Overview
On January 04, 2024, Cohen Milstein and co-counsel filed a third amended class action complaint in this consumer protection class action, alleging that GreenSky, a financial technology company, operates in California as an unlicensed and unregistered credit services organization, finance lender, and broker, and engages in such practices in violation of the California Financing Law (CFL) and Credit Services Act of 1984 (CSA).
Plaintiffs claim that GreenSky earns the bulk of its revenues by 1) charging a “merchant fee” on each loan – on average, 7% of the total loan amount, and 2) receiving “incentive payments” from bank partners – typically higher than the $50 or $75 fee allowed under the CFL.
Merchants pass on the cost of the merchant fees to consumer-borrowers through higher project costs, which in turn generates higher project costs, which in turn, entail increases in the overall amount consumer-borrowers borrow through GreenSky-program loans and, correspondingly, the dollar amount of the consumer-borrowers’ payments on those loans.
Cohen Milstein is Co-Lead Counsel in this putative class action.
Important Rulings
- July 11, 2023, the Ninth Circuit reversed and remanded the district court’s order granting GreenSky’s motion to compel arbitration.
- December 15, 2023, the district court denied in part Defendant’s motion for partial judgment on the pleadings.
Case Background
Broadly speaking, the CFL and CSA require lenders, brokers, and credit services organizations to be licensed, bonded, and registered with the California Department of Justice or Department of Business Oversight; prohibit misrepresentations and fraudulent and deceptive acts in connection with making and brokering loans; and provide remedies for consumers harmed by unlawful lending practices.
Both laws also limit the nature and amount of fees that lenders, brokers, and credit services organizations may charge consumers for lending, brokering, obtaining, or assisting consumers with obtaining loans, and require all fees associated with providing these services to be disclosed.
Plaintiffs claim that GreenSky operates in California as an unlicensed and unregistered credit services organization, finance lender, and broker, and engages in practices prohibited by the CFL and the CSA.
Specifically, Plaintiffs claim that GreenSky has built a multi-billion-dollar business partnering with a dozen lending institutions, including regional banks SunTrust (now Truist), Fifth Third, and BMO Harris, and over 17,000 merchants, including Home Depot and Roto-Rooter, to offer point-of-sale loans to consumers who wish to finance home improvement projects and repairs, solar-panel installation, and elective healthcare.
Merchants in GreenSky’s program connect their customers with GreenSky’s bank partners using GreenSky’s mobile app, which allows GreenSky to orchestrate the entire lending process, from application to funding, in a matter of minutes.
GreenSky earns the bulk of its revenues by charging a “merchant fee” on each loan, which is calculated as a percentage of the loan amount. The nature and amount of this fee is not disclosed to the consumer at any point in the lending process.
GreenSky collects, on average, 7% of the total loan amount as a merchant fee per loan.
Merchants pass on the cost of the merchant fees to consumer-borrowers through higher project costs. The higher project costs, in turn, entail increases in the overall amount consumer-borrowers borrow through GreenSky-program loans and, correspondingly, the dollar amount of the consumer-borrowers’ payments on those loans, since the loan payments are a function of the loan principal.
Plaintiffs claim that GreenSky’s receipt of the incentive payments, like the merchant fees, violates the CFL and the CSA.
Plaintiffs further claim that GreenSky also contracts with its bank partners, via loan origination agreements, to receive “incentive payments.” Consumers are not privy to these loan origination agreements, and that the fees that GreenSky collects are typically higher than the $50 or $75 fee allowed under the CFL.
Despite performing the services of a broker, credit services organization, and lender, GreenSky is not registered as a credit services organization, or licensed as a finance broker or lender, in California.
Instead, GreenSky attempts to pass itself off as merely a “loan servicer,” or “payment platform.”
In sum, despite what GreenSky says, and despite not being licensed to do so, GreenSky brokers and facilitates loans for consumers across the state, extending credit without being registered, and charging substantial undisclosed fees, in violation of the CFL, CSA, and consumer protection laws.
Case name: Belyea, et al. v. GreenSky, Inc., et al., Case No. 3:20-cv-01693-JSC, United States District Court for the Northern District of California