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Facebook’s new patent lets lenders reject a loan based on your friends’ credit scores—but don’t freak out

Facebook credit loan
AP Photo/Paul Sakuma
Don't rush to unfriend people yet.
  • Adam Epstein
By Adam Epstein

Entertainment reporter

Published This article is more than 2 years old.

Renowned personal-data-gatherer Facebook now has a new way of gathering more personal data of you and your friends. On Tuesday, the company secured a patent that would allow creditors to assess your creditworthiness based on the credit ratings of the people in your social network. 

Facebook applied for the patent in 2012 as SmartUpLegal. This is how the patent describes the invention:

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 through authorized nodes. 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.

The Federal Trade Commission prohibits creditors from discriminating against borrowers’ age, sex, race, color, religion, nationality, marital status, and other personal information. Creditors are supposed to be assessing things like expenses, debts, and credit history. Does using your friends’ financial history count as discrimination? What if most or all of your friends are the same race or religion?

Before anyone cries foul, it’s quite likely that Facebook never actually makes use of this patent. Major tech companies (Facebook and Google, specifically) secure patents for weird ideas all the time—that doesn’t mean they’ll ever be implemented. Facebook could decide to use just part of the patent, while disregarding the lending portion. Or it could just be a superfluous part of the patent bundle Facebook bought from Friendster that was never intended to be used.  Or the patent could be an asset to be sold on to someone else. Facebook declined to comment.

As Fortune noted, some new lending startups like Affirm already assess credit risk based on information gleaned from social media. In fact, social media could actually help people secure a loan who otherwise would be rejected based purely on financial information.

For now, the technology appears to be legal: Patrice Ficklin, head of the fair lending office at the US Consumer Financial Protection Bureau, told the New York Times in January that while they encourage innovation, they are “monitoring the emerging market closely.”

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