FTC Charges LendingClub with Falsely Promising Consumers Loans with “No Hidden Fees”
LC Stock Drops More than 15% to Close at $2.77 Per Share on April 25, 2018
Kehoe Law Firm, P.C. is investigating securities claims on behalf of investors of LendingClub Corporation (NYSE:LC) and purchasers of LendingClub’s Member Payment Dependent Notes. The class action investigation focuses on whether LendingClub issued materially misleading business information to the investing public or engaged in other unlawful business practices.
Investors who purchased, or otherwise acquired, LC stock shares or LendingClub’s Member Payment Dependent Notes can speak privately about the securities class action investigation by contacting John A. Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected].
LendingClub’s Fee Claims and Amount Consumers Would Receive “Could be Perceived as Deceptive”
On April 25, 2018, the Federal Trade Commission announced that it charged the LendingClub Corporation, d/b/a Lending Club, with falsely promising consumers they would receive a loan with “no hidden fees,” when, in actuality, the company deducted hundreds or even thousands of dollars in hidden up-front fees from the loans.
The FTC’s complaint stated that Lending Club recognized that its hidden fee was a significant problem for consumers, and an internal review noted that its claims about the fee and the amount consumers would receive “could be perceived as deceptive as it is likely to mislead the consumer.” An attorney for one of the company’s largest investors also warned the company that the “relative obscurity” of the up-front fee in light of the company’s prominent “no hidden fees” representation could make the company a target for a law enforcement action.
According to the FTC, Lending Club ignored these and other warnings and, over time, made its deceptive “no hidden fees” claim even more prominent.
The FTC also alleges that Lending Club falsely told loan applicants that “Investors Have Backed Your Loan” while knowing that many of them would never get a loan, a practice that delayed applicants from seeking loans elsewhere. In addition, in numerous instances, Lending Club has withdrawn double payments from consumers’ accounts and has continued to charge those who cancelled automatic payments or paid off their loans, which costs consumers overdraft fees and prevents them from making other payments. In addition, Lending Club failed to get consumers’ acknowledgment of its information-sharing policy as required by law.
Lending Club is charged with violating the FTC Act and the Gramm-Leach-Bliley Act.
Prospective Borrowers Lured by Promises of “No Hidden Fees”
According to the LendingClub Corporation complaint:
[Lending Club] offers unsecured consumer loans through its website, www.lendingclub.com. Defendant advertises its loan offerings and handles consumer interactions during the life of the application and loan, including application processing, assessment of creditworthiness, and loan servicing, although the loans are formally issued by a bank.
[Lending Club] lures prospective borrowers by promising “no hidden fees,” but when the loan funds arrive in consumers’ bank accounts, they are hundreds or even thousands of dollars short of expectations due to a hidden up-front fee that Defendant deducts from consumers’ loan proceeds. [Lending Club] is persisting in this conduct despite warnings from its own compliance department that Defendant’s concealment of the up-front fee is “likely to mislead the consumer.” Defendant also has misled consumers about whether their loan applications have been approved, stringing consumers along by, for example, telling consumers, “Hooray! Investors Have Backed Your Loan” when Defendant knew many such consumers would never receive a loan. Based on these misrepresentations, consumers believed that Defendant’s funds were forthcoming, and did not apply for credit with Defendant’s competitors. And with numerous consumers who have received a loan, [Lending Club] has withdrawn double payments from consumers’ accounts and continued to charge consumers who cancelled automatic payments or even paid off their loans entirely, costing consumers overdraft fees and preventing them from making other payments.
In addition, [Lending Club] failed to provide consumers with clear and conspicuous privacy notices.
Up-Front Charge Information Hidden from Consumers
The FTC’s complaint alleges that consumers learned that what goes “straight into [their] account” is not the total represented during the online application process as the “Loan Amount.” Instead, what consumers received an amount reduced by hundreds or thousands of dollars. This, according to the FTC, is because Lending Club takes a hefty portion of the Loan Amount up front as an origination fee.
In response to consumer concerns about the undisclosed or inadequately disclosed up-front charge, Lending Club’s own quarterly complaint reviews have proposed “highlighting [the] origination fee.” According to one in-house compliance review, “The origination fee is disclosed on the offer page tooltip” – a small green-and-white hyperlinked question mark – “but is not readily apparent unless an applicant clicks on the tooltip. This omission could be perceived as deceptive as it is likely to mislead the consumer.”
One of Lending Club’s largest investors, according to the FTC’s complaint, warned the company that the fee “is not clear and conspicuous and could be subject to a UDAAP claim,” referring to an unfair or deceptive acts and practices claim. Additionally, the FTC says the investor’s legal counsel told Lending Club that despite the company’s prominent “no hidden fees” claim, “the documents we reviewed contain a large ($300 to $450) origination fee that only appears once” in “relative obscurity” – a practice the person said could result in law enforcement action.
The FTC alleges that Lending Club did not respond to the warnings. According to the complaint, “Rather than improving over time, [Lending Club’s] violations have become more egregious over the years,” with the company increasing the prominence of the “no hidden fees” claim and decreasing the already small, hyperlinked tooltip.
Allegedly, Lending Club told consumers, for example, “Great news! Investors have backed your loan 100%!,” when there were still additional obstacles for prospective borrowers, including a searching “back-end” credit review, consisting, among other things, of an additional credit inquiry, a phone call to the consumer, requests for additional documentation, and a detailed review of the consumer’s tax and bank records. Frequent back-end denials were issued, even to consumers who provided Lending Club with all the required documentation. As a result, the FTC alleges that borrowers who received the congratulatory messages, ultimately, were rejected, making Lending Club’s claims deceptive.
Lastly, in numerous instances, Lending Club, allegedly, made unauthorized withdrawals from consumers’ bank accounts by, for example, charging borrowers double payments in a single month, by continuing to make withdrawals from consumers who have paid off their loans, or by taking money from accounts when consumers have told Lending Club they want to pay by check or by a different account. Most consumers, according to the FTC, only learned of Lending Club’s unauthorized charges when they checked their bank statements or when they found out their accounts were overdrawn.
LendingClub Corporation Shareholders & Investors
If you purchased, or otherwise acquired, LendingClub Corporation securities and wish to discuss your potential legal rights or claims with an attorney, please contact John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected], complete the form above on the right or e-mail [email protected].