Your credit score may rely on your friends’ scores
SmartUp, a legal firm for tech startups, has uncovered some unsettling information from the US Patent Office. Apparently, Facebook owns a patented technology that could allow lenders to search the credit scores of friends in your social network in order to assess the risk of giving you a loan.
The text from the patent reads:
“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.”
Facebook bought a number of patents from the failed social networking site, Friendster, for $40 million back in 2010. The package of patents also includes technology for filtering spam and offensive content, and for improving searches.
Will Facebook ever implement this technology?
The possibility that lenders might one day judge you based on the credit mishaps of your friends is unnerving – but it is unclear whether or not Facebook truly intends to implement the technology. Since the patent was revealed by SmartUp founder Mikhail Avady, Facebook has declined to make a public comment.
It is also unclear whether or not the implementation of such technology would be entirely legal. The federal Equal Credit Opportunity Act is intended to protect borrowers from discrimination on the basis of factors like race, gender, and religion, by limiting lending criteria to relevant factors such as income, debts, and credit history. In real world cases, assessing a borrower on the successes and failures of their friends may violate this law. Patrice Ficklin of the US Consumer Financial Protection Bureau told the New York Times that they are “monitoring the emerging market closely.”
In the meantime, some lenders are already using social media to help out borrowers with limited credit history who might otherwise be rejected by typical lending institutions. Lenddo, a startup founded in 2011, uses an algorithm including data from social media to assess credit risk and extend loans to people just getting started in establishing their credit history.
If you’re a startup or freelancer using your personal credit to finance your business, keep an ear open for news about how this new patent may be implemented by lenders.