This is the first I'm hearing of it, but assessing credit risk based on social profiles is almost definitely illegal. Conclusions based on friends or location rather than actual history will have a disparate impact on minorities.
Here in Germany it's pretty common.
I'm living in an apartment building where it is impossible to get a credit card. It's not only me - all neighbors I asked have the same problem.
Looks like one of our neighbors has a catastrophic credit rating and is pulling down the rest of us.
I heard similar stories from friends who were able to get a loan only after moving.
They take average paying morale in a neighborhood into account. But I guess one very bad seed can spoil pull down a otherwise good/average neighborhood.
http://en.wikipedia.org/wiki/Commercial_mail_receiving_agenc...
https://ribbs.usps.gov/index.cfm?page=mtcsa
(you can also google for dpv cmra)
Image search for "schuldneratlas" (a detailed map of private households in distress) to get some impressions.
Or see there: http://www.boniversum.de/schuldneratlas/
Do these creditors think that people have the moral fortitude of five-year-olds?!
They want to make as many loans as possible. The want to loan you money or grant credit. But if they find a correlation that indicates too much risk they'll say no.
The questions then are, is the correlation real, and is doing the correlation legal in the local jurisdiction.
Profiling people (who have nothing to hide) gives banks and insurance companies huge advantage. It may look insane in personal level, but there is solid math behind many of their descisions.
Morgan Spurlock also had to pay a deposit in his show 30 Days, and he commented about how it was the first time in his life he had to pay a deposit, and it must have been the address he was living in. (He was living with a minimum wage for 30 days in the episode, so he moved into a low rent apartment in Ohio.)
Reread the comment. It's exactly what you describe, down to the actual building. People living in a particular apartment complex can't get a credit card.
Our society does better when we communicate with each other. As in, "united we stand, divided we fall".
If we are not to turn entirely into a perpetual exercise in "pecking order", there have to be some limits upon what can be "punished" -- commercially or otherwise.
So, take your "social network credit risk" and shove it.
"...in Pembina Consolidated Silver Mining Co. v. Pennsylvania - 125 U.S. 181 (1888), the Court clearly affirmed the doctrine, holding, "Under the designation of 'person' there is no doubt that a private corporation is included [in the Fourteenth Amendment]"
If I had a time machine and could go to the future and see who would pay back their loans and who wouldn't, that would be ideal. But we don't have that, we can only make predictions by looking at data that happened to correlate with that in the past.
if job == 'Lawyer':
score + 100
if poor_people_friends > 150:
score - 100Are you saying the machine doesn't actually rank you according to the data you give it?
No it's not socially acceptable to use certain data points to make decisions, but this has good justification behind it. People will irrationally weigh stuff like race or gender to make decisions even when it doesn't matter. But this is being done by a completely unbiased computer program. And they wouldn't use it if it made their predictions worse. So that reasoning of the predictor being irrational doesn't apply in this case.
And I'm sure the program was written by a completely unbiased computer, too!
Everyone?
LOL
Past history correlates with future performance, but not necessarily 100%. People who have always paid back loans sometimes default. People who have really bad credit sometimes start making payments again. And in any case, it's entirely useless if the person has no past history to look at, which is what this is for.
>Risk is entirely a calculation of the lender, and any miscalculation thereof leads to a vicious cycle of repeatedly shafting the unlucky.
Good thing we are using 21rst century computers and machine learning algorithms on vast amounts of data. At no time in history were lenders able to make predictions so accurately. If there are miscalculations, they are less than would be otherwise.
Perhaps I'm naive, but I hold to the... philosophy, I guess I'll call it for the moment, that most people want a strong community. And that that is aided by people being in touch with each other, including and especially people of different social and economic strata.
Take this proposed ranking to its extreme: You will have people who are ostracized and who perhaps cannot become "un-ostracized" because connecting with them forms not only perhaps a personal risk but also a commercial risk for other parties.
Some societies have versions of this, for example, the caste system.
How "mobile" are people going to be, when every "up-link" to someone of higher standing is cause for a computer somewhere to drag down the status of the up-linked.
We also have problems of this sort in the U.S. with our insurance industry -- I'm thinking at the moment particularly of health insurance. Insurance is supposed to be a pooling of risk and of resources with which to deal with that risk. If you don't take out as much as you put in, count your blessings! You have above average health.
If you need help, it is there for you. "I am my brother's keeper."
In times past, we knew less about diseases. You knew less about what might "get you" and where it was coming from.
These days, we know (somewhat -- less than some arrogant doctors would like you to think) more about diseases. We think we can control some factors -- diet and exercise being prime examples.
We still have to contend with injuries, including injuries that we do not cause, such as some car accidents.
