
When Banks Use Facebook Friends To Determine Your Credit Score - kunle
http://www.betabeat.com/2011/12/13/as-banks-start-nosing-around-facebook-and-twitter-the-wrong-friends-might-just-sink-your-credit/
======
patio11
Some days I hate being right.

<http://news.ycombinator.com/item?id=954276>

[Edit: The article says the ultimate nightmare is the banks using this to
access data that they can't ask you for on forms. That is unlikely. What
they'll do instead is do exactly what credit scoring does: develop an
algorithm which a) improves assessment of risk and b) is totally, verifiably
blind to all protected classes which c) happens, as a side effect, to
correlate very strongly with membership in certain protected classes.]

~~~
gacba
The problem with trolling my FB account for understanding my behavior is that
people fall into roughly 3 categories:

\- Old work associates

\- School friends

\- Family and close friends

If I have a deadbeat cousin who also happens to be the black sheep of the
family, they may penalize me unfairly for his behavior. Or if I used to be in
school with someone who is now doing poorly financially, I get whacked. Now
consider that this person might have been my close friend in 6th grade, but we
grew in different directions. Where is the relevance here? Where's the logic
in that?

Pulling this info from social graphs as augmentation is a whole lot different
than simply creating a full profile from your graph in the absence of real
financial data.

Lagging or not, how I paid my credit cards over the past 5 years is going to
tell you a lot about how I treat money. Not so much about what I'm tweeting
tomorrow.

~~~
esrauch
> they may penalize me unfairly for his behavior.

What you are describing is just a fundamental quality of these types of risk
assessment algorithms. For example, males pay more for car insurance than
females, because there is a demonstratable correlation between being a male
and the insurance company paying out more money to you.

This is true even for an individual that has been in absolutely no accidents.
Statistically it is true that a male that has had no accidents still has a
higher expected value for insurance payouts in the future than a female that
has been in no accidents.

You as an individual is an unknown quantity that they cannot absolutely
determine. There may have been completely legitimacy reasons why you failed to
pay credit cards that cannot possibly occur again in your life, you should
equally complain about that not being taken into account.

No one can perfectly predict the future (if they could, insurance would be
pointless). They can only use information that they have to imperfectly model
the future; both who you tweet and previous credit card payments are imperfect
signals for what will happen in your future. It is true that how you paid your
credit cards in the past is a much stronger singal; it is absolutely
impossible that any credit evaluation is taking who your cousin is and your
personal history as equals. Their models take into account that who you tweet
is a much lesser indicator.

~~~
VladRussian
>You as an individual is an unknown quantity that they cannot absolutely
determine.

well, we can imagine that given more info and better algorithms they would
narrow the "unknown quantity" into the range much more narrow and thus less
populated than "male, 22 years old, 00000 zip code". From a hundreds thousands
peers to just a hundred of peers in the same risk level pool - it would be
very different "unknown quantity" then.

The better they differentiate the higher profits they will get by offering
lower quotes to no-risk ones while more intensely screwing ones with the risk.
This is wet dream of the retail, insurance, etc... business - custom targetted
offerings. Lower prices when it is really neccessary to make the sale and
screw the customer by jacking up the price when it is possible. To do this
they need to _know_ the customer. Thanks Facebook.

------
byrneseyeview
It's very hard to argue against this. Either your social network is a good
signal, or it's not. If it's not a good signal, the people who use this
information are going to lose money--they will quite literally pay for being
wrong.

But if it _does_ work, then overall mortgage rates will marginally decline.
Better information will lead to better choices, so mortgages will become less
risky overall. Some people will suffer, but keep in mind that when those
people oppose this, they are saying "I want to hide material information from
the people with whom I do business; if they knew the truth about me, I would
get a worse deal." That's fraud.

Yes, there will be false positives. And it's easier to visualize being the
victim of one of those than it is to visualize the tiny collective improvement
in human welfare that tends to result from better decisions.

I would be interested in an argument that applies _in this specific case_ ,
but doesn't apply to the general class of rough but useful heuristics, like
"Kids with bad grades who drive recklessly are probably less responsible than
40-year-old moms who drive minivans, even though there is some C-student with
a red car who is safer than some particular 40-year-old minivan-driving mom."

