Can big data really help underwrite a better loan? Silicon Valley start-ups like LendUp, ZestFinance Inc. and Think Finance Inc. think so – they claim that by looking at everything from an applicant’s number of Facebook friends, bill paying habits and the amount of time they spent completing a loan application, they can spot a good borrower without relying on information from conventional credit sources.
The National Consumer Law Center, however, begs to differ. In a new report on the loan products these companies offer, the consumer group found that big data just doesn’t make a difference when it comes to creating loan products.
“The big-data algorithms do not appear to lead to the development of better loan products,” Persis Yu, an attorney for the center and author of the report.
The report also notes that the big data loans have extremely high annual interest rates, 134 percent to 749 percent, that they do not offer a significantly better product than a traditional payday loan.
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