The personal information friends share on social media websites is being used by a growing number of financial institutions to build credit profiles for potential borrowers, in addition to the official credit report. How that data can — or should — be used by lenders is still up for debate.
"Our view is there is a constant push by lenders to manage risk for their loans. They want more data to qualify the creditworthiness of the loan applicant," said Thomas Pryor, a spokesman for PersonalLoanOffers.com, a personal loan matching network based in Fort Lauderdale. "Our company policy is against it."
He said lenders are logging into Facebook, Twitter, Match.com and other social media websites to look for items that provide insight into a loan applicant's lifestyle and behavior. They also use such websites to verify any public information about an applicant.
Lending Club, a peer-to-peer lending network based in Redwood, Calif., routinely uses social media to gather data about loan applicants but says the information would be used to deny a loan only if it raises questions about an applicant's identity.
"We don't use social media to make credit decisions. We do sometimes review online data to verify identification or prevent fraud," said Scott Sanborn, chief operating officer at Lending Club.
PNC Financial Services does not review its customers' social media activities when reviewing loan applications, said spokesman Fred Solomon.
Lenders, in general, are cautious of denying loan applications based on what they discover on social media websites because they run the risk of violating the Equal Credit Opportunity Act, which requires lenders to tell borrowers why they have been denied credit.
"The rule requires lenders disclose the top four primary reasons the loan was not approved. If social media is in there, it would be listed," said Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association in Washington, D.C.
Feddis said banks are required to monitor social media for complaints about the institution itself. If a bank representative sees a tweet from a customer — such as one about a job loss — that raises eyebrows, he would probably inquire further.