~~~
icebraining
_But if it does work, then overall mortgage rates will marginally decline._

Or the banks will just raise the profit margins.

 _Some people will suffer, but keep in mind that when those people oppose
this, they are saying "I want to hide material information from the people
with whom I do business; if they knew the truth about me, I would get a worse
deal." That's fraud._

What about "my bank has no business spying on who my friends are or what I do
on my free time"?

This raises the cost (possibly prohibitively, if the number of people who
refuse to give out an account is so small that banks can outright refuse
credit to them) to anyone who isn't willing to sell out their privacy, and
more importantly, their friends'.

And of course, people like me who just don't have an account are outright
fucked.

~~~
matwood
_Or the banks will just raise the profit margins._

A bank doesn't operate alone in a vacuum. As the number of people who have
prime credit shrinks the competition to lend to those people will go up. They
can't simply raise profit margins because there is always another lender out
there who will be happy to take on a prime credit borrower.

~~~
yariang
Unless of course the banks agree--off-the-record if need be--to not undercut
each other because they realize they will all lose by doing so.

~~~
ryusage
I don't think that's practical. In an industry with very few players, it could
work, but there are tons of small banks, credit unions, and online banks. Do
you really think the big banks could convince every single one of them to just
accept their share of the pie and stop trying to compete?

~~~
yariang
There's many small banks like you say, but the impression I get (I have not
done the research to back this up) is that the few really major banks (i.e.
Bank of America) have a huge market share. Again, I have not researched this,
but just from day-to-day experience, it sure seems that way.

Edit: <http://www.cardhub.com/edu/bank-market-share-by-deposits/> According to
this site, the market share of the top 10 banks is about 45%. Those statistics
are not highly precise but it illustrates the point I am trying to make.

------
callahad
My first reaction: "Why would I volunteer that information?"

Followed quickly by: "I don't have to; my less-savvy friends would. And I'm in
their graph."

At which point, it's in my interest to disclose my own social graph, so that
the bank sees that I'm actually connected to responsible people, too. Which
means betraying those individuals' presence in my graph. Gah!

~~~
oneplusone
or just get rid of Facebook.

~~~
ajross
And cut yourself off from the people you interact with there. Social networks
have very high value. You can't expect people to throw them out -- they _love_
them. This is why people talk seriously about regulating privacy handling, to
prevent this sort of abuse.

~~~
dextorious
>And cut yourself off from the people you interact with there.

So what? You only have that much time on earth to spend it socializing with
people you don't really care about online.

For people you do care about, you can always meet offline, or call.

Oh, and if they won't talk to you outside FB, take it as a hint you don't mean
much to them anyway.

~~~
Karunamon
>For people you do care about, you can always meet offline, or call.

This is an incredibly myopic worldview especially nowadays. I don't know about
you, but online is where I do 99% of my socialization outside of the office.
Why? Because phone calls are distracting and rude (when IM is right there and
won't interrupt everyone), and meeting up in real life is something that
requires a sometimes herculean effort of schedule juggling.

~~~
rohit89
>> Because phone calls are distracting and rude (when IM is right there and
won't interrupt everyone)

Why? If the other person is busy, they don't have to pick it up. Or you send
them a text to make sure they are free (it's what I do). For close friends, I
already have a pretty good idea when they'll be busy or free.

~~~
dextorious
Actually if they are too busy for the occasional phone call from you, then
gee, maybe they are NOT your friends.

Despite what they are called on your online "social graph".

We're not talking about stalking/trying to be together every minute, but, by
definition friends are people that LIKE to see you and TALK to you.

------
cstross
My social graph doesn't tell you anything useful about _me_.

What it tells you about is _people who like the books I write_.

Someone sends me a friend request? I auto-friend them unless they're an
obvious spambot. It doesn't mean they're my "friend" or someone I know IRL;
probably 80% of my FB "friends" live in parts of foreign countries I haven't
visited. I don't use FB for social purposes, I use it for marketing
communications.

(EDIT: Paradoxically, it turns out that many of my _real_ friends aren't
hooked up to me via FB. And none of my relatives -- except one nephew -- even
_have_ FB accounts.)

