FTC Files Complaint Against LendingClub

Today, LendingClub was hit by a complaint from the FTC which alleged multiple violations of federal law protecting consumers. There are four claims against the company and LendingClub has responded to each claim in this blog post also published today. Not surprisingly, LendingClub is disappointed in the FTC’s actions given they were not able to resolve the matter constructively without the action. Transparency is something that LendingClub has always prided itself so this action attacks the core of who they are as a company. They are also a co-founder of the Marketplace Lending Association a trade organization that promotes transparency and responsible growth of marketplace lending.

This Bloomberg article summarizes the claims, one being that LendingClub advertised “no hidden fees” while deducting up-front fees from loans. This claim relates to origination fees, which are common practice for many lenders, not just marketplace lenders. LendingClub also allegedly shared with prospective customers that investors had backed their loan even though the loans had not been approved. The article also shared that LendingClub withdrew double payments and also charged borrowers who had paid off their loans which resulted in overdraft fees.

A spokesperson from LendingClub shared with us this statement:

We support the important role that the FTC plays in encouraging appropriate standards and best practices. In this case, we believe the FTC is wrong, and are very disappointed that it was not possible to resolve this matter constructively with the agency’s current leadership. In our decade-plus history we have helped more than 2 million people access low cost credit and have co-founded two associations that raised the bar for transparency. The FTC’s allegations cannot be reconciled with this longstanding record of consumer satisfaction that’s reflected in every available objective metric.

In LendingClub’s blog post they outline where their fees are disclosed on their website as a borrower applies for the loan. The below screenshot is just one place where the origination fee is disclosed. It is also included other fee disclosures throughout the process and also the Truth in Lending Act Disclosure. According to LendingClub, complaints on origination fees from their borrowers are a fraction of one percent. The company also shared that there have been fewer than 15 complaints registered with the CFPB related to origination fees.

Regarding the claims about loans being fully backed, LendingClub shared that these statements were included in emails which were sent in error back in 2015. LendingClub subsequently resolved the issue once the error was discovered. These emails were sent for 88 days. LendingClub shared their standard email which states that a loan is 100% backed, provided they finish the remaining items required from LendingClub.

In response to ACH withdrawals LendingClub shared that there were less than 300 complaints related to double payments. The company has safeguards in place to prevent against this happening including the manual checking of duplicate same-day withdrawals. An instance where a double payment could occur is if a borrower had mailed in a payment while an ACH payment was already scheduled. LendingClub shared that they issued refunds where they made an error “virtually every time” and that they also typically reimbursed overdraft fees if a customer incurred a fee.

The fourth complaint related to privacy notices is something the company addressed back in late 2016. Before 2016, LendingClub included their privacy policy on the footer of many of their pages, but did not provide a separate link when a borrower agreed to the terms of use.

My Take

I should preface these statements by saying that I have had a long, close relationship with LendingClub. I have been an investor in the loans since 2009, an equity investor since their IPO in 2014 and LendingClub has been a sponsor of every LendIt conference since 2013. So, I am hardly impartial in this matter. Having said that I have also studied the company in depth over the past several years and I have a good handle on their operations particularly when it comes to their loan originations.

When I first read the claims I thought the “hidden fees” piece was a bit of a stretch. As described above LendingClub discloses these fees in many places. Today, I went back and watched the Lend Academy video that we published in January 2016 that walks through the entire loan application process step by step. I didn’t remember how prominent these “hidden fees” were and sure enough around the 3:30 mark you see this fee highlighted multiple times on the Truth in Lending Act form.

I am wondering if there is something else going on here. The fact that this was the cornerstone of the FTC case and there had been just a handful of complaints over millions of loan applications seemed a little strange to me. So, I did a little digging into the FTC. Here is how their structure is supposed to work as per their About Page:

The Commission is headed by five Commissioners, nominated by the President and confirmed by the Senate, each serving a seven-year term. No more than three Commissioners can be of the same political party. The President chooses one Commissioner to act as Chairman.

Currently there are only two commissioners. Not only that, but one of the commissioners is leaving on Friday, so there will be just one commissioner in the job starting next week. My understanding from people close to the FTC investigation of LendingClub was that it was going well and all parties were working in a cooperative fashion. This announcement appears to have came out of left field this week right as one of the commissioners was getting ready to leave.

Regardless of the motivations, this is the reality that LendingClub must deal with now. I think this action was unjustified and the argument that LendingClub is deceiving customers feels like a stretch to me. I am confident they will be vindicated once this claim is resolved.

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Homero Garza
Homero Garza
May. 11, 2018 6:13 am

Seems like Trump has a personal issue with them, maybe he applied for a loan and was denied.

