Big Brother is watching (and judging)
Not too many years ago, when America wasn’t nearly as socially conscious or politically correct as it tries to act now, it wasn’t uncommon for financial institutions to refuse a mortgage or a loan to someone based on how ethnic a neighborhood they lived in or wanted to live in. The proper term for this type of thing is redlining and it was not an unheard of practice throughout the 20th century.
You’d think in the new millennium we would have outgrown that kind of baseless stereotyping but thanks to technology, banks can take redlining and really get creative with it: with the help of dozens of new watchdog apps, financial institutions can track your spending habits by the reams of data your smartphone spits forth day in and day out.
You’re leaving a trail
Consider this: according to recent Wall Street Journal article, the apps that smart phone’s are so vigorously tied to generate huge amounts of data like texts, emails, GPS coordinates, social-media posts, retail receipts, and the like which in turn indicates a myriad of subtle behavior patterns that correlate with loan repayment or default.
Even obscure variables such as how frequently a user recharges their phone’s battery, or how many incoming text messages they receive can impact a decision to extend credit.
It’s all about who you know
As scary as the smartphone scenario is (and to a degree it is currently being used by lenders in emerging-economy countries like Kenya) the real shocker is the potential that for lenders to use a social media platform like Facebook to create a financial profile of an individual based on that person’s social network.
Like, if your friends are well-off that’s a good thing and your loan will be approved versus if your friends with a cross-section of individuals living in a swamp somewhere and braced for the apocalypse.
Is this upholding the Equal Credit Opportunity Act?
The web version of The Atlantic spoke with Aaron Rieke, the director of tech policy at Upturn which consults civil-rights and social-justice groups on how to understand and use technology. Rieke, to his credit, understands the benefits and impacts of technology.
Says Rieke, “In the long term, it’s hard for me to imagine a future in which we’re not using more types of data to make more types of decisions.”
But in this case, creating a financial profile based on a person’s social network or smartphone habits is like playing with fire and goes against the very thing that the Equal Credit Opportunity Act was created for: preventing the collection of information about consumers and then selling that information to be used to impact credit and employment decisions.