This wouldn't be a problem except for Zuckerberg's sociopathic insistence that
we all have just _one_ unitary identity. Groan.

~~~
byrneseyeview
If I were writing a social network layer to a creditworthiness algorithm, the
first thing I'd do is create some kind of taxonomy of friend networks. Got
500+ friends? See if the Google results for your name indicate fame (i.e. you
show up in title tags on Amazon, IMDB, or the NYT). And bam, reduce the social
networks' weighting.

Although I would be willing to bet that a) your fans will have above-average
credit scores adjusted for age, and that b) authors whose fans have crappy
credit are themselves more likely to have crappy credit.

In the extreme case, if you're a law professor and your FB friends are all
attorneys who loved your book, you're probably a good credit. If you wrote a
guide to how to fool your parole officer and your FB friends were all fans of
your book, your odds of default might be pretty good.

~~~
lurker14
What if you are Adam Sandler or another intelligent, responsible comedian with
a base fan base?

~~~
byrneseyeview
No heuristic is perfect, but the question is whether this situation is common
enough to swamp the general informational effects. So, three possibilities:

1\. Adam Sandler will pay a fractionally higher interest rate. 2\. The
heuristic will route around this situation. 3\. Banks that blindly apply this
heuristic will lose money on Sandler because they make a comparatively
unattractive offer; the bank that lends to him will get higher market share by
being less cautious or more careful in this instance.

Keep in mind that we're talking about an edge case among edge cases. Authors
are a tiny minority of social networking users. And authors whose fandom is a
_contrarian_ indicator of their creditworthiness are even rarer. Actually, it
would more likely work in the other direction: I bet poets published in the
_New Yorker_ have very creditworthy friends and still have trouble paying the
rent.

------
bproper
So in a scenario where social credit becomes a part of your economic health as
an individual, what happens to friends and family that declare bankruptcy?
They become some sort of pariah, avoided on Facebook and Twitter?

~~~
kstenerud
Or helping someone becomes a dangerous proposition, because they'll likely add
you to their social graph, dragging you down. It'll be just like those social
clubs that determine what you're allowed to do in your private life and who
you're allowed to hang around if you wish to remain a member.

Stratification would occur automatically out of fear, as each clings
desperately to their social position and tries to keep their social graph pure
now that it has real-world consequences.

~~~
sukuriant
This right here is my single greatest fear of banks knowing/using this
information. If I befriend an undesirable (because I see past society's
assumptions/the rough times this person has had in their life/whatever), or I
care for an undesirable, I am punished. Of course, I would have to weigh if
it's worth it (it probably is), but the fact that things like this may have to
be considered is just depressing and wrong.

Heaven help the preacher that friends his congregation. Not everyone comes
from a rosey past.

------
jedberg
Back in the days of Old Man Potter, the bank solved this problem by being
local and the banker actually _was_ your friend, so he already knew your
social graph.

~~~
patio11
Yes, but _that_ banker used heuristics like "Tom is a good white Christian who
goes to church every Sunday, of course he is good for the money" and _this_
algorithm can be proven not to, even if it comes to very similar credit
decisions as Bill the Biased Banker.

This is part of the reason why credit scores took over the world in the first
place: they're _demonstrably_ blind to protected classifications. (They're
also more accurate than Bill the Biased Banker _and_ orders of magnitude
cheaper to run _and_ execute virtually instantly at 3 AM in the morning, but
if their only feature was "As effective as traditional underwriting but immune
to anti-redlining legislation" they'd still have taken over the world.)

~~~
lurker14
<https://en.wikipedia.org/wiki/Disparate_Impact>

~~~
byrneseyeview
Disparate Impact is not a real explanation, because it's equivalently useful
at any stage of the argument. For example, "Disparate Impact" might explain
why banks don't lend so much to group X. So if we find some good underlying
variable that explains why banks would be disproportionately unlikely to lend
to group X, "Disparate Impact" now explains _that_ factor. And when that
factor gets explained, it explains the _next_ factor.

Disparate Impact is just "God of the Gaps" for discrimination.

------
RexRollman
"The first thing Lenddo asks for is a Facebook account; then it wants access
to Gmail, Twitter, Yahoo, and Windows Live."

