Facebook's New Plan: Help Banks Figure Out How Poor You Are So They Can Deny You Loans

[Newsjock]

Source: Mic

If you and your Facebook friends are poor, good luck getting approved for a loan.

Facebook has registered a patent for a system that would let banks and lenders screen your social network before deciding whether or not you're approved for a loan. If your Facebook friends' average credit scores don't make the cut, the bank can reject you. The patent is worded in clear, terrifying language that speaks for itself:

When an individual applies for a loan, the lender examines the credit ratings of members of the individual's social network who are connected to the individual through authorized nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.

It's very literally guilt by association, allowing banks and lenders to profile you by the status of your loved ones.

Read more: http://mic.com/articles/123452/facebook-to-let-banks-discriminate-based-on-friends-credit-score

[niyad]

1. yet another reason to avoid social media

[RadiationTherapy]

3. Social media is far more useful, important, and progressive toward "unity" than the stupid

usurious "money as debt" fantasy we have been propping up for centuries. Social media, in my opinion, will skew toward justice a lot sooner than loan systems ever will.

[neeksgeek]

2. What if you're not on Facebook?

Well, no loan for you. Obviously.

My plan, first put into practice in 2000, is join a credit union.

The banks, and Facebook, can bite me.

[PoliticAverse]

4. I wonder how long before people not on social media are considered not to exist...

unable to get loans, bank accounts, jobs...

[neeksgeek]

14. It's a good question. I don't know the answer...

Got a feeling I may find out someday.

[Facility Inspector]

15. There's a movie idea in what you just said.

[lancer78]

5. the system of using credit scores

Is unfair. All a good credit score means is that you have been lucky enough to never had a problem financially that you couldn't handle. Even if you make 100k a year, you could get a 1 million dollar hospital bill through no fault of your own and have your credit score destroyed.

The credit score system does not differentiate between the ability to pay and the willingness to pay. You could be willing to pay, but sometimes you get really unlucky. Job losses and illness beyond your control.

[davidn3600]

11. Banks don't look at it that way

It's sort of like insurance companies determine whether to insure based on risks. And that can be a very complicated formula including even what zip code you live in. The insurance company knows it will have to pay out in some policies. So they try to determine which ones they pay out more and thus adjust the premium.

Banks do the same thing. They look at the credit score and the score is a statistical measure that is supposed to represent the chance of default. Banks have different metrics and metrics of their own. But for example they could have determined people with a credit score of 750-780 have a 5% chance of default. In other words, bank assumes 5% of loans it gives out to that score bracket will default. So they adjust the interest rates accordingly. Someone with a credit score of 600-625 may have a 25% chance of default. So that interest rate will be higher to cover the defaulted loans. When a credit score is 550-575, the chance of default might be 50% and the bank determines the risk is too high and rejects the loan.

Your credit score declines when you make late payments or carry large amounts of debt on credit cards. Or if you make too many inquiries. These kind of things statistically indicate financial distress therefore your score declines and risk of default goes up.

Obviously they may include other factors such as income and such. But that's how the bank will use a credit score as part of their decision-making process. Anyone that takes a loan can default. Even millionaires default. But the banks have to base their decisions on something.

[lancer78]

12. You are correct

But it still is an unfair system that needs to differentiate between an ability to pay and a willingness to pay. Especially when someones ability to pay is affected by something that they had no control over, like their job getting outsourced.

[davidn3600]

13. Sure, and there are certain things that shouldn't be on there either

For one thing, medical debt. Medical debt is usually large, unplanned expenses a customer may have had no control over. Unless those expenses are popping up constantly, they don't necessarily represent a long-term financial barometer with a particular customer. Some rule changes have been proposed to further lower the relevance of that kind of debt and other debt like it.
It's not like the person went out to Best Buy and ran up a credit card and now can't pay it. Not all debt should be treated equal.

Also, there are some weird snafus with it. Paying on an old debt could actually make your score worse. Closing a credit card can actually make it worse. Then there is identity theft issues. There is a lot of times errors reported and it can take a long process to correct. Unless you are someone who's really educated on how that system works and keeps watch of your report, it's easy to be screwed by it. And lenders can easily take advantage of people with lower scores. That's who becomes vulnerable to predatory lending. Such banks are about equivalent to loan sharks.

So there are problems with it. It's not perfect.

[bemildred]

6. Sounds like a remarkably stupid way to decide who to lend to. nt

[Lex]

7. This was also a story in 2013

http://www.rt.com/usa/facebook-friends-impact-bank-loans-079/

[KT2000]

8. that is great for teenagers

who have hundreds of friends they don't even know. Also great for game players such as farmville who have "friends" all over the world.
facebook is just stupid.

[hobbit709]

9. The only thing close to actual on my FB profile is my name.

Everything else is either blank or has a made-up entry.

[eridani]

10. Looks like they got their patent

Facebook gets patent to discriminate against you based on your social network

http://www.dailykos.com/story/2015/08/05/1409014/-Facebook-gets-patent-to-discriminate-against-you-based-on-your-social-network

The patent that Facebook got yesterday has some very disturbing implications. From venturebeat:

The patent describes a technology that tracks the way users are connected in a network. The main use case is for preventing members of a network from sending spam to other members with who they’re not directly or legitimately connected. Other use cases involve preventing network members from receiving emails from, or showing up in the search results of, people with whom they have no direct or legitimate connection.

That seems semi-fair enough. This patent sounds like a spam filter of sorts. We all hate spam. However, according to the patent one of the possible uses are as so:

In a fourth embodiment of the invention, the service provider is a lender. When an individual applies for a loan, the lender examines the credit ratings of members of the individual's social network who are connected to the individual through authorized nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected

.

Wait, what? That's a terrible thing. Besides how unscientific it is, it clearly can only lead to one of two things: 1) You get screwed on your loan because you have friends who don't have great credit scores, 2) You choose a social network of friends based on credit scores.

[LWolf]

16. Will banks and lenders then

REQUIRE borrowers to be on fb?