Dive Brief:

• The Consumer Financial Protection Bureau (CFPB) fined home improvement loan facilitator GreenSky $2.5 million Monday and is requiring the fintech to refund or cancel up to $9 million in loans the company let its merchant partners take out on behalf of customers who said they didn’t request or authorize them.
• GreenSky received more than 6,000 complaints between 2014 and 2019 from customers who said they had not authorized submitting a loan application, according to the CFPB. The merchant was at fault in about 1,600 of the cases, the bureau’s investigators found. The lender worked with some borrowers to resolve issues, but in at least 2,800 instances, the complainant received neither a refund nor a write-off, the CFPB wrote in its consent order.
• Under the agreement, GreenSky must verify consumers’ identities and obtain evidence of a borrower’s authorization before activating loans or disbursing funds, the CFPB wrote. The company must also devote manpower to complaint management and follow clear timelines for dispute resolution. It took more than six months, in some 100 cases, for the fintech to resolve complaints, the bureau found. The consent order would force GreenSky to provide an account credit to borrowers within five days of receiving a complaint.

Dive Insight:

GreenSky lets its partner merchants use its software to collect financial information and submit auto-populated loan applications on behalf of customers. A borrower’s written confirmation is required before an application is submitted, but the CFPB found, in some cases, GreenSky did not review these documents until a complaint was filed, according to the consent order. The bureau ordered the fintech to exercise effective oversight of third-party merchant partners.

"GreenSky’s careless business and customer service practices enabled its merchants to take advantage of vulnerable consumers who needed financial help," the CFPB’s acting director, Dave Uejio, said in a press release Monday. "For consumers to wind up in debt to GreenSky for loans they never knew about is simply wrong. The CFPB will not stand for practices that allow conduct like this in the marketplace."

Under the agreement, GreenSky admitted no liability or wrongdoing. The company has "already implemented many of the protocols and business practices" the CFPB called for, Tim Kaliban, GreenSky’s president and chief risk officer, said in a statement. "The resolution of this matter also allows us to devote our full and undivided attention to growing and strengthening our business, which is built on a foundation of integrity and trust. We cooperated fully with the CFPB in connection with its inquiry and respect and value the important role it plays in regard to consumer protection."

GreenSky, before October 2019, allegedly allowed merchants to submit loan applications for up to two months before they would enter a mandatory training program, the CFPB found. The order will force the company to change its training rules.

The fintech's merchant risk unit also was more lax in reviewing loan applications its bigger partners submitted, the bureau found. The unit’s employees were instructed "to change their recommendations regarding merchant suspensions and terminations based on the volume of business a merchant generates," the CFPB found.

GreenSky counted nine banking partners shortly before October 2019. One bank, Regions, said that year it would not renew its funding relationship once it expired. The bank had initially wanted to build point-of-sale lending partnerships to see if it could stimulate customer base growth. But Regions CEO John Turner said the bank opted to focus more on direct relationships.

Around the end of the partnership, GreenSky’s chief administrative officer, Gerry Benjamin, told American Banker, "The only thing that we can conclude is Regions believes that they can redeploy these assets and generate a higher return on a risk-adjusted basis."

Regions reinforced its home improvement lending footprint last month, buying EnerBank in a $960 million deal.