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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: 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...