Now this is the most ridiculous story EarHustle411 has ever come across!! Imagine you go to apply for a car, home or personal loan and you are asked for access to your Facebook as part of the application process. If one has never thought about “cleaning up” their Facebook friends list this next story just may make you want to “reconsider” accepting those many requests just sitting waiting to be confirmed.
A patent was secured by Facebook to analyze a Facebook user’s “friend” network. Now what it all entailed is beyond us but this patent had some other “uses” and it’s got the natives restless for sure.
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It seemed straight out of the evil-tech-company playbook.
In August, Facebook secured an otherwise innocuous U.S. patent about how to analyze a user’s friend network to let them do something. Most of the patent discusses the fairly mundane technicalities of running a social network—until, last in a list of examples, there appeared the following paragraph:
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 […]. 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.
In other words: The patent would let a bank analyze your Facebook friends when you applied for a loan. If too many of your friends have poor credit histories, the bank could reject your loan application—even if your own credit was fine.
Some critics argue that this patent could resurrect historic discriminatory loan practices: “Facebook Wants to Redline Your Friends List,” said one headline. And it makes a certain sense. In 20th-century redlining, banks would deny mortgages to people because they lived in neighborhoods that were too black. But in redlining’s spiffy new 21st-century form, they argue, banks can do one better: They can deny loans to people not because of where they live, but because of whom they fraternize with. Since one’s friends so closely mirror one’s race and class—according to one study, nine out of 10 of the average white American’s friends are also white—the practice would effectively restore loan discrimination. (It’s worth adding that traditional redlining was encouraged, even dictated by, the U.S. government.)
Will our friends soon be shaping our credit profiles—and would such a scheme even be legal? After talking to Aaron Rieke, the director of tech policy at Upturn, I’m not so sure. Upturn consults civil-rights and social-justice groups on how to understand and use technology. Last year, Rieke wrote a report on new forms of financial scoring, including social-network-based ones like what Facebook is proposing.
In three words, Rieke’s message is: Don’t worry yet. Rieke thinks it’s very unlikely that Facebook would implement the ideas in the patent.
There are a few reasons for that. The first is practical: Right now, Facebook relies on users to voluntarily give it their data.
“Facebook makes its money by encouraging people to have large friend networks and create lots of content for it to show ads against,” he told me. “It would really surprise me if they decided to get into the credit-scoring business, just because I think that’s going to make people feel panicked and uncomfortable.”
But Facebook would also face significant legal obstacles. By selling information to lenders, Facebook could fall under the purview of the Fair Credit Reporting Act. Passed in 1970 to regulate a relatively new class of companies that consolidated consumer information—we know these companies now as the credit bureaus—the Fair Credit Reporting Act could overhaul Facebook’s regulatory responsibility. For example, Facebook might need to tell users much more information than it does now about how it views them and their demographic profile.
Facebook, however, would not be on the hook—at least to consumers—if its credit-score modeling turned out to be discriminatory. If a bank used a Facebook-derived score to approve or reject loans, the bank would have to make sure those loans complied with the 1974 Equal Credit Opportunity Act. The ECOA prohibits discrimination for a familiar collection of factors—race, gender, religion—and, on that basis, Facebook’s credit scoring looks straightforwardly fine. But the regulators who enforce ECOA believe that this prohibition extends to disparate-impact situations.
“A neutral policy or practice that disproportionately burdens a group of people on a prohibited basis is still illegal,” says Rieke. So if a bank tried to use Facebook’s friend-network-based credit scoring, he believes that bank would quickly face a disparate-impact suit.
“Someone would file a disparate-impact lawsuit against a creditor who used it, saying: I’m poor, my friends are poor; or, my friends are poor and therefore you denied me credit; or my friends are of a particular ethnic status and therefore I was declined; and there would be a disparate-impact lawsuit,” he said.
Then, “the creditor would have to show that this friend score actually predicted creditworthiness, and that there was no better way for them to score that person,” he said.
This would be a tough case for the bank, especially since many credit agencies right now say there is no better guarantor of someone’s ability to pay back a loan than their credit history. And the mere prospect of a lawsuit would make implementing the patent difficult for Facebook, as any bank that used its new friend-scoring method would shoulder a lot of liability. More traditional credit bureaus already certify to lenders that their scores will not result in disparate-impact suits.
Which isn’t to say that social-network-based credit is an irreparably bad idea. In countries that do not have America’s financial system, friend scores can help extend credit to those who need it. In Mexico, Columbia, and the Philippines, a company called Lenddo already analyzes someone’s Facebook, LinkedIn, and Twitter to gauge their creditworthiness.
And in the United States, where 20 percent of the population cannot access credit, Rieke believes we should not reject new approaches because they’re new.
“I don’t think that anyone who is interested in financial justice should just immediately, out-of-hand dismiss something that sounds new or different,” he told me. “However, it seems pretty unlikely to me that a scoring system rooted in the community you’re a member of is going to be helpful.”
