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  Third, the FTC claims that unauthorized amounts were withdrawn from deposit accounts such as when loans had been already paid off.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.

News Flash: Colorado versus Fintech Update — Magistrate remands Avant

The Grinch came a few days early in Colorado.  A U.S. magistrate judge made a recommendation to the District Court to remand back to state court the pending action filed by the state of Colorado against a marketplace lender based on true lender issues.  The crux of the decision is that, since no bank was a party to the action, there is no basis to exercise federal subject matter jurisdiction.  Objections may be filed with respect to the recommendation and the U.S. District Court is not bound to follow the recommendation or could choose to modify it.  Banks making marketplace loans have filed actions in federal court in Colorado that remain pending.

OLPI believes how the judge framed this issue may be misguided and will fuel inflated concerns about marketplace lending business models.  While the crux of the decision is that an FDIC insured bank was not named in the action, the magistrate judge makes broad factual and legal observations related to a true lender analysis that does not have any real legal precedential value but will no-doubt precipitate a flood of articles from law firms and otherwise rile investor sentiment.  OLPI has already observed that investors in marketplace loans have already grown wary of Colorado loans –as such, the “broad observations” and other actions in the state of Colorado appear to be limiting credit to Colorado citizens from marketplace lenders.  This fact may play into and strengthen the WebBank and Cross River Bank actions that are currently pending in federal courts and discussed here.

The 2015 decision by the Second Circuit Court of Appeals in Madden v. Midland Funding, LLC precipitated uncertainty among financial services providers and the secondary market.  Many legal experts believed the decision cast doubt on and generally ignored the longstanding legal principle of “valid-when-made.”  That is, a loan or contract that was non-usurious when it was made remain non-usurious when it is subsequently transferred to another person.  In Madden, however, the decision found that the sale and assignment of a loan to a non-bank by a national bank did not necessarily transfer to the loan purchaser the right to charge interest at the rate allowed by the national bank and specified in the loan contract.  Critics of the decision (including President Obama’s US Solicitor General) claim the court’s conclusion is wrong and violates contractual principles of assignment as well as the long standing legal precedent that loans are “valid-when-made.” Read More

The State of Colorado is challenging the marketplace lending model.  On February 15, 2017,  the Administrator of the Uniform Consumer Credit Code for the State of Colorado (“Colorado”) sued Avant and Best Egg (in separate actions), claiming in both actions that they violated Colorado’s usury rate and entered into loan agreements containing a governing law provision other than Colorado.  Click here to see the Complaint against Avant and hereto the see the Complaint against Best Egg.  Colorado sued Avant and Best Egg, but did not sue their partner banks, WebBank and Cross River, respectively.  The Complaints allege that Avant and Best Egg are the true lenders. Read More

LendIt USA 2017Cornelius Hurley Executive Director, OLPI, Thomas J. Curry of the OCC and Gilles Gade, CEO and President of Cross River Bank — LendIt USA 2017 (photo by Gabe Palacio)

On March 6, 2017, OLPI hosted a day of Policy & Regulation panels at LendIt USA 2017. The panels were the most popular of the day — standing room only. The popularity of the panels and the Q&A with Comptroller Curry shows the hunger for a robust dialogue about the policy and regulatory issues that face fintech (and the need for OLPI). Below are videos of the programming.

Read More

OLPI Announces Formation and Appointment of Executive Director Boston University Professor Cornelius K. Hurley to Serve as Executive Director

cropped-cropped-winning-logo1.jpgWashington, DC—February 9, 2017—The Online Lending Policy Institute (OLPI) today announced its formation and the appointment of its first Executive Director, Professor Cornelius K. Hurley. OLPI will provide a one-stop resource for those interested in FinTech generally and marketplace lending specifically.  It will provide research and education to ensure informed policy and best practices.

“The formation of the Institute represents a milestone in the maturation of this rapidly advancing industry. We are committed to bringing a new and balanced voice to help address issues and communicate with regulators and the policy establishment,” said Professor Hurley.

Read More

During OLPI’s MPL Policy Summit this past September, Comptroller Curry spoke about the importance of the MPL Policy Summit and OLPI in promoting the continued conversation about the importance of responsible innovation.   Among other things, he asked various questions about whether existing laws were adequate in addressing and promoting responsible innovation.  He asked if the innovations seen in marketplace lending should be regulated, who should be responsible for regulating an organization or activity.  This is where he spoke of the possibility of a federal license or charger for marketplace lenders and fintech firms.

Read More

 

LendIt USA 2017

The World’s Biggest Show in Lending & Fintech

March 6-7, Jacob Javits Center, New York

OLPI will host the Policy and Regulation track.

LendIt USA 2017 is the largest annual gathering of the Lending and Fintech industry. The LendIt USA community is comprised of thousands of lending and fintech companies, investors, banks, services providers, educators, government officials, and journalists from around the world. Read More

Last year, OLPI hosted the first annual MPL Policy Summit.  This Summit was the first of its kind for the marketplace lending industry.  It brought together policymakers, academics, regulators, consumer advocates, and industry participants, as well as media figures, to have a well-informed discussion about the best ways to grow this industry in a fair and compliant manner.

Read More