Are credit agencies and financial institutions taking big data too far?

Imagine applying for a loan and the credit agency or financial institution requires your Facebook, Google+, Twitter, LinkedIn, WindowsLive or other social media account details to evaluate your application. It may seem unthinkable that your financial clout would be based on the credit worthiness of your friends, your social media behavior or even potentially your profile picture.

Think again.

Big data has big implications and the deluge of social media information that you’ve been voluntarily feeding online to Facebook, Twitter, Google+, LinkedIn, among others, is also feeding big data initiatives for credit and lending agencies to evaluate your credit worthiness.

For Real, This is Happening

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In December 2011, the New York Observer’s BetaBeat.com posted a troubling story about credit agencies and banks using social media information and content -- taken from Facebook and Twitter accounts -- to determine credit scores. The article, "As Banks Start Nosing Around Facebook and Twitter, the Wrong Friends Might Just Sink Your Credit" by Adrianne Jeffries was picked up five days later by PCWorld and Huffington Post Canada. The news sparked social outrage and disdain from consumers but this has done little to change the course of big data usage -- and there are now many more disturbing examples from around the world.

United States: Lenddo

Jeffries' article in December covered how Lenddo, a Hong Kong-based microlending startup incubated in New York at FinTech Innovation Lab, called itself “the first credit scoring service that uses online social network to assess credit.” What makes this even creepier is that Lenddo was incubated in New York, is based in Hong Kong and provides loans in the Philippines and Columbia.

Here’s the exact text from the Lenddo website,

How does Lenddo determine if I am worthy of credit?
We look at many different data points to provide the Lenddo score, from how many social media accounts you have linked to Lenddo to how long your social media accounts have been active. We also consider how many friends or followers you have on your social networks and the number and diversity of members of your Lenddo Trusted Network and their Lenddo scores.

While Lenddo writes that they “value privacy and will safeguard your personal data,” this excludes your loan details and payments records:

What information is shared with my Trusted Network?
You authorize that your Trusted Network can be made aware of the details of your loan application - when you applied for the loan, how much you applied for and your payment history.

Here is the original FAQ answer from December 2011 on Failing to Repay a Lenddo Loan:

“Failure to repay will negatively impact your Lenddo score, as well as the score of your Lenddo friends. Lenddo MAINTAINS THE RIGHT TO NOTIFY YOUR FRIENDS, FAMILY AND COMMUNITY if the borrower fails to repay, however, this is only done after several notifications to the borrower and an attempt to work out a payment plan.” [yes, the capital letters were in the original].

At the time of writing this article, the answer has been edited to state,

Contact Lenddo immediately at support@lenddo.com. The more we know about the situation, the more we can do to work with you to find a solution. We understand that there may be circumstances that prevent repayment even if you would like to pay us back, so we are willing to work with you to find a solution that works for you and works for us.

Big data has taken an ugly turn in other parts of the world as well.

Germany: SCHUFA

Germany’s largest credit-reporting agency SCHUFA commissioned a privately-funded information technology college, Hasso Plattner Institute, at the University of Potsdam, to pursue a similar initiative. Named SCHUFALab@HPI, it gathered data to determine the “current opinions of a person.” In addition, the Spiegel Online reported that:

SCHUFA also plans to analyze information about people from other sites like the professional networks Xing and LinkedIn, Twitter, a personal search engine called Yasni, and Google Street View, NDR reported. The credit agency, according to NDR, plans to use 'crawling techniques,' like those used by Google, with the goal of 'identifying and assessing the prospects and threats.'"

Given the agency collects data on more than 66 million people, consumers and government were swift to express their condemnation for the project. On July 24, 2012, HPI announced it had “Das Potsdamer Hasso-Plattner-Institut (HPI) und die Kreditauskunft Schufa haben ihr Facebook-Projekt gestoppt” -- essentially, the project has ended.

United States: Experian

Consumer and business credit reporting Experian has developed an "Extended View Score" which also takes advantage of Big Data to target the 64 million Americans who are "underbanked." According to the Huffington Post, this new score uses three primary data sources, including mathematical calculations based on existing credit data, payment data from rental real estate and public record data.

As to the definition of "public data," the company has more than 600 million unique criminal records, civil case data, and bankruptcy and eviction records. Huff also reported that Experian gets data directly from more than 1,400 different government municipalities at the county, state and federal levels in addition to rental payment data from its national network of property management and collection companies, which is updated every 24 hours.

What Now?

After the social uproar in December over Lenddo and again in June about SCHUFA, one may hope that consumer revolt and outrage would deter the practice. On the other hand, we may just be scratching the surface for revealing how big data is already in use and being applied to generate new products and services. There’s no question that big data presents a wealth of opportunities -- time will tell where we may see more big data gone bad.

Image courtesy of Tischenko Irina (Shutterstock)

Editor's Note: To read more by Corinne Schmid:

-- Content, Convergence and How to Make Big Things Happen