GreenSky, the publicly traded financial technology company that made a name for itself providing hassle-free financing for home repairs and renovations, came under scrutiny recently in a lawsuit.
At the heart of the case is an Alabama homeowner Tiffany Baker, who was approved for GreenSky loans from a plumber working for plumbing company APSS. The cost of the work completed by APSS skyrocketed and was found to be in violation of state law and regulations. Other residents of Alabama had problems with the same plumbing company which was ultimately sued and shut down.
While GreenSky wasn’t named in the lawsuit, according to media reports, lawyers said there is evidence that some of the individuals who received GreenSky loans didn’t sign off on them or didn’t receive the interest rates APSS promised. When shuttering APSS in the fall, Alabama Judge Brian Howell ordered debt collection efforts on the GreenSky loans to be halted. In late March the receiver appointed by the Judge, Jeffery Schneider, concluded in a report that 188 GreenSky facilitated loans advertised by APSS in 2017 and 2018 were obtained improperly and as a result aren’t valid.
“GreenSky made plumbers with no banking training or experience its de facto loan officers,” Schneider wrote. “By making APSS and its employees its agent GreenSky became responsible for the wrongful acts.” The receiver noted in the report that GreenSky doesn’t have a license to issue loans in the state of Alabama and that it didn’t perform “meaningful” due diligence on APSS before making it a merchant partners. Greensky has said APSS was in business for thirty years when it signed it up and had a strong grade from the Better Business Bureau when it became a GreenSky merchant. In a court filing, it denied the receiver’s claims.
“Incredibly, without examining any supporting documentation, GreenSky approved credit limits above what was even requested on the application, resulting in what it called its ‘Shopping Pass’ program, where additional work by the plumbers could be done and ‘paid for’ through GreenSky,” the receiver wrote in the report. “The customers could not use this unnecessary and unrequested additional sum for other home improvements—they could only use it for work performed by APPS. Thus, the plumbers were further incentivized to recommend work that was not necessary.”
The lawsuit hasn’t been lost on investors, which sent the stock plummeting when news of the case broke. Shares have since recovered and are up nearly 20%. The company has more than 2.4 million customers and close to 16,000 active merchants offering customers loans. It has $17 billion of loans funded since its inception.
GreenSky isn’t the only fintech company to get in trouble with regulators. RobinHood, the mobile trading app, had to do an about-face last year, after it launched a high yield savings account that paid 3% interest, among the highest in the industry. RobinHood touted the full protection of the Securities Investor Protection Corporation, or SIPC, but had to retreat after the CEO of SIPC Stephen Harbeck said he had serious concerns about the product. Both are cautionary tales of what can go wrong even in the disruptive fintech space.