Social Media: A New Fair Lending Frontier
Raman, Anand S., Barloon, Joseph L., Welch, Darren M., Mortgage Banking
The growing use of social media by mortgage lenders carries its own set of fair lending risks.
Social media are a huge and growing part of American life. More than two-thirds of adults who go online use social media websites, such as Facebook'M and Twitter®. Not surprisingly, lenders are increasingly making use of social media as a tool for marketing, reputation management and enhancing customer service. * Information about a person's Web-surfing habits, online "friends" and other data points can be put to myriad uses, from the identification of individuals to receive solicitations for credit to the pricing and underwriting of loan applications. The potential lender uses of social media are limited only by the imagination and creativity of a lender's marketing professionals, underwriters and third-party vendors. * Legitimate uses of social media, however, come with fair lending risks.
* Lenders can obtain information from online social media "profiles," photos and affiliations about a borrower's race, ethnicity, marital status, sexual orientation or other status that may be a prohibited basis under federal and/or state fair lending laws.
* Social media contain a wealth of new data elements about individuals that carry fair lending risks, such as an individual's "friends" or other associations.
* Fair lending complaints about lenders can be shared instantly by disgruntled customers among a wide audience.
* Lender outreach to individual customers on social media websites provides new public visibility into the consistency of customer service, which can be a fair lending issue.
* Different levels of access to the Internet and social media - the so-called digital divide - could result in disparate impact in connection with services distributed through those outlets.
The purpose of this article is to raise awareness about the implications of the use of social media so that lenders can more effectively manage the associated fair lending risks.
There are other potential compliance risks associated with social media use, such as information privacy and compliance with the Fair Credit Reporting Act (FCRA) and laws governing consumer disclosures and advertising that are beyond the scope of this article.
This discussion will concentrate on the more common current uses of social media and reported demographics of users, and will delineate the fair lending risks inherent in each type of use.
Social media use and user demographics
Statistics published in New York-based Nielsen's Srare of the Media: The Social Media Report-Qj 2011 provide a good snapshot of social media usage in the United States and the demographics of users. Nearly 80 percent of active U.S. Internet users participate in social media networks and blogs.
Social media represents, by far, the single biggest component of time spent on the Internet - nearly triple the time spent on email. Facebook, which is the leading website as measured by time spent by users, had more than 140 million unique users in May 2011 (or 70 percent of active U.S. Internet users) who logged 53.5 billion minutes of use that month - more than four times the hours spent on Google(TM).
There are significant differences, however, in the manner in which different groups use social media.
Although these users span all ages of the U.S. population, the highest concentration among adults is found in the 18-34 age grouP> while those aged 65 or older constitute the lowest percentage.
While the level of detail on social media use by race, ethnicity or other demographic characteristics is not as robust as in the field of mortgage lending, studies suggest some salient differences. For example, Asian-Pacific Islanders are more likely to visit social networks and blogs than average Internet users, while African Americans are less likely than average Internet users to visit social networks and blogs.
Moreover, social media use varies with education and income levels - although, interestingly, increased social media use is correlated both with higher levels of education and with lower income. …