How Easy Lending Can Lead to Fraud

Like most people, Quentella Livers, a 75-year-old widow from New Orleans, sometimes gets scammy solicitations in the mail. So when she received a statement in May 2023 from a financial technology company called Dividend Finance, informing her that a lien had been taken out on a property she owned, she threw the document away, figuring it was junk.

But the notices kept coming. Livers kept discarding them—until she got a letter from a man named Jason, another New Orleans homeowner. Jason had been receiving similar correspondence, and had checked property records to learn that another finance company called GoodLeap had taken out a lien on his own home, as well as one on Livers’. It wasn’t just them. Someone from a contractor called Deep South Renovations had allegedly taken out hundreds of thousands of dollars of loans from Dividend and GoodLeap on at least eight homes in the New Orleans area by impersonating the homeowners and using their properties as collateral, according to Jason, who is in touch with the homeowners.

This person, listed in two contracts as Samantha McGee, had taken advantage of the fact that GoodLeap and Dividend pay loans directly to the contractors performing home-improvement projects rather than to homeowners. McGee had used real people and home addresses but fake Social Security numbers and email addresses to secure the loans, Livers and Jason say. The perpetrator appears to have depended on GoodLeap and Dividend not running a title search on the homes to ensure that the Social Security numbers and identities on the loan application matched the ones on file, Jason says. Livers called both companies to try and get the lien released, a process that she says proved difficult. “When I talked to them, I said, ‘I don’t understand your company,’” Livers says. “You just give people loans without contacting them?”

Livers and Jason have since been contacted by the FBI about the case. (Jason is a pseudonym; he did not want his full name used in this article to protect himself from identity fraud, but shared with TIME the paperwork he received from GoodLeap.) The FBI declined to comment on the matter, but multiple homeowners who were victimized told TIME they had been contacted by the bureau. Deep South Renovations could not be reached for comment.

Dividend says that it investigated Livers’ concerns and took immediate action to terminate the loan and release the lien. “Unfortunately, fraud is a pervasive problem across all financial services categories in today’s digital age,” a company spokesperson said in a statement to TIME. GoodLeap says that the case was a “complex fraud scheme from sophisticated criminals,” and that it reported the fraud to the FBI and has been cooperating with the bureau in the investigation. “GoodLeap has experienced less than 0.05% of fraudulent transactions on our platform,” says Jesse Comart, a company spokesperson. “Protecting consumers from bad actors is our highest priority.”

Read More: The Rooftop Solar Industry Could Be on the Verge of Collapse.

GoodLeap and Dividend are two of a handful of companies in the financial technology (or fintech) industry that make it easier for consumers to borrow money for home-improvement projects, including the installation of solar panels. These companies, which include Solar Mosaic and Sunlight Financial (which filed for Chapter 11 bankruptcy in October 2023), make it relatively easy to take out a loan, often using iPhones and tablets to facilitate a same-day sale.

But some consumer advocates say there’s a downside to this quick lending process: the vetting skips important steps. “You have to make sure the person is who they say they are,” says Carla Sanchez-Adams, a senior attorney at the National Consumer Law Center who studies banking and payment systems. “A lot of fintechs are not great at this.”

Livers and Jason appear to have been victims of what’s called synthetic identity fraud. Many companies would have detected the scheme with a simple credit check, says Frank McKenna, co-founder and chief fraud strategist at Point Predictive, an anti-fraud AI company. A credit report should catch that the Social Security number listed on the application didn’t match the person’s actual Social Security number, according to McKenna. “There should have been a big red flag,” he says.

Dividend says that it requires in-person, multi-factor authorization to make loans. The company also says that a Social Security number inaccurately matched to a name would raise a red flag and add a hard stop that must be cleared before the loan is underwritten. This appears not to have happened in Livers’ case. GoodLeap says it has “several layers of fraud protection” and has added new ones to "stay ahead of evolving criminal activity." It says it reported the fraud to the Financial Crimes Division of the FBI.