This gets at just some of what I talked about with Rieke, who also delved into more of the regulatory and moral dimensions of new scoring schemes. I’ve included a transcript of our conversation below, edited and condensed for the sake of clarity.
I also reached out to Facebook about the patent but haven’t heard back yet.
Aaron Rieke: Let me just say that I think there’s three approaches to talking about this patent. There’s a legal answer, there’s a practical answer, and there’s a moral answer. And let me start with the practical answer, because I think that’s the shortest and the easiest. Which is, you know, Facebook makes its money by encouraging people to have large friend networks and create lots of content for it to show ads against. And given that that’s the primary profit driver for Facebook, as a practical manner, it would really surprise me if they decided to get into the credit-scoring business, just because I think that’s going to make people feel panicked and uncomfortable. If I were them, I would not be in a giant rush to do that.
So just from a purely practical standpoint of, ‘how does this company make its money and what are its interests?’, I think it’s relatively unlikely that we’re about to see a real-world public implementation of the idea. So take that for what it’s worth it. A lot of the stories I’ve read have said, ‘now we finally see Facebook’s big scheme, and this is it,’ and—like I said—due to the legal ambiguities that I’ll go into in a moment, and the fact that Facebook depends heavily on the comfort and trust of its users to make money, I don’t see them wanting to get into the credit-scoring business, especially in a way like this.Robinson Meyer: Would they have to—I mean, they would have to do some pretty considerable notifying of users, too, before they actually rolled something like this out into the wild, right?
Rieke: Well, so, the idea in the patent is: When you, Rob, go apply for a loan, a lender could pull in an average, a credit score that’s the average credit score of your friend network, in some shape or degree. And that that analysis of kind of your association would be an indicator of whether they should extend to you credit. To the question of—the legal question—there’s two prongs to the legal question.
The first is, could a creditor legally use that kind of hypothetical friend credit score? Let’s set Facebook aside for just a moment. I’m a lender. There’s a law in the United States that makes it unlawful for a creditor to discriminate against an applicant on the basis of race, religion, national origin, sex, etc. Now at first blush, an average of my friends’s credit scores is not any of those prohibitive factors, right? At first blush, a creditor would say, well, a friend credit score, that’s not race, that’s not sex, that’s not marital status, it’s none of those things. But that’s not the end of the story, because the regulators that enforce the Equal Credit Opportunity Act claim that the disparate-impact doctrine works for credit. And disparate impact says, hey, a seemingly neutral policy or practice that disproportionately burdens a group of people on a prohibited basis is still illegal.
So what I envision would happen if such a credit score existed is that, very quickly, someone would file a disparate impact lawsuit against a creditor who used it, saying: I’m poor, my friends are poor; or, my friends are poor and therefore you denied me credit; or my friends are of a particular ethnic status and therefore I was declined; and there would be a disparate-impact lawsuit, I would guess.
And then the question would go back to the creditor, and the creditor would have to show that this friend score actually predicted creditworthiness, and that there was no better way for them to score that person. So the burden on a creditor who used a friend score like this, if a disparate impact was shown, the burden on a creditor would be to: (a) demonstrate that the score was actually predictive, and then (b) show that there’s not a better, less discriminatory way to do this. That’s how the story would play out? And I think if I were a creditor, I wouldn’t be confident about either of those things. So that’s kind of the pure legal analysis for the creditor.Facebook itself has its own set of legal things to think about, if it were to start doing this. Whereas the Equal Credit Opportunity Act applies to the creditor, Facebook would be thinking about the Fair Credit Reporting Act. The Fair Credit Reporting Act is a law passed in 1970. In 1970, these credit bureaus like Experian, Equifax, and TransUnion were just starting to grow up. Congress saw that these credit bureaus were getting huge and said, these companies are collecting lots of information about consumers and then selling that information to be used to make credit decisions and employment decisions and things like that—they should really have some rules.So the Fair Credit Reporting Act regulates companies that are classified as consumer reporting agencies, so if you’re a company that collects data about consumers for the purpose of selling that data for eligibility decisions, you have a responsibility to make sure that data’s accurate, up to date, accessible to consumers, disclosed in only limited circumstances. You have these data-management requirements that fall upon you, accuracy being one of the most important.
Rieke: To my knowledge, that’s correct. I think of both Google and Facebook as the huge, first-party Internet companies, and I think both have the policy of, we don’t sell our users’ data to others. The way you get to the users is submitting advertising requests and saying which segments of people you want to reach, and then they do that.
Meyer: Could there be a technical resolution to disparate impact where Facebook—I’m trying to figure out how this would work as I propose it—where it says, this person belongs to this ethnic group, they live in this neighborhood, and therefore we’re essentially going to handicap the score we hand off to the credit bureaus to specifically account for disparate impact—or does that then get into a whole other set of worms because how do you quantify that?
Source: The Atlantic