NEW YORK (MainStreet) -- What happens in Vegas doesn’t always stay in Vegas. That's especially true for photos posted on social media that can come back to take a bite out of more than your dignity, says Christine Kelley Storch, president of Dashing Social Media in Winston-Salem, NC.
Storch says that employers and colleges scan social media to help with decision-making so why wouldn’t a lender consider what a client posts before reaching a credit decision?
“I’ve been privy to a number of posts gone wrong, where someone has a few glasses of wine or makes negative remarks on social media that start a fire that they can’t extinguish,” Storch says. “You always have to remember that once its out there, you can remove it, but the post or photo remains forever. So be mindful when you post and photograph.”
Storch says the bold new world of online interaction can impact how nearly anyone views an individual’s life and lifestyle. “Lenders may not make social media part of their practice, but you just never know who is looking at your profile or posts,” she says.
In a world where alternatives to the FICO score are appearing to judge credit -- even SAT scores are being used-- companies like Vouch, Lenddo, Flurish Inc. (also known as LendUp) and Movencorp Inc. (aka Moven) are among the innovative companies tapping into consumers' social profiles to analyze their creditworthiness.
Traditional Lenders Don’t Use Social Media…Yet
Still, most traditional bank and credit union lenders say they don't use social media as a guide for credit decisions, but that doesn’t mean that borrowers are completely off the hook.
“We usually never check a member's social media page, so I would say it would not affect the loan decision,” said Harry Stewart, vice president of residential and commercial lending at NuMark Credit Union in Crest Hill, Ill. “However, if we did happen to check a social media post that had them taking selfies at the unemployment office, we would probably re-verify the member's employment status again.”
Stewart emphasizes that posting information that doesn't wash with what's attested to in the loan application could possibly become an issue.
“A social media post containing contradictory information regarding employment, income, credit, collateral, et cetera would send up red flags on any member who has filed an application,” he says. “Again, to be honest I never go to any member's pages, but if I did I guess some of their posts might prompt additional questions.”
Amy McGraw, vice president of marketing at Tropical Financial Credit Union in Miramar, Fla. said that her credit union has never used social media for loan decisions and never heard of anyone using it to influence the process. “To be honest, [using social media] is nowhere on our radar and actually scary to think that a lender would turn to social media for loan decisioning.”
Social media users may forget that anything they post in a public forum is still fair game, Storch adds. “Even though a traditional lender does not make checking the applicant’s social media status as part of protocol, still doesn’t mean that the applicant’s posts will have zero impact on whether they get further ahead in life.”
New-Fashioned Way to Social Lending
While traditional lenders may not integrate the applicant’s Facebook or Twitter posts into credit decisions, emerging lender Vouch has found a way to use an entirely new social animal for loan determinations.
Created in late 2013 and launched publicly in April 2015, the San Francisco-based installment loan house, Vouch provides a cost effective way to borrow money centered on traditional means such as credit score but also sponsorships. “Our team members came from PayPal and Prosper and we had seen that the U.S. economy system was unfairly pricing loans to consumers, especially people with low FICO scores,” explains Yee Lee, CEO. “So we started to create a more fair way to price loans for all consumers.”
After borrowers apply for an installment loan ranging from $5,000 to $15,000, they invite people in their network to become sponsors. Sponsors agree to pay back a certain percentage of the loan should the borrower fail to make payments. Vouch says that sponsorships can help the borrower obtain a larger loan and/or lower rates. It's basically a way of having the folks you know "vouch" for you.
“We think that lenders who look at signals from social media sites are doing ‘social lending’ wrong,” Lee says. “Social media sites are not built for financial purposes. They're made for sharing photos with friends and family, or broadcasting news updates, or discovering career opportunities. People curate their social media presence and filter what they say about each other to suit the purpose of each social media site.”
But San Francisco-based LendUp mixes FICO data with information mined from social media to fully understand a consumer's particular risk profile. Sometimes access to pictures and statuses can provide extra insight into a person's character and trustworthiness. Backed by Google Ventures, LendUp made some 300,000 loans in 2014 -- in part, using social media profiles.
Mobile bank Moven, too, uses social media learns about consumers' financial behavior among friends before making a decision to grant or deny a loan.
Lenddo CEO Jeff Stewart told MainStreet he attributes this new wrinkle in credit analysis to "big data and processing power" available with so much information on social media.
Why Traditional Social Media Won’t Necessarily Work for Credit Decisioning
Of course, regulators -- from the Consumer Financial Protection Bureau to the Federal Trade Commission -- are scrutinizing this brave new social world in assessing one's credit.
Lee says that using social media to make loans has two major flaws. “First, lenders may get an overly-positive impression of individuals," Lee says. "It'd be like taking a sample of a person's life only during their annual birthday party and coming to the conclusion that this person is incredibly popular, because people are constantly saying supportive and congratulatory things about this person.”
He says that the second major flaw is more insidious -- the potential for unfair discrimination. “Some ‘social lenders’ analyze signals like proper spelling and grammar in social media posts, or mentions of high salary career paths, or checking in at fine restaurants, or mentions of top universities -- all of which are proxies for socio-economic factors that have been illegal to use in loan underwriting in the U.S. since the Equal Credit Opportunity Act and Fair Housing Act passed decades ago,” Lee says.
Because lending is a tightly regulated space, Lee says his company wanted to give all people fair access to credit without regard to race, gender, marital status or religion.
“We worry that the signal that comes out of social media may be correlated with those prohibited factors,” he says.
This is why Vouch uses its own internally-built “social” network rather than tapping into typical social media channels.
“You connect with different people and have different interactions on LinkedIn than on Facebook, because one is a professional network and the other is a friends and family network,” Lee says. “In an analogous way, you'll connect with different people and have a different set of interactions in the Vouch network than you would on any other social network, because Vouch is a financial trust network whereas other networks are about non-financial activities.”
Best Practices All Social Media Users Should Consider
Storch suggests that all social media users should conduct a profile review to ensure negative or contradictory posts and photos are removed.
“Regardless of who is checking your social media profile, users should check all social media outlets for posts that may be considered aggressive, racist or inappropriate,” she says. “Scan friends or family photos or posts where you are tagged.”
Remove tags on any negative or disparaging social posts. “Especially on posts that could potentially provide a negative image,” Storch adds. “And if you are very uncomfortable with the post or photo, ask the person to remove you from the image or post.”
Take your search one step further and conduct a Google search in order to identify any other areas where you may be mentioned online. “Even review sites such as Yelp may contain negative or unflattering reviews, especially if you own a business,” Storch says.