And... your control of "controllable/willpower" factors may be less than some people would think. Live in a "food desert", and fresh produce may be difficult to acquire. Live in certain places in my metropolitan area, and an evening walk for exercise presents its own not inconsiderable risks.
Nonetheless, many people these days seem included to think of insurance as akin to a savings plane. You should get out what you pay in. If not, you're being ripped off!
That's not how it works. That's not how it's intended to work.
Back to social media and risk evaluation. Do I, should I have to evaluate every potential connection for the economic risk it may bring me?
We are close to having ubiquitous surveillance cameras (including ultra-high resolution airframe mounted cameras that can track a vehicle or even a pedestrian across an entire city). Do I have to worry that every chance encounter and conversation on the street may effect not just my political and security rating but also my economic rating? Talk to that bum asking for change, and your credit score goes down 50 points. Ok, you can talk to him/her for a maximum of 20 seconds; any longer, and we will think you have an "un-natural" "affinity" for such a lifestyle.
Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes you are right there is an incentive problem created by this. Once you start measuring something, people start trying to game the measurements. That said, no one is forcing you to make such decisions, or even go to a business that uses such evaluations.
>Bankers can't "red line" in making mortgage loans. Schools (including private ones) can't deny admission upon the basis of race -- nor, in some states, upon sexual preference.
>We constantly place limitations upon the scope and focus of commercial evaluations. Social media is a landscape that will have to be dealt with, in this regard.
Yes but the intention of those laws are to stop irrational bigotry. Like someone who hates some group and refusing to do business with them because they want to punish them or whatever. We are talking about an unbiased computer algorithm that just weighs the data and uses it to make more accurate predictions. That's the goal, to make accurate predictions. The data used doesn't matter.
The article is talking about a private company using publicly available data as a factor in determining whether or not to extend a loan to you. I think it's kind of shitty, but I don't know that it's any different than say using gender as a factor.
It's now illegal in some nations to discriminate pricing based on gender.
>It makes even less sense if the the insurance company is allowed to consider other factors that are correlated with gender (e.g., age, profession).
Agreed.
Look at it the other way around. By not taking it into account, 100% of men would be suffering because of the 80% of women.
In any case, this isn't any different with all other factors. Age and profession for example. There are really good 16 year old drivers, why should they have to pay higher insurance? By your logic making any predictions is wrong if they aren't 100% accurate. Gender is just a subcase.
Nothing about this damages society or perpetuates class divisions and I haven't the slightest idea where you got that from. We aren't talking about arbitrarily discriminating against a group of people, but charging them slightly more because they cost slightly more. Or less. And for the most part, other factors like past history and the like will vastly outweigh that information, unless you actually believe it makes a difference. In which case why shouldn't it be used?
>Because human lives are more important than maximizing profit.
This is the stupidest expression going around the internet. Obviously human lives are more important than maximizing profit (well not so obviously, as almost everyone risks their own lives and often the lives of others for money and convenience. Driving cars for example.) This adds nothing to the conversation except to make it seem like the other side is against human lives which obviously aren't. No one has ever said "maximizing profit is more important than human lives."
It's interesting you've assumed that it's the women who are paying the higher premiums. Contrary to the stereotype about women being bad drivers, it's men who pay the gender premium on car insurance.
Honestly, I'm a little confused by some of these equality laws. I'm pretty sure that the law can't compel you to make a loan you don't want to make, whether there is a good reason on not. I think you just can't say the denial was for a racial reason or gender reason or whatever. But even if those things were at the heart of your decision, so long as you don't say it, is that even illegal?
And in this case, I'm talking about private companies who don't have connection to US government. (ie: I think if you're government ensured or whatever, they have more power to compel specific behavior.)
http://www.occ.gov/topics/consumer-protection/fair-lending/i...
Yes, absolutely.
If you want the right to set up a business to serve the people of the nation, the people have decided that you can do so, so long as you serve them without regard to color, gender, etc.
Our forefathers made these laws because they saw that given the opportunity, entities with a profit motive will pursue profit over all else, to the detriment of society as a whole.
It was seen that when discrimination occurs, society as a whole suffers.
I don't want my neighbor to go broke and let his house fall apart because he married a black woman from a hellhole in detroit.
Half of our "forefathers" built fortunes on the backs of slaves. They got plenty of other things right, but many of them missed the mark on racial and gender equality.
In abolishing slavery, lawmakers in 1865 made it clear that regardless of how profitable slavery was for slave-owners, it was bad for mankind and would not be tolerated.
http://www.propublica.org/article/disparate-impact-and-fair-...
I doubt it, do you have a citation for that?