Jason filed a complaint with the Consumer Financial Protection Bureau, and then received a letter from GoodLeap thanking him for bringing the circumstances to the company’s attention. He was not liable for any debt, the letter said. 

Jason also mailed other property owners in New Orleans who had a lien on their home from Goodleap but who didn’t have a permit for solar panels. For some of them, including Livers, the letter was how they discovered that someone had taken out money in their name. David Bryan was another of the homeowners who had a lien taken out on his property by Goodleap, which sent him a letter saying he owed $45,000. He is still baffled by the fact that GoodLeap issued the loan. “Any loan I’ve ever gotten, I’ve walked into the bank to have to sign,” Bryan says.

Traditionally, banks have made the majority of consumer loans. But after the Great Recession, banks tightened lending standards and new companies emerged to fill the gap. By 2023, 14% of personal loans were fintech-issued, according to the Federal Reserve Bank of New York.

Read More: Banks Aren't Doing Enough to Protect Customers From Scams.

While banks are subject to extensive monitoring by federal entities, fintech companies are not subject to much federal supervision or regulation. All they need to do is apply for and maintain a license to lend in a given state, says Chris Odinet, a law professor at the University of Iowa. There aren’t many criteria for obtaining a lending license, Odinet says. “There are so many non-banks and fintechs out there of various sizes that it is hard to have an inventory of the companies so that they can be monitored for whether they are engaging in unlawful practice,” Odinet says. “They don’t get caught until they’ve caused a bunch of harm.”

Legal experts and consumer advocates say a wide variety of fintech companies are skipping some important steps in the vetting process. Whistleblowers have told federal financial regulators that Cash App, a mobile payment platform, has “no effective procedure to establish the identity of its customers,” according to NBC News. 

Solar lenders have come under particular scrutiny for the way in which they approve applications. In March, Minnesota Attorney General Keith Ellison filed a complaint against Goodleap, Sunlight Financial, Solar Mosaic, and Dividend Solar Finance, alleging that the companies engaged in deceptive lending practices. The lawsuit focuses on companies that “specialize in consumer lending through a software application on a smartphone or tablet,” and alleges that they win customers by promising fast and easy approval and requiring minimal documentation. The complaint alleges that salespeople promise low interest rates and monthly payments while concealing a large upfront fee that is “secretly added” to a system’s price.

Neither Solar Mosaic nor Sunlight Financial returned requests for comment on the Minnesota lawsuit, which is proceeding in court. In a statement provided to TIME, Fifth Third, which owns Dividend, said that it believes the lawsuit’s allegations are “wrong” and that the company intends to "defend itself vigorously.” GoodLeap says that its disclosures follow all federal and state laws, including the Truth in Lending Act.

Some consumers who knowingly signed up for loans from these companies claim they were charged unexpected fees or faced undisclosed terms where loans ballooned. Others say the solar panels they received did not produce the promised amount of electricity. Still other consumers complain that solar financiers loaned money for panels that never worked.

One solar company, Pink Energy, signed up thousands of customers across 15 states, only to file for bankruptcy in late 2022. Seventeen attorneys general are investigating Pink Energy and the lenders with which it partnered, including Dividend, according to the annual report of Fifth Third, the bank that owns Dividend. The bank is “currently cooperating with investigations related to several civil investigative demands by a number of state attorneys general regarding the residential solar installation industry and lending practices of credit providers to this market, which includes Dividend Solar Finance, LLC,” according to the annual report.

GoodLeap, Solar Mosaic, and Sunlight Financial are all private companies, so it’s difficult to know how many loans they are making or the total value of those loans. But Fifth Third originated $251 million worth of solar loans in the first three months of 2024, according to the company.

The Consumer Financial Protection Bureau declined to comment for this story, but referred TIME to its consumer complaint database. Out of more than 5 million complaints, 162 named GoodLeap, 185 named Solar Mosaic, 74 named Sunlight Financial, and 3,717 named Fifth Third, the parent company of Dividend Solar Finance.

Correction appended, May 29: The original version of this story misstated the total amount of solar loans Fifth Third Bank originated in the first quarter of 2024. It was $251 million, not $3.8 billion.