Would you take out a loan from the company you work for? Plenty of new lenders are betting that you might. But even if you wouldn’t, a new crop of lending products is bound to impact your privacy.
The National Consumer Law Center released a report recently called “Big Data: Big Disappointment for Scoring Consumer Credit Risk.” The report examines a new segment of the small loan industry that is looking to compete with payday lenders. Firms with names like LendUP and MySalaryLine are inventing new business models for short-term, emergency lending products. In a typical example, a consumer borrows $500 for two weeks, and the amount is deducted from subsequent pay checks. The interest rates are very high — ranging into triple digits — but proponents claim the loans don’t trap borrowers into repeat cycles the way payday loans do.
Other versions don’t use paychecks as loan payments, but use similar techniques to determine who gets their loans. What does this have to do with credit reports and your rights? These new lenders say they use Big Data to determine the creditworthiness of potential borrowers, and by Big Data they mean everything from Facebook posts to average salary in your ZIP code.