Securing a loan is a tedious task for many borrowers. Regardless, more and more lenders are scouring through social media sites to help them determine a borrower’s creditworthiness, or simply to uncover more details about their identity. As a result, consumer groups and regulators are becoming increasingly concerned about this new trend.
If lenders continue to screen borrowers via social media, several problems could arise. For example, some applicants may not include the same bits of job information on their loan applications as they share on LinkedIn. Similarly, some borrowers may make mention of being let go by an employer on their Facebook page. Additionally, according to lending companies, small businesses that receive negative feedback on sites like eBay could hurt their chances of obtaining more credit from lenders.
Although startups that offer smaller loans seem to be exploring this trend more often, many other lenders may also consider taking advantage of the concept. Fair Isaac Corporation plays a large role in determining borrowers’ creditworthiness, providing credit scoring that’s used in more than 90 percent of lenders’ decisions. FICO is also considering implementing social media screening into its strategy.
Nevertheless, lenders who have adopted this strategy typically provide loans to borrowers with a history of bad credit, or individuals with no bank accounts. Therefore, these lenders believe that by using various scoring metrics, credit would be more accessible to people who may otherwise be denied.
However, consumer advocates hold a different view. They believe that by basing a borrower’s creditworthiness solely on their social media presence, small businesses could be unfairly declined for credit, or even face higher interest rates as a result. Furthermore, since federal credit laws haven’t been updated to keep up with this new screening trend, many borrowers have been left exposed.
Officials say that regulators are keeping a close watch on this developing trend, trying to see if they will need to monitor lending institutions’ use of online data in determining credit scores. Regardless, the Consumer Financial Protection Bureau is already aware that some lenders are considering using social media to help reach more informed credit decisions. Lastly, the Federal Trade Commission says it will conduct several seminars this spring in regards to new consumer-privacy issues, with the use of alternative credit scoring on the agenda.
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