Alert: FTC v. Lending Club

Despite the winds of deregulation blowing in Washington, DC, on April 25th the Federal Trade Commission  (FTC) filed suit against the nation’s largest online lender (Lending Club) for allegedly engaging in deceptive practices.

Specifically the FTC cited four areas of concern:  First, the FTC claimed that the online lender prominently stated that it charged “No Hidden Fees” but the origination fee was not disclosed unless the prospective borrower clicked on a small question mark that further explained the annual percentage rate applicable to the loan.  Second, the FTC alleges that borrowers who were told that they were approved for a loan, were subsequently denied the loan which was misleading and unfair.  Third, the FTC claims that unauthorized amounts were withdrawn from deposit accounts such as when loans had been already paid off.  Fourth, the FTC states that the required privacy policy was not delivered in the required manner, it being only a hyperlink on the website terms of use.  The suit, filed in federal court in California seeks customer redress and injunctive relief.  The online lender has denied the allegations and has indicated that some operational issues were corrected upon detection and that in other instances processes have changed.

The online lender issued a press release contesting the allegations made by the FTC as “legally and factually unwarranted.”  See here.  It further explains in a detailed blog post its side of the story and its approach to consumer disclosure at issue in the FTC’s complaint.

This action is a significant development for online lenders at a time when the other federal agency with primary responsibility for consumer financial protection, the CFPB, has seen a change in leadership and significantly curtailed its enforcement activities pending reviews of its policies and procedures.  It is notable that the FTC took action with only two commissioners available to vote on moving forward and it will be interesting to see whether this an isolated case involving a legacy investigation or whether it portends a more activist enforcement mode for the FTC under Trump administration-appointed leadership.  In the meantime, all online lenders would be wise to  evaluate the statements and disclosures made in their advertisements and on their websites to ensure that they are in compliance with applicable laws, especially laws prohibiting unfair and deceptive acts and practices such as the Federal Trade Commission Act and similar state laws.

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