Umm, pardon my French, but fuck that.

~~~
herge
How much is access to your Facebook account, Gmail, Twitter, etc, worth?

What happens if the bank offers to lower your rate if you give access?

What happens if you cannot find a bank that gives you a loan without insisting
that you give them access to your accounts?

~~~
nupark2
> _What happens if you cannot find a bank that gives you a loan without
> insisting that you give them access to your accounts?_

This is what I find so frightening about the Facebook-login-only web services.

It's the first step towards the widespread requirement of a massively
asynchronous information+value exchange between customers and businesses.

~~~
premchai21
If you actually mean “asynchronous”, could you please explain how that is
relevant? Or perhaps you meant “asymmetrical”.

~~~
nupark2
Thanks for the correction; I meant asymmetrical.

------
rajat
The implicit assumption here is that judging your credit score using your
social graph will give the wrong answer: as in either claim you are a deadbeat
when you're not, or claim you are trustworthy when you're not.

But, judging from other stories here and elsewhere, your social graph does
seem to yield mostly accurate information about you. So, most likely, you are
likely to be tagged as a deadbeat or not correctly.

More meaningful, I suppose, is for those of us that are very careful about
social media. I have a Facebook account, but use it very little. However, it
has come in very useful in that long lost friends have been able to get in
touch with me through it. I must admit, I have never really initiated that
myself (ie. go search for someone). So, am I likely to be judged incorrectly
solely on the basis of being a social media avoider; that is, are the banks
going to say hey ignore social media stuff for this guy, or are they going to
say, loners avoid social media and loners are likely to be bad credit risks?

I am definitely a member of the group that almost instinctively react
negatively to the use of social media for data mining like this. I am also
aware that I'm old enough that I might just be an old fuddy-duddy. I wonder
how many articles were written about the loss of privacy when telephones
started becoming popular and when the white pages were introduced.

~~~
im3w1l
People will also be incentivized to "prune" their social graphs of
undesirables.

------
JofArnold
I'm probably going to go to downvote hell for this, but I need to say it; I'm
massively disappointed startups are still using their energy and talents to
service the loan industry. It's 2011 - have we learnt nothing from the past 3
years? Build value, don't destroy it.

~~~
dantheman
Selecting qualified people for loans is a valid industry that promotes growth.
The goal is to loan the right amount and that the person will pay it back. If
you can do that accurately and loan to people who would fail normal tests then
you've created significant value.

~~~
JofArnold
What if the person in receipt of the loan was selected with perfect accuracy
but then his/her circumstances changed due to no fault of their own?

No loan is a "good" loan. Loans facilitate the reallocation of money. No net
value is created and for the majority "value" decreases in fact.

I'd challenge the "leads to growth" assumption too but I'm on iPhone and I
don't wish to hijack the thread. Essentially, it does not lead to sustainable
growth for the majority (or the economy for that matter)

~~~
dantheman
There are lots of loans that shouldn't be issued due to no fault on the person
being invested in.

For instance, I've been working on opening an icecream shop for weeks and need
a loan to finish the preparations and a bigger better icecream shop opens next
door. Through no fault of my own, I am no longer a good investment.

~~~
finnw
It _is_ your fault if the bigger better icecream shop opens next door and _you
still persevere with your original plan._ That suggests that you personally
are a bad investment (not just your original business plan.)

I would be more likely to give you the money if you needed five times as much,
because you had decided to sell pies or pizzas instead.

------
nostromo
The social graph is much easier to fake than paying your bills on time:
Unfriend, apply for mortgage, refriend.

However this does sound an awful lot like collective punishment -- and may
even open the banks up to discrimination lawsuits.

~~~
jellicle
But now the data available to the credit bureau consists of you being friends
with others, then unfriending them just prior to applying for credit. Which
sounds like an intent to deceive, which is worth -200 points on your credit
score. You didn't think unfriending people erased your historical association
with them, did you? "Deleting" data is so 1995. Facebook has never deleted
_anything_ , and they're not going to start. Google may be partially
anonymizing some old data, but my guess is it isn't really anonymous -
probably Google can reconstruct everything you have ever searched for, ever.

------
darksaga
Why are we all assuming people would naturally have a large social media
presence in the first place?

If I have a 790 credit score and no Facebook account, do I get a higher rate?
Now you're looking at discriminatory practices based on the fact I don't
engage in social media.

