Wednesday, November 10, 2010

Prying Bankers Think They Know You

A Wall Street Journal article New Ways Banks Are Spying on You lists the many new types of information that banks collect about their customers to make lending decisions. Banks look at rent, utility payments, estimated house value, and other information. One of the things they do with this information is estimate people’s income to check the income they claim on credit card and loan applications.

Setting aside the privacy concerns, what if you live a lifestyle that doesn’t match the banks’ models? Maybe you have an average income, but their analysis leads them to think you have a low income. A bank that trusts their software more than they trust their customers may reject your application because they think you lied.

As more of the intelligence in the business of banking gets coded into software, the people working in banking will become less likely to understand the limitations of this software. Despite the fact that I work in high-tech, I fear the day when the best answer you’ll get for why you were rejected for a loan is “the computer said no.”


  1. I fear the day when the best answer you’ll get for why you were rejected for a loan is “the computer said no.”

    Ha, that Little Britain sketch is hilarious.

  2. @Spy Hill: I hadn't seen Little Britain before, but they are funny. There are a few "computer says no" sketches, but the one most directly relevant to my post is

  3. Let's not forget that it works both ways - we can feed them the wrong information and have them take decisions in our own favour. I have a friend, an older gentleman, in US. He has a very good credit history. During the years of 4-5% ING savings account, he would accept 40-50,000$ off credit cards with introductory 0% rates, move the money to ING and make money off banks' cash. Of course, he would have reminders and never miss a payment, so the 0% would stay 0% for the whole year. And since his need for credit seemed so high but his credit was so good, banks were sending him more and more such introductory offers.

  4. When I got my mortgage, the mortgage guy at the bank said mortgage approval was mainly based on earnings, not wealth. I thought that was somewhat strange, since a large net worth would correlate with ability to pay.

    Also, it would seem to make sense that a large downpayment would help insure a borrower was serious about paying the mortgage, but as far as I could tell, that didn't factor into the mortgage equation either.

    Maybe income is just so much better at predicting ability to pay that banks largely discount other factors.

    Prying banks, like in the story you linked, could help a few people get loans when the bank finds out you have a paid off home or a large art collection, but it will disqualify others that are struggling. My comments are only somewhat related to this post, but the article reminded me of these issues.

  5. @Andi: I agree that there are ways of exploiting banks' marketing offers such as the way your friend did. But I don't think he fed them any incorrect information. He just took advantage of an offer the bank made that was designed by the bank to take advantage of its customers.

  6. "I fear the day when the best answer you’ll get for why you were rejected for a loan is “the computer said no.”

    I've had that happen to me already. My debt-service ratio was inadequate for the consolidation loan I wanted. In the end, it didn't matter since I managed to dig myself out of the hole anyway.

    When I was a new grad, the bank said no to a car loan over the phone, but when I returned to my hometown branch (same bank) where people knew me, there was no problem.

  7. @Melanie: I'm glad it worked out for you. At least you had some idea of why you were rejected at first. I wonder how many people have no idea why they were rejected. What would be worse is if the bank representative couldn't say why either.