Facebook Patent Means Your Friends Determine Your Credit Rating

On Tuesday Facebook was granted a patent that would allow banks and lenders to check you social habits to determine your credit worthiness. According to the patent your lender can check the credit rating of your Facebook friends. Your friend’s average credit rating will need to meet a minimum score for your loan to be approved. Facebook has to explain how they plan to use this patent but there are laws in place that mandate what criteria lenders can use to determine your credit worthiness.

Facebook is one of, if not thee, largest data collector in history. The patent claims to have multiple uses including filtering email spam, and helping with search queries. But the paperwork also stated explicitly that it could be used to determine your credit worthiness based on your social network. Facebook actually obtained the patent when it purchased the Friendster.com website.

It is not clear if Facebook will actually use the patent for that purpose. Many companies will file for patents with more applications than they actually plan to implement.

Using alternative means of measuring a person’s credit worthiness is not new. There are some up and coming lenders that are using social networks to measure credit risk. These companies believe that social networks can be a good indicator of a person’s credit worthiness.  Lenddo uses your Facebook friends to determine if you’re a credit risk. If you have friends who are late paying back Lenddo or have bad credit you could be negatively affected.

Lenddo co-founder and CEO Jeff Stewart said, “It turns out humans are really good at knowing who is trustworthy and reliable in their community. What’s new is that we’re now able to measure that through massive computing power.” Currently Lenddo only operates in the Phillipines, Columbia and Mexico.

There are U.S. based lenders using social media to measure credit worthiness include San Francisco-based LendUP. This company inspects the Facebook and Twitter profiles of potential borrowers to count their friends and how often they interact. LendUp believes an active social media life reflects a person’s stability. Neo, a Silicon Valley start-up, uses the quality and quantity of an applicant’s LinkedIn contacts to determine how soon a laid off borrower will be re-hired. New York based Moven, checks Twitter, Facebook and other social media websites in their lending reviews.

Both Neo and LendUp see an opportunity to provide loans to low-income borrowers. These borrowers don’t have bank accounts and are strapped wth a credit rating that is poor or worse. Neo and LendUp see themselves as an alternative to payday lending. Employment, finances and on-time payments are normally used to evaluate credit-worthiness But these lenders measure a person credit risk using social media indicators believing it allows them to better serve what traditional banks consider to be risky borrowers.

Facebook has not commented about their intended use.

Breaking It Down

This this patent could become troublesome in the vein of payday loans. Have we not seen how much trouble a payday loan can cause.? And let’s be real, how much of a credit check do payday lenders really perform. Answer; none!

Predatory lenders could find easy targets using these methods. Critics of this patent have complained that this is a tool to discriminate in lending practices. And that is exactly what it is. Lets look at this for what it really is. Its a trap for those people who

The question that must be answered is how is it fair for your friend’s financial troubles to be used to judge your credit worthiness? Would banks value the added information to the lending process? Probably. But would doing so create highly suspect and restrictive lending practices? Yes! Black people have been through this before and still go through it every time we go to a bank. Research has shown that black people are subject to higher interest rates, more stringent borrowing standards and are turned down more often than whites with equal credit scores. Now we have to face the hurdle of having credit worthy friends? I believe that this is illegal, or probably should be. Fairness in lending should be the same as fair employment and fair housing. But as black people we still struggle with that as well. This practice, if widely adopted, can become a socially and financially coercive tool. It can force you to explain you friendships and social media activity. Social media, especially Facebook, collects so much information that it becomes a challenge to make money from it. This is exactly what Zuckerberg is trying to do.