This is a VERY slippery slope these industries are going down.

~~~
khafra
The purpose of a credit score is to serve as a discriminatory practice.

------
benjvi
Articles critical of the loss of privacy that comes along with social media
often come up with this type of scaremongering. 'If you know someone that has
bad credit, then you won't be able to get credit either'. Well, if your
relationships do actually effect your ability to repay your debts, then banks
would be right to be at least a little more wary of giving you credit - amd
you should not be trying to overextend your credit.

I would have said that the undesirable practices that are mentioned - such as
redlining - are the result of using crude, discriminatory heuristics rather
than the result of having too much data about customers. This isn't
necessarily a bad development - it could enable banks to lend to more marginal
borrowers if they could see they had a strong support network. Clearly, if you
have a good conventional credit record, then your social credit will hardly
matter. Banks that use this new source of data stupidly won't do well.

------
benatkin
I think half of my facebook friends are people whom I don't know in real life.
On twitter it's probably 80%. Many of my replies and retweets are for people
whom I've never met. So they won't find out a lot unless they get clever,
which could be time consuming.

------
danielharan
I'd like to see actual evidence that a few bad friends are a good indication
of your own credit rating. Frequency of posts, number of new friends/contacts
in the last month, grammar/spelling -- all might be better correlations to
your paying debts.

------
lysol
The article is alarmist for sure. I highly doubt these startups centered
around this activity will outlast the inevitable death of the platforms
they're attached to.

------
namank
How is this not an edge case of discrimination?

Isn't this saying you are guilty by association? I see this as an infringement
on my civil liberties.

This fails to take into account the element of CHANGE. Change that is as much
a function of time as it is of a person's choice and circumstance.

The idea may succeed; hell, it WILL succeed given the nature of financial
institutions and the online social infrastructure that exists today but it
will be an aberration in the name of progress.

~~~
sliverstorm
How are your civil liberties infringed by receiving a different rate from
someone else? Why are you not busy protesting car insurance?

Also, it's not "guilty by association", it's "risk by association".

~~~
namank
Car insurance applies to the skill of driving. And the part mandatory by law
is third party insurance. So essentially, car insurance is not for your
protection, its for the person you hit. The concept of owner's insurance is so
you can also pay for your own car after running into a pole - this is
optional.

Withholding financial goods from a person based on their social interaction is
different from suspending their driver's licence because money is a _need_ and
is directly related to the very survival of a person. Money, in our society,
is a very fundamental requirement; driving licence is not. So this idea
imposes a very real threat on my very existence. And thats why its an
infringement on my civil liberty.

Judging a person's financial aptitude based on their social actions is
dangerous. Not to mention the fact that social interaction isn't currently
scientifically quantifiable and so all the conclusions you draw from the data
are essentially opinions of the experimenter, nothing more.

------
omouse
I love how we're all being reduced automatons thanks to statistics and I
especially love how programmers seem to have a data mining fetish that will
only help governments, corporations and banks, the same groups that repeatedly
screw things up.

Also, won't some of this count as discrimination based on age, race, gender,
religion, political beliefs? At least in some tangential sense?

------
brown9-2
So, is it actually accepted that a person's creditworthiness is correlated to
the creditworthiness of the people they socialize with?

~~~
code_duck
The assumption that I socialize with the people on my Twitter or Facebook
lists is incorrect, also.

~~~
drivingmenuts
The implied assumption (not you, the credit industry) that I value a
relationship with a bank more than my friends is incredibly wrong.

I would gladly take a bullet for some of my friends. I would watch a banker
drown with no guilt whatsoever on any day.

------
mooki
This goes both ways. If it becomes commonplace, there will be a business in
SEO'ing your social media profile. I wouldn't be surprised if a large portion
of facebook will consist of networks with good credit scores all friending
eachother and blogging about savings tips.

------
teyc
How about the TV shows you watch, the books you read, and whether you call
things "Grape Juice" or "Grape Drink". The problem with bad Fico is that it in
itself can create self-fulfilling prophesies. Just look at Italy.

------
LiveTheDream
If this were to get big, the industry to game it will be even bigger. Pay $500
to friend some high-credit-rated people on Facebook to get a few points off
your loan. Then un-friend them after the loan is established.

