In 2001, I wrote a book aimed at credit union executives entitled Member Business Lending: The Next Frontier. The book provided a blueprint for credit unions to do what most had been unable to do for most of their history - make business loans to their members who owned small businesses. The book grew out of years of experience helping credit grantors create automated lending operations that required far less labor and time to process credit applications. In the 1990s I felt at times like a secular evangelist. I traveled around the country sharing the good news that my customer (usually a bank or credit union) could make faster, higher quality, higher volume, and more consistent credit decisions using the credit scoring algorithms we implemented for them than they could by doing things the old fashioned way, which relied on the subjective, sometimes moody discretion of a human loan officer. The ubiquity of credit scoring techniques today reflect the success of the pioneers of those days. In 2009, many of us know our own credit score and have perhaps complained at least once about the indignity of being reduced to a mere number.

And so I read with interest of research that may foretell a paradigm shift in the way we obtain loans. Can you imagine a day when the most important attribute on your credit application is your face? If research reported in The Economist bears fruit, that day may not be that far away.

Craniology, phrenology and eugenics, once-respectable fields of endeavour that are now regarded with a shudder, may shriek from time to time, but few sane people pay attention to them. One, however, has escaped recently, and is trying to rehabilitate itself. For years physiognomy—the idea that a person’s face is a reflection of his character—was sneered at. Now, it is making a come back.

Appearances certainly count. Women, for instance, judge men by their faces. Testosterone levels are reflected in the face, and who is seen as a one-night stand and who as a potential husband depends in part on this physical feature. Similarly, a male face betrays the owner’s underlying aggressiveness and even his business acumen. Facial beauty in either sex is also associated with higher incomes. The latest research, though, cuts to the moral quick. For Jefferson Duarte of Rice University in Houston, Texas, and his colleagues are suggesting that one of a person’s most telling moral features, his creditworthiness, can also be seen in his face.

....The team recruited 25 Mechanical Turk workers and asked them to assess pictures of potential borrowers that had been posted on Prosper.com. In particular, they were asked to rate, on a scale of one to five, how trustworthy these people looked, and to estimate the percentage probability that each individual would repay a $100 loan. They were also asked to make several other assessments, such as the individual’s sex, race, age, attractiveness and obesity. The 25 results for each photograph were then averaged and analysed.

The researchers looked at 6,821 loan applications, 733 of which were successful. Their first finding was that the assessments of trustworthiness, and of likelihood to repay a loan, that were made by Mechanical Turk workers did indeed correlate with potential borrowers’ credit ratings based on their credit history. That continued to be so when the other variables, from beauty to race to obesity, were controlled for statistically. Shifty physiognomy, it seems, is independent of these things.

That shiftiness was also recognised by those whose money was actually at stake. People flagged as untrustworthy by the Mechanical Turks were less likely than others to be offered a loan at all. To have the same chance of getting one as those deemed most trustworthy they were required to pay an interest rate that was, on average, 1.82 percentage points higher, even when the effects of historical creditworthiness were statistically eliminated.

For trustworthiness, then, physiognomy works. Unfortunately, Dr Duarte’s method was not designed to find out which features label someone as trustworthy. But credit-rating agencies are no doubt working on that question even now

.