Facebook has a new patent that will let lenders look at your social network to determine your credit risk
On Tuesday, Facebook secured a patent that could be used to filter spam as well as improve searches. But part of the patent could also be used to help lenders determine your credit risk by looking at who is in your social network.
The patent states: "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."
While using this data to help someone's credit score could benefit some, like those who are just beginning to establish credit, it could also potentially weigh down those with good credit.
The patent, which was first discovered by the legal tech start-up SmartUp, was part of a bundle of patents Facebook acquired when it purchased the social network Friendster five years ago.
Even though Facebook has secured the patent, that doesn't mean they will use it.
The Equal Credit Opportunity Act protects people from credit discrimination based on things like race, color, religion, age and marital status. For example, if you are applying for credit, a creditor may not ask you about your spouse unless they are applying with you or are going to be using the account. The federal law requires creditors to tell applicants why they have been denied, so using social data to determine someone's risk could walk a fine line.
But some financial institutions are already using applicant's social data to help verify their identity.
For example, Lending Club, which is a peer-to-peer lending network, uses online data for verification purposes.