~~~
feralmoan
Its an amazing opportunity for brokers and ilk geared for risk to join cracker
circles privy to lenddo et.al algo exploits, creating a credit-metric
marketplace. Game on.

------
jrockway
The good news is that you don't actually need credit. Rent from someone you
meet on Craigslist, spend only what you earn, ride your bike or use public
transportation (to avoid mandatory insurance).

~~~
aristus
I had a harsh experience while on vacation recently.

In Miami, I was _utterly and completely refused a rental car_ because I didn't
have credit history. Never mind that I could buy one of their cars, cash. They
didn't want to hear it.

~~~
jrockway
I have this same problem. I don't have a driver's license, so I'm not allowed
to rent cars. Outrageous!

Taxis and public transportation work fine, though.

~~~
aristus
I don't normally rise to your mocking/trolling/whatever, jrockway. I am glad
you are content with your life and transport choices.

In the past, I have never had problems renting cars. I rented one in Mexico
the month previous, no problem. But now there is another requirement for car
rental in the US, which is hard to acquire.

It was massively inconvenient to find this out in the middle of a trip to
Miami, which has virtually no public transportation _or_ taxis, and spread out
over nearly 80km.

------
sbov
They may find this useful at first, but if they weigh social media heavily
wouldn't it be too easy to game to be useful in the long run? It isn't that
hard to have 2 Facebook or twitter accounts.

------
andrewhillman
This is either really clever or frightening if its used beyond marketing.
smart marketing but somewhat unethical. Interesting nonetheless.

------
GFKjunior
What if the only online profile I have is a GitHub account?

But seriously, 2016? I expect a totally new social networking platform to
emerge by then.

------
drivingmenuts
This is an opportunity. The same tech that the military uses for propaganda
can be used against banks that scan your profiles.

------
pasbesoin
Some things simply need to be outlawed. Unless you truly like the idea of
ending up with a caste system.

It's a slippery slope.

------
aniro
response from a friend of mine:

"I would like to be able to run an antivirus style application on FB that
identifies relationships that are a threat to my credit profile, career
prospects, and caste. I want to know who to ditch."

------
DannoHung
If you want a picture of the future, imagine a boot stamping on a human face —
forever

------
rkon
Who wants to buy an invite to my high-roller social network? We promise to
weed out those "untouchables" who are losing their jobs and homes!

Honestly, it would only be a matter of time before we saw entirely fabricated
social groups. Unless social networks start requiring photo ID/SSN to join.

Not to mention the potential this would have to further skew wealth
distribution in favor of the rich while strengthening the barriers that
already prevent upward economic mobility.

~~~
snorkel
Reminds me of long-forgotten blog post I read where someone claimed they were
able to raise their credit score by subscribing to affluent lifestyle
magazines, luxury catalogs, charging small purchases from Neiman Marcus and
Sacs Fifth ... just creating a trail of data that would give the appearance of
being in a higher income bracket produced a lot of interesting side effects.

~~~
fleitz
The thing most people don't realize is that your credit score is mostly an
indication of how much the bank can make off of you, and your income. High
income basically always gets you a high credit score, and making minimum
payments also gets you a high credit score. Lets say two people who both have
the same income, the person who pays their debts off fastest will have the
lower credit score.

It's pretty easy to get a high credit score by maintaining a balance on a high
interest credit card.

------
rickdale
People that use facebook don't care. They would rather use facebook than have
privacy, thats the bottom line. To them the benefits on facebook outway the
problems.

For most people if you told them they would die in 10 years if they continued
to use facebook, they would still use facebook. For a lot of websites today
and apps, you can't even login or do anything without a facebook profile.

Find me one person that is outraged and dropping their facebook account in
light of this information.

On top of all that banks aren't lending money nowadays anyways.

~~~
untog
_People that use facebook don't care._

That's pretty obviously not true because "what they care about" can change a
lot.

"Facebook is using face recognition!" = OK, no huge deal. "Banks are using
your info for credit scores!" = a big deal.

If someone has those responses they aren't being inconsistent. "Privacy" has a
variable definition, so "Facebook users don't care about privacy" makes no
sense.

