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Spring Labs Slashes Consumer Loan Fraud Using Novel Data Network

Anonymous information network among clean energy lenders demonstrates breakthrough potential for the broader financial services industry

By enabling market participants to share information without divulging competitive data, financial technology provider Spring Labs announced that its novel network between market participants has facilitated substantial reductions in a key fraud type in the consumer loan segment known as Property Assessed Clean Energy (PACE) loans.

By allowing a lender to learn from other lenders if they’re in the process of approving a loan to the same borrower—but with all sides maintaining strict confidentiality about their loan activity, and Spring Labs itself having no access to the underlying data—lenders on the Spring platform are able to stop a fraud known as lien stacking, which is where one borrower is simultaneously approved for loans from multiple lenders.

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“This is a great example of how technology is enabling the future of secure data exchange in financial services,” said Adam Jiwan, co-founder and CEO of Spring Labs. “By allowing market participants to share sensitive information securely and anonymously, our system enables otherwise competitive companies to work together to achieve common goals, such as reducing fraud.”

The residential PACE loan industry, which currently operates in CaliforniaFlorida, and Missouri, has funded over $6b of cumulative loans and an annual loan volume of $1b. PACE loans are used for clean energy upgrades such as solar panels and high-efficiency HVAC systems, and the loans are then repaid via property tax bills.

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The Spring Labs’ network technology is built on modern cryptography, which allows the visibility of information shared by network participants to be strictly controlled, and a permissioned blockchain, which provides a time-stamped, immutable record and audit trail to all network participants. This combination of data opacity and transaction transparency is a key to resolving the age-old problem of information sharing among competitors.

At scale, this type of anonymous information sharing network could significantly disrupt existing centralized data aggregation business models, which are found across the financial services industry.

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In a common PACE loan fraud scenario, a contractor submits a renovation project to multiple lenders simultaneously. Looking at historical property tax data, each lender might approve the project and release the funds to the contractor. The fraud is often only detected up to a year later, when the homeowner receives a tax bill with multiple PACE loans on it. Average project sizes are $25,000$35,000, with lenders typically absorbing the entire loss. Using the Spring network, the fraud is detected prior to funding.

Currently, lenders representing about 75% of industry funding volume are on the network. Based on its proven track record of fraud detection, other participants are currently completing the onboarding process, which will bring residential PACE industry participation to close to 100%.

The Spring network caught a fraud attempt within hours of beta launch in July and has detected fraud regularly since. “It is unfortunately quite common that a contractor will try to stack multiple assessments on the same property,” says Mark Schmidt, COO of PACE Funding. “Spring Labs is the only tool available that helps us detect this fraud in real time, making it a critical piece of our effort to both protect the property owner and enforce legal financing limits.”

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