The only thing stopping banks from putting your Facebook page into your credit file is the law. But even that line is growing blurrier.
One new bank says it will offer better rates to those with more Facebook friends.
"[It is about] trying to convert the value of your network," said Brett King, founder of the Internet-only MovenBank, which will open its virtual doors in July. MovenBank customers who have strong Facebook pages -- who have more friends and show frequent activity -- will qualify for better rates or offers, he said.
MovenBank's strategy is a new social take on an old practice, rewarding customers for bringing in new business. Likewise, customers at MovenBank will benefit when they help the bank find new customers via Facebook. "It's perfectly legal," King said.
The MovenBank promotion is about as far as banks are legally permitted to go with Facebook, for now. Consumer credit regulations, so far, have prevented banks from applying Facebook data in a meaningful way to lending or financial decision making.
The agency that oversees most banking rules, the Federal Deposit Insurance Corporation, would not comment on whether MovenBank's promotion crosses any lines. "As a general rule, we require all FDIC-supervised banks to comply with all applicable laws and regulations, whether using social media or more traditional channels," said FDIC spokesman David Barr.
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Banks of all shapes and sizes are hungrily eyeing Facebook because of the wealth of information it provides about customers -- data that could be used to assess lending risk or credit worthiness. With nearly 850 million reported users, Facebook is the single largest consumer database on earth. That point is not lost on financiers.
"I've spoken with many bankers who are interested in or evaluating the value of social media for credit evaluation," said data analytics expert Eric Lindeen of ZootWeb, a company that provides credit information to financial services companies. Banks face an additional challenge of not being able to crunch Facebook user data in a reliable way for credit scoring, he added. For now, that means big banks like Citibank are limited to "eavesdropping" on Facebook. But if consumers enable a customized app developed by a bank, then it could have access to a wider swath of Facebook data.
Citibank does not use Facebook to make any kind of individual financial decisions, like setting rates, but does listen to how customers talk about the bank, said Frank Eliason, director of Citibank's social media programs. "We view the space as one that is owned by the consumer and we are the invited guest."
Right now banks must follow regulations about what kind of information they use in lending decisions. Consumer protections under federal fair lending laws prohibit discrimination based on race, religion, sex, marital status, age or physical disabilities. In short, that covers a lot of what a person might put on a Facebook page. None of the big three credit reporting agencies include data from the social media site in the formula they use to create a FICO credit score.
"There are regulations in place that dictate what you can and cannot use to make a credit decision," said Jack Vonder Heide, an analyst who explores the use of technology for financial services. "But the whole area of social media is not really addressed in legislation because it's totally new."
For consumers, it can be difficult to understand what is considered public information on Facebook, whose changing policies are confusing at best. Facebook's communications manager, Michael Kirkland, said that users control the privacy of their pages. Any part of their Facebook posts that are password-protected should be available only to members of their designated friend network, he said. "Generally speaking when you enable an app, you have a variety of controls about what it can do and access."
But privacy can get murky when users enable third-party apps, like Citi's ThankYou Point Sharing App, which allows customers to pool rewards points, enabling a group of friends to share points to buy a single plane ticket.
In exchange for using the app, Facebook users agree to provide the bank access to public updates, birthday info and other data, even when they are not actively using the bank's app. Citibank's social media director said that the bank is treading very carefully to make sure customers see Citi app as a rewards program that is entirely an opt-in experience. "It's your personalization, not ours," Eliason said. "We want to make that as easy as possible. It's not our space."
Facebook's Kirkland said when users enable a third-party app they can adjust their privacy settings.
But there are potential risks that customers might not immediately think about. "Many people have friends who they do not even know or care about," said Jeffrey Crews, a content manager at 360 Quote, which runs several shopping comparison websites. "Yet, banks could see all of their information and would only be able to make judgments based on what the computer thinks."
MovenBank's King said that increasing privacy controls to the maximum -- or not using the social media site at all -- would hurt customers at his bank. "You would be less valuable to us if you moved off Facebook."
Already, other companies -- not banks -- have already been tapping Facebook, which can have a direct affect on individuals' financial lives. Insurance and hiring companies have already used Facebook to obtain information that traditional credit reports don't address, like risky behaviors involving drugs or violence.
Social Intelligence, a data analytics company, gathers information from Facebook and other social media sites for employers about job applicants and custom services for insurance companies trying to detect fraud. It does not, however, provide information to insurers making initial underwriting decisions. Social Intelligence's reports include information requested by an employer such as evidence of racially or sexually charged remarks and photos or references to drugs.
"Social media can be a powerful tool to assist in making better decisions but laws and regulations must be adhered to," said its CEO, Max Drucker.