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Researcher warns of risks with using alternative data in lending:
Traditional credit scoring is based on a person's demonstrated ability to take on debt and pay it off. But with the dawn of larger data pools and access to more sophisticated modeling programs, lenders and credit agencies are taking more nonfinancial factors into rating creditworthiness, particularly those without an extensive credit history. This group tends to include vulnerable populations who are often more susceptible to predatory lending practices.
The problem is the systems developing these alternative scores can be like a black box, according to University of Georgia financial regulation researcher Lindsay Sain Jones. With the pool of personal data available growing, Jones argues that it's time to take a second look at how the American credit scoring system works and is regulated.
[...] In their recent paper, Jones and her co-author argue further regulation of financial reporting entities — both large credit bureaus and new data collectors — is needed in the same way gas, electric and water providers regulated their services. They argue participation in the credit system has become as necessary as having a phone or electricity.
[...] Jones and her co-author are also concerned that much of the lifestyle-related data points lenders correlate with creditworthiness can connect to race, gender, age, socioeconomic status, a person's ZIP code or where they attended college. Successfully challenging this kind of disparate impact under the ECOA [Ed: Equal Credit Opportunity Act] is nearly impossible.
One agency pulled information on how often people pay for gas at the pump versus paying inside the store. People who paid at the pump were deemed more creditworthy.
"There are all kinds of factors that can be correlated with creditworthiness, but that doesn't mean they should be used," Jones said.
When they factor in the web sites that people visit, do you suppose SN would be an asset or liability towards creditworthiness?
[ed note: See also Black Mirror, Season 3 Episode 1, "Nosedive". - fnord]
Journal Reference:
Janine S. Hiller and Lindsay Sain Jones, Who's Keeping Score?: Oversight of Changing Consumer Credit Infrastructure [open], Am. Bus. Law J., 2022
DOI: 10.1111/ablj.12199
(Score: 5, Interesting) by Snotnose on Thursday May 19 2022, @02:56PM (21 children)
Will my score go up or down?
When the dust settled America realized it was saved by a porn star.
(Score: 3, Interesting) by RS3 on Thursday May 19 2022, @03:00PM (8 children)
Came here to write the same thing.
Do SN, green site, automotive forums count as social media? (sometimes they seem downright unsocial, so how does that affect the score?)
(Score: 3, Funny) by Anonymous Coward on Thursday May 19 2022, @03:03PM
Asking for AC.
(Score: 4, Funny) by janrinok on Thursday May 19 2022, @03:08PM (1 child)
I think it is more intended to be the bigger corporations who scrape every item of information from your account and activities, and then sell it on. I think that we are social media in general except for certain journals which are very unsocial media.
(Score: 2) by DeathMonkey on Thursday May 19 2022, @04:48PM
So true! They would never let a bunch of blowhards rant about politics on social media!
(Score: 2) by JoeMerchant on Thursday May 19 2022, @05:32PM (4 children)
No data: minimum credit.
Personally, I think it's time we start rolling our own [mangocats.com].
🌻🌻 [google.com]
(Score: 2, Funny) by Anonymous Coward on Thursday May 19 2022, @10:09PM (1 child)
> rolling our own ?
Next you'll suggest an SN Visa card... 3 digit UID's all get offers in the mail, at least one a week!
(Score: 3, Interesting) by JoeMerchant on Friday May 20 2022, @01:36PM
Plenty of Visa/MC/Amex out there already. The barrier to entry and fees of operation are fundamentally too high on those, they leave a significant number of people "unbanked" even though they might be able to pay their debts, they can't "prove it to the man."
🌻🌻 [google.com]
(Score: 4, Funny) by RS3 on Thursday May 19 2022, @10:31PM (1 child)
Yeah, maybe. But it might get just as broken as the existing system, or even worse. The existing system is quite sanctioned by the US govt, and doesn't seem to have a corrective mechanism. Well, not much of one, not where it helps the citizens.
How about a form of government where, oh I dunno, maybe where the citizens are somewhat important, needs and issues are considered, and maybe even, dare I say it, we're actually represented? Naaa, sorry, I was falling asleep and starting to dream. I'm not a subversive, honest!
