Will Your Facebook Friends Make You a Credit Risk?

The social-media giant just patented a system that can calculate credit-worthiness based on your friends’ credit scores.

A new Facebook patent may adversely affect people of color.
National Journal
Aug. 7, 2015, 10:25 a.m.

It might be time to start un­friend­ing some of your bud­dies on Face­book.

Face­book was just ap­proved for a new pat­ent this week that might be prob­lem­at­ic for people seek­ing loans. Es­pe­cially people of col­or.

The so­cial net­work ac­quired tech­no­lo­gies that may be used by lenders to de­term­ine if po­ten­tial bor­row­ers are at risk of de­vel­op­ing poor cred­it. CNN Money re­ports that lenders would have ac­cess to the cred­it scores of your Face­book friends. Judging by their cred­it scores, a loan could be re­jec­ted. It’s guilt by as­so­ci­ation.

Face­book hasn’t con­firmed wheth­er they would use the pat­ent for as­sess­ing cred­it-wor­thi­ness.

This sort of tech­no­logy is not ne­ces­sar­ily prob­lem­at­ic for people who have good cred­it scores. But for those who are on the edge, it should set off some alarms. And those folks are likely to be people of col­or.

There is a ma­jor dis­par­ity in ac­cess to cred­it between Lati­nos and Blacks and their White coun­ter­parts. Com­pared with 2001, lend­ing in 2012 was down 45 per­cent for Lati­nos and down 50 per­cent for Blacks, ac­cord­ing to the Urb­an In­sti­tute. It was in that peri­od that pred­at­ory loans to people of col­or be­came a prob­lem of epi­dem­ic pro­por­tions.

Com­pared with Whites, more Lati­nos and Blacks were vic­tims to pred­at­ory lend­ing and subprime loans. A Cen­ter for Re­spons­ible Lend­ing shows that they were 60 per­cent more likely to re­ceive a high-risk loan.

“But if we’re go­ing to use data like that we have to use in a way pro­tects con­sumers from dis­par­ate im­pact and hope­fully brings more people in­to the cred­it sys­tem without harm­ing people.” — Rachel Schneider, seni­or vice pres­id­ent at the Cen­ter for Fin­an­cial Ser­vices In­nov­a­tion

Ac­cess to cred­it con­tin­ues to be a ma­jor prob­lem for Blacks and Lati­nos and in many ways has stifled their abil­ity to build wealth. If people can­not ac­crue man­age­able debt, it’s hard to buy a home, go to col­lege, or even start a small busi­ness. Ac­cess to cred­it is tied dir­ectly to the wealth gap in this coun­try.

Rachel Schneider, seni­or vice pres­id­ent at the Cen­ter for Fin­an­cial Ser­vices In­nov­a­tion, says that it makes sense that people are wor­ried about this pat­ent con­sid­er­ing the lack of cred­it among people of col­or. If cred­it­ors are look­ing at a group of your peers, whole com­munit­ies get looked at to­geth­er, which is a chal­lenge. But she does point to leg­al and reg­u­lat­ory mech­an­isms that could pre­vent such ab­use.

Schneider also ar­gues that this sort of tech­no­logy could have a pos­it­ive im­pact for “cred­it in­vis­ibles” — mil­lions of people in this coun­try that don’t have cred­it scores. There is a move­ment to gath­er more data for more ac­cur­ate cred­it scores, which could po­ten­tially boost scores.

“Look­ing at data like your so­cial me­dia pro­file isn’t ne­ces­sar­ily crazy,” she says. “That might be data that helps some­body see that you po­ten­tially could have good cred­it. But if we’re go­ing to use data like that we have to use in a way pro­tects con­sumers from dis­par­ate im­pact and hope­fully brings more people in­to the cred­it sys­tem without harm­ing people.”

There is an on­go­ing de­bate on wheth­er more data is help­ful or harm­ful. This tech­no­logy is just the latest as­pect of that de­bate. But it does bring about more anxi­ety. It’s not just your be­ha­vi­or, it’s your friends’ data.

Face­book’s new tech­no­logy has the abil­ity to be­come an­oth­er bar­ri­er to entry in­to a sys­tem already es­sen­tially rigged.

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