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Social Networks Can’t Go Into Credit Decisions Under N.Y. Ban (1)

Nov. 25, 2019, 6:37 PMUpdated: Nov. 25, 2019, 10:13 PM

New York state is banning consumer reporting agencies and lenders from using a consumer’s social network to determine their creditworthiness, according to legislation signed by Gov. Andrew M. Cuomo (D).

Companies will be prohibited from using the credit scores of people in an individual’s social network as a variable in determining their credit score, according to the measure (S.2302/A.5294), signed Nov. 25.

The law, effective immediately, comes amid concerns from regulators and lawmakers over the increased use of individual’s social media interaction by lenders and consumer reporting agencies in determining whether they’re suitable to receive financial credit.

“Basing someone’s credit score on who they know is not only an invasion of privacy, it is a way for these agencies to unfairly target and penalize low-income New Yorkers,” Cuomo said in a news release. “This law will keep these unscrupulous agencies in check, end this unfair practice once and for all and help ensure New Yorkers receive more fair and accurate credit ratings.”

Fair Isaac Corp. (FICO), which creates credit scoring software, is moving to add a consumer’s social network as another variable in its more than 100 variable equation used to compute an individual’s credit score, according to the bill language.

In a statement, FICO said it “does not and has no plans to use social media data or social networking analysis in calculating FICO scores.” The company said, “social data does not meet FICO’s stringent scientific criteria for data sources used in credit risk scoring.”

Supporters of the use of data have said social media interactions can help fill in gaps in credit histories.

Agencies and lenders can’t collect, evaluate, report, or maintain a file of the borrower’s use of the internet, or internet viewing history as a factor to determine their creditworthiness, credit standing, or credit capacity, according to the legislation.

To contact the reporter on this story: Keshia Clukey in Albany, N.Y. at kclukey@bloomberglaw.com

To contact the editor: Seth Stern at sstern@bloomberglaw.com