Rose L
Rose L
Oct. 3, 2018 11:23 am

I get that you feel that this is unfair but Lending Club is a mess. I don’t know if it’s intentional fraud or if they are just disorganized and lacking in systems but as a borrower, I have had the absolute worst time with Lending Club. For one, they didn’t take the ACH payments out of my account even though I have a signed agreement for them to do so. They did not send me any 10 day notice as required by the agreement. They never sent me a single late notice. They stated that they “called” and were unable to reach me but they said it was to a number that they acknowledge I never gave them. They also acknowledged not even leaving a message. I never got a single late email. A single letter. I discovered on my credit report that there were late payments (all reported at the same time). I immediately called LC. They took the past payments (by ACH out of the same account) and took a payment the following month as well. However, 3 days after the payment, they reported a charge off to the credit bureau. They refuse to give me any proof that they received the payments after multiple calls and have refused to update my credit report. Basically, a perfectly good loan was charged-off. Other than my bank statements, there is no evidence that the loan was paid to date (and I am sure investors are not informed of these payments). Calls that I make to LC to resolve are not recorded in the system (but I have phone records to show the calls).

I believe that LC has a fiduciary duty to attempt at collecting on a loan before charging it off. They also have a responsibility to report accurately to the credit bureau. They have done neither.

Honore Dzisam
Honore Dzisam
Oct. 26, 2018 5:32 pm

Will never, ever, get a loan from them again. Tried to pay my loan off and they have been stalling to send the payment in. Can’t stand them.

Sheri
Sheri
Nov. 4, 2018 7:02 pm
Reply to  Honore Dzisam

Agreed, they are as about as low as can be.. BTW a supervisor is reviewing my account and getting back to me that’s almost 2 weeks ago.

JP Davis
JP Davis
Feb. 23, 2019 10:13 am

Lending Club made an ” unauthorized “ withdrawal from my checking account causing a tsunami of overdraft fees and have yet( after four months), paid us back or credited us for those “9” overdrafts they caused. Zero Sense of Urgency- All Talk/ No Action!in my opinion— “ STAY AWAY FROM LENDING CLUB!!!!

Kenneth Wagner
Kenneth Wagner
Mar. 4, 2019 6:50 am

I sent my payment via a bill payer service directly from my bank and it showed delivered on the 22nd
I called and all I got from the clown on the phone was we don’t have it. I had to stop payment on the account and overnight a check which the post office tried to deliver on the 2nd which was a saturday
bit could not access the facility These people are crooks

Trina Henderson
Trina Henderson
Apr. 16, 2019 4:54 pm
Reply to  Kenneth Wagner

OMG! This is happening to me right now. I am paying weekly but they are not posting my checks to my account. Now my amount is late. I just want to pay my bills.

Cindy Chavez
Cindy Chavez
Jun. 29, 2019 11:48 pm

I sent a nasty email after my account was debited 2 x in one month
I got some response that was bs
I can’t afford to pay this twice a month so I have cancelled my ach authorization and will mail a check,
Sorry but I can’t afford that to happen twice and I didn’t realize out of 550.00 136.00 went to the principal. I read the responses. Poppycock

LP
LP
Oct. 9, 2019 8:09 am

Going through being charged when an invoice that should not have been made after 2 weeks notice to change my paymnet due date. Took until now for me to learn that they have set dates that you can change your payment date in which for me it never lands close to my payday week. Travis in cs and sarina in payment review have nasty attitudes, impatient, dont comprehend and sarina has a smart mouth. Sent an unauthorized payment through and then blame me the customer. Im waiting for their review to see its their error. Sad that we pay for our simple mistakes, but they dont. I actually like the company and all fees were laid out to me. I prefer to pay manually and they could use reps with kind personalities who enjoy helping others. I pay the difference of the interest when needing to change my due date. You dont have to, but i like to. That way it wont attach to the end of my loan. Im just disappointed in the reps lately, how they treat you as if you are doing something wrong by calling them and asking if they can help.

Joanne
Joanne
Jan. 20, 2020 7:22 pm

They are currently trying to attach another payment to a satisfied loan for me and also while reviewing how they credited my account although I paid same time monthly for term of loan as confirmed by my bank account I see months were NO payment was credited and other months that DOUBLE payment were posted I’m not sure how they are still in business I am currently seaking legal advise and recommend others do the same .

Angry and disabled
Angry and disabled
Feb. 13, 2020 9:14 am

Lendingclub is very discriminating towards Dsabled people who apply for a loan they always get turned down even when they have good credit and can afford making the payments

Jennifer Kay
Jennifer Kay
Sep. 8, 2020 4:47 pm

I called to cancel my loan application less than 24 hours after I applied and was advised that it was cancelled. A week later, I see the funds were in my account. I called again and was told there weren’t any notes on my account and the call would be reviewed. I was told to call back a week later. I did so and was put on hold 3 times and hung up on 3 times. On the 4th attempt, I was transferred to someone who said they would escalate the issue and review the call. I was told this was done 3 weeks ago. I never agreed to this loan that is on my credit report and would very much like to return the money.