not.

To your specific point, in my country we have the concept of a "no claim
bonus" where the insurance premium is drastically lower if there is no claim
made in a year - not sure whether there is a similar practice in the US.

~~~
superuser2
My understanding is you have access to total monthly credit usage vs. credit
availability, not _what_ I'm spending money on. I would think there's
information to be gleaned from whether the distribution of spending across
categories looks like a deliberate household budget, whether purchases include
luxury items, etc. that would let you spot people likely to bury themselves in
credit card debt before they actually do so. Just as people's social networks
might tell you about their attitudes towards money when influenced by friends.

~~~
radmuzom
I have not worked for the US market the last five years, but as far as I
remember there is a law in the US that a bank cannot take adverse action on a
existing customer holding the bank's product based on credit history from
another bank - so for example, my bank cannot decrease the limit of a card
because the customer defaulted in a personal loan held with another bank. Of
course, at the time of origination of the credit card, we can use this
information.

The whole point being that just because data is available does not mean I can
use it even though it may be statistically significant for me to use it.

Again, I am not sure of insurance regulations so there may be a possibility
around using more data, if available, in insurance models.

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rm_-rf_slash
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.

~~~
Silhouette
_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
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.

~~~
rm_-rf_slash
Unfortunately I don't expect a boycott will ever work because there will
always be statistically significant number of users for Facebook to run their
social experiments on, so there won't be any reason for them to stop, even if
the populations of entire countries delete their accounts.

I'm still holding out for a privacy-centric social network. Only problem is I
won't join it unless enough of my friends do, so I guess we'll see.

I hardly use Facebook anymore anyway.

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

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zeveb
> '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
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
> 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
>> 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.

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imgabe
_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
If used at all, it will be in addition to current inputs to the risk scoring
model, not a replacement.

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joesmo
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?

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dboreham
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
This is where I believe things are heading... as I type into a text box.

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klean92
Listen everyone! I have an excellent credit score, for 50cts I am your
Facebook friend!

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nomercy400
Could a bank deny you a loan if you don't have Facebook?

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ccvannorman
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.

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sksk
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.

