Californian Spring Labs has launched its network targeting the Property Assessed Clean Energy (PACE) loans industry. The initiative significantly reduces fraud in this loan segment while maintaining confidentiality.
PACE loans are part of a government-supported mechanism to finance energy efficiency and renewable energy improvements in private property, such as solar panel installations. The loans allow property owners to finance the up-front cost of an improvement and repay it through property tax bills. The model is unusual because the debt is connected to the property and not the individual. That means it can be gamed because contractors often make the loan applications and receive the money to fund their work.
The PACE loan industry currently operates in California, Florida, and Missouri and has funded over $6 billion of cumulative loans, with an annual loan volume of $1 billion.
A common PACE loan fraud known as lien stacking occurs when a borrower, often a contractor, submits a request for funding to multiple lenders. This fraud is usually only detected up to a year later when homeowners receive property tax bills with multiple loan repayments. Lenders often cover the loss associated with PACE loan fraud, which costs on average between $25,000 to $35,000.
Spring Labs’ network addresses this issue by enabling lenders to know if other lenders are in the process of approving a loan for the same borrower.
The network runs a permissioned blockchain and cryptography is used to strictly controls the visibility of information.
The network had its beta launch in July and within hours, it caught a fraud attempt and has been detecting scams ever since, according to one of the finance firms, PACE Funding. Currently, lenders representing 75% of PACE loans funding volume are already on the Spring Labs network. However, there aren’t a huge number of PACE lenders, just five in California.
“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.”
Spring Labs was awarded the contract to develop the PACE financing blockchain platform over a year ago. Furthermore, the startup raised $23 million in funding from, among others, GreatPoint Ventures and General Motors.