Following an inquiry that began in May 2016, the U.S. Federal Trade Commission (FTC) brought an action against LendingClub earlier today alleging that we do not comply with the requirements of the FTC and Gramm-Leach-Bliley Acts.
We do not agree and are very disappointed that it was not possible to resolve this matter constructively with the agency’s current leadership.
LendingClub is committed to delivering a superior customer experience and appreciates and supports the important role the FTC plays in encouraging appropriate standards and best practices. However, we believe that the allegations in the FTC’s complaint are legally and factually unwarranted. Additionally, several of them are based on matters and policies that we had already previously improved as part of the normal course of business. We fundamentally disagree with the FTC’s complaint that LendingClub does not properly disclose the origination fees it charges to borrowers.
In this forum we’d like to provide important facts missing from the FTC’s complaint.
Our disclosures are clear and transparent and are prominently disclosed throughout our website. For example, our “Rates and Fees” tab explains to borrowers exactly how their loan will work.
In addition, our origination fee disclosures are repeated throughout the loan application process. Importantly, we use a government-approved form called the Truth in Lending Act Disclosure, which allows borrowers to know exactly how much their loan will cost them. A borrower cannot receive a LendingClub loan without reviewing and acknowledging this disclosure.
We track all of our customer inquiries and complaints as part of our ongoing process of transparency and continuous improvement. The percentage of borrowers who complain about the origination fee is just a fraction of one percent. As we drive for more transparency, LendingClub voluntarily registered in the CFPB’s public Consumer Complaint Database in 2015. Since then, with more than two million borrowers served, the CFPB has registered fewer than 15 complaints about LendingClub’s origination fees.
The fact that there are so few customers who are confused in any way about the origination fee is corroborated by the sterling customer reviews and ratings the company has received. LendingClub would not be able to continue attracting as much repeat customer business as it does if we were deceiving customers about the existence of origination fees.
We’re proud of our transparency. We keep our loan terms simple by only offering long-term installment loans with fixed rates, fixed payments (never balloon payments), and no prepayment penalties. We also co-founded the Marketplace Lending Association to set a high bar for transparency and responsibility, including capping APRs on loans to all borrowers, just as Congress requires for military personnel.
The FTC claims that LendingClub sent emails to potential borrowers indicating that their loans were fully backed and “on the way” when the internal process of vetting and funding the loans was not, in fact, complete. The emails at issue were sent in error in 2015 for just 88 days before LendingClub discovered and proactively corrected the error.
LendingClub’s standard email (shown below), which the company has used since the latter half of 2015, makes it clear to loan applicants that their loans are contingent on “more steps” that have not yet been completed.
This message is not sent to consumer borrowers until LendingClub is certain that there is an investor prepared to fully fund the loan, subject to the remaining “steps” that are clearly and prominently disclosed.
The FTC claims that in “numerous instances” LendingClub has erroneously withdrawn money from consumer bank accounts. This simply is not true. We maintain safeguards to prevent erroneous ACH withdrawals. Our payment processing system automatically prevents withdrawals that exceed the loan outstanding balance. We even manually check all duplicate same-day withdrawals. Some overpayments have occurred in cases where customers have made redundant payments; for instance, sending a check when an ACH payment was already scheduled. From 2015 to 2017, LendingClub received fewer than three hundred complaints relating to double payments, post-payment withdrawals, or post-stop payment situations. During that time, we initiated 1.8 million loans and processed tens of millions of payments. We granted refunds where we made an error virtually every time. If a borrower had to pay additional costs, such as overdraft fees, LendingClub would typically reimburse those fees as well.
The FTC’s complaint alleges that LendingClub failed to deliver required privacy notices to consumers or obtain related acknowledgements from consumers. The complaint refers to a historical practice, which the company updated on its own initiative.
Since we launched in 2007, we have empowered millions of borrowers to take control of their financial lives. Borrowers have been using our platform to refinance high-cost credit cards into responsible lower-rate, long-term installment loans that allow them to pay down debt, rather than be trapped by it. We also pioneered an industry that has now served millions of Americans, including establishing LendingClub’s online platform for retail and institutional investors that provides more loan-level data transparency than any other in the nation.
Researchers at the Philadelphia and Chicago Federal Reserve Banks used LendingClub data in 2017 and 2018 papers that highlighted how the company offers better prices and is broadening financial services to underserved borrowers, especially in areas where traditional banks are pulling out.
Additionally, we are proud of the leadership role we played in creating the Small Business Borrowers’ Bill of Rights with the Aspen Institute and other leading nonprofits. We set the highest voluntary transparency standards for small business lending in the country. Our transparency includes clear disclosure of all upfront fees, including origination fees. We also disclose APRs upfront. As part of the effort, we also established a Responsible Business Lending Coalition made up of leading nonprofit lenders, such as Accion and Opportunity Fund, to help implement the Small Business Borrowers Bill of Rights and to also gain Congressional approval for a Truth in Lending Act type disclosure for small business borrowers.
Our commitment to outstanding consumer service is reflected in every available objective metric.
We don’t believe that the FTC’s allegations can be reconciled with our longstanding record of consumer satisfaction and we hope to resolve this litigation quickly. As one of the original fintech innovators, we understand and appreciate the importance of regulatory oversight as we use technology to improve consumers’ financial lives. A recent report to Congress by the Government Accountability Office outlined the regulatory challenges, but did note “the number of consumer complaints against fintech activities appears modest compared to traditional providers.” We look forward to resolving this FTC claim quickly as we continue to use technology to help Americans on their journey to financial health. As our CEO, Scott Sanborn outlined at a recent industry conference, this is too important a mission for us to fail at delivering on.
If any customers have questions, please email our customer support center at firstname.lastname@example.org.
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