(Score: 3, Funny) by Joe Desertrat on Saturday May 21 2022, @01:54AM
And you're not on social media? Verrrry suspicious...
(Score: 0) by Anonymous Coward on Thursday May 19 2022, @03:08PM (2 children)
They're carefully monitoring your use of the bulletin board outside the public library. However, as concerned as they may be, the government wants them to keep credit available to you to reduce the odds of you going Galt. But keep using that bulletin board! Otherwise they'll think that you're black-pilled and just cut you off completely.
It's not paranoia if they're really out to get you.
(Score: 0) by Anonymous Coward on Thursday May 19 2022, @07:53PM (1 child)
They're fine with people going Galt, they're perfectly fine with people dying in a ditch, which is what the real Galt would have been faced with.
(Score: 0) by Anonymous Coward on Friday May 20 2022, @04:57PM
The "real Galt"??? God, you people are really in your own little worlds there, aren't you?
(Score: 5, Interesting) by looorg on Thursday May 19 2022, @03:11PM (6 children)
Hard to say. But a case can probably be made for either. If you don't use it then it could be seen as a sign that you are somehow poor and illiterate or doesn't want to be part of modern society. For some people it might just been seen as a good thing that you don't want to partake in the shallow experience that is "social media".
But all these private data gathering and model operations. Are they just not the same as the Chinese social credit score system but by some other name. They are all creepy and authoritarian as heck. We (in some general sense) criticize China for their system but then institute our own but having it run by the private sector instead of the government, like it or that would somehow make it better. It's really hard to say which is worse and which is better. I'm more inclined to go with that a shit system is shit system no matter who runs it.
The whole idea of a credit score system is quite baffling -- so it's a system that rewards you for taking on debt and then paying it off. Being in debt is never a good thing, paying it off probably is but that is besides the point. So it's a system that somehow rewards you for living beyond your means but somehow manage to hobble along. It doesn't reward say frugality or living within your means. They want you to be in debt and stay there. Fucked up system.
(Score: 2) by JoeMerchant on Thursday May 19 2022, @06:10PM (2 children)
>For some people it might just been seen as a good thing that you don't want to partake in the shallow experience that is "social media".
I don't think these are the people handing out credit. Business hands out credit and business is predicated on predictability. Less data makes you less predictable.
Also, realize that "poor credit rating" is another way of saying "high credit fees" which is good for profits...
🌻🌻 [google.com]
(Score: 0) by Anonymous Coward on Thursday May 19 2022, @08:24PM (1 child)
In some places, you're assumed to have decent creditworthiness as long as you're making enough to reasonably pay off the borrowed funds.
(Score: 0) by Anonymous Coward on Thursday May 19 2022, @09:21PM
"In some places...." maybe, but not in the good old Corporate Republic Ununited States of Amerika.
(Score: 0) by Anonymous Coward on Thursday May 19 2022, @06:32PM (1 child)
It will be seen as suspicious, that you have something to hide
(Score: 0) by Anonymous Coward on Friday May 20 2022, @07:59AM
Yes, I do have something to hide.
I pay my bills!
(Score: 1, Interesting) by Anonymous Coward on Thursday May 19 2022, @10:22PM
> so it's a system that rewards you for taking on debt and then paying it off.
Yes baffling. Here's another "go figure" data point. I've paid off my credit card bill consistently, they have never made any interest income from me--in 40+ years. Because I saved up (living frugally, delayed gratification), I was able to buy modest cars (mostly used) and a modest home with cash, so no car loans or mortgage either. I've been very fortunate, but I worked for it too.
My credit score is in the low 800 range (ie, nearly as good as it gets).
Oh, and other than SN, I don't do social media either. Never started (except a LinkedIn account that was closed when they were bought by MicroSoft).
(Score: 1, Insightful) by Anonymous Coward on Thursday May 19 2022, @04:00PM
You are not submitting to corporate will, therefore you are automatically untrustworthy.
(Score: 2) by DeathMonkey on Thursday May 19 2022, @04:57PM
It'll probably stay the same but the people who opt-in will get some kind of bonus/reduction like they do for car insurance these days...
So, in effect it'll go down relative to the social media people I guess.