It might be time to start unfriending some of your buddies on Facebook.
Facebook was just approved for a new patent this week that might be problematic for people seeking loans. Especially people of color.
The social network acquired technologies that may be used by lenders to determine if potential borrowers are at risk of developing poor credit. CNN Money reports that lenders would have access to the credit scores of your Facebook friends. Judging by their credit scores, a loan could be rejected. It's guilt by association.
Facebook hasn't confirmed whether they would use the patent for assessing credit-worthiness.
This sort of technology is not necessarily problematic for people who have good credit scores. But for those who are on the edge, it should set off some alarms. And those folks are likely to be people of color.
There is a major disparity in access to credit between Latinos and Blacks and their White counterparts. Compared with 2001, lending in 2012 was down 45 percent for Latinos and down 50 percent for Blacks, according to the Urban Institute. It was in that period that predatory loans to people of color became a problem of epidemic proportions.
Compared with Whites, more Latinos and Blacks were victims to predatory lending and subprime loans. A Center for Responsible Lending shows that they were 60 percent more likely to receive a high-risk loan.
"But if we're going to use data like that we have to use in a way protects consumers from disparate impact and hopefully brings more people into the credit system without harming people." — Rachel Schneider, senior vice president at the Center for Financial Services Innovation
Access to credit continues to be a major problem for Blacks and Latinos and in many ways has stifled their ability to build wealth. If people cannot accrue manageable debt, it's hard to buy a home, go to college, or even start a small business. Access to credit is tied directly to the wealth gap in this country.
Rachel Schneider, senior vice president at the Center for Financial Services Innovation, says that it makes sense that people are worried about this patent considering the lack of credit among people of color. If creditors are looking at a group of your peers, whole communities get looked at together, which is a challenge. But she does point to legal and regulatory mechanisms that could prevent such abuse.
Schneider also argues that this sort of technology could have a positive impact for "credit invisibles" — millions of people in this country that don't have credit scores. There is a movement to gather more data for more accurate credit scores, which could potentially boost scores.
"Looking at data like your social media profile isn't necessarily crazy," she says. "That might be data that helps somebody see that you potentially could have good credit. But if we're going to use data like that we have to use in a way protects consumers from disparate impact and hopefully brings more people into the credit system without harming people."
There is an ongoing debate on whether more data is helpful or harmful. This technology is just the latest aspect of that debate. But it does bring about more anxiety. It's not just your behavior, it's your friends' data.
Facebook's new technology has the ability to become another barrier to entry into a system already essentially rigged.
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