Online lender LendingClub has been accused by U.S. regulators of making misleading claims with regards to hidden fees as well charging borrowers after they had repaid their loans. In a complaint the U.S. Federal Trade Commission indicated that the conduct of the online lender constituted a violation of federal law which protects consumers from deceptive and unfair practices. Regulator pointed out that the company’s own compliance department had also flagged the conduct as problematic.
“Many consumers are forced to pay overdraft fees, while other consumers are unable to pay other bills because they do not have access to the money that defendant improperly withdrew,” said the Federal Trade Commission in the lawsuit which was filed in San Francisco, California.
Series of scandals
In response LendingClub expressed disappointment with the lawsuit filed by the Federal Trade Commission. The case is proving to be another setback not only for the online lender but also Scott Sanborn, the company’s chief executive officer. LendingClub was one hailed as an innovative financial institution which would disrupt the lending sector. The online lender went public four years ago and had at one time a market valuation of $10 billion. In recent years however the firm has been engulfed in a wave of scandals.
Two years ago the founder and the then-chief executive officer, Renaud Laplanche, was forced to resign after an internal probe was launched to investigate the botched sale of a loan. That same year LendingClub disclosed that there had been a falsification of information by employees and that there had been a failure on the part of Laplanche to reveal his interests with regards to a fund which the online lender was considering making an investment in.
No hidden fees
Per the Federal Trading Commission borrowers were promised ‘no hidden fees’ by LendingClub despite the fact that the online lender made deductions amounting to hundreds or in some cases thousands of dollars when giving out loans. Additionally loan applicants were told that their loans had been backed by investors even when the online lender was fully aware it wouldn’t lend to them. This is a practice that had an opportunity cost for the loan applicants since they were delayed in seeking the same services from elsewhere.
There were also cases where LendingClub withdrew double payments that had been made to the accounts of customers as it charged the customers who had repaid their loans. Consequently such customers ended up paying overdraft fees.