WASHINGTON The Consumer Financial Protection Bureau is ordering a health care financing subsidiary of Lending Club to refund borrowers of deferred-interest loans in a yet another sign of federal authorities continued interest in the marketplace lending arena.
The enforcement action against the Westborough, Mass.-based Springstone Financial appears to be the CFPBs first involving a company affiliated with a marketplace lender, although it dealt with alleged activities that primarily took place before the health care unit was acquired by Lending Club last year. (The San Francisco-based peer-to-peer lender renamed the unit Lending Club Patient Solutions.)
The bureau said borrowers were misled into thinking Springstones deferred-interest product offered at dental offices for dental work was interest free. In fact, interest would start accruing retroactive to a promotional period and be charged if the loan was not paid off by the end of that introductory period. Deferred interest was charged to roughly 3,200 consumers, the CFPB said. The agencys order calls for borrowers to get a total of $700,000 in refunds.
Deceiving patients in need of medical care into paying for services with risky credit adds insult to injury, CFPB Director Richard Cordray said in a press release. The Bureau will not tolerate financial companies or their providers taking advantage of distressed patients and their loved ones with misleading sales pitches.
In a press release, Lending Club said it terminated the product in question shortly after the April 2014 acquisition. The peer-to-peer lender said it is not liable for any of the settlement amount under indemnification clauses included in the purchase agreement.
The dental loans provided for the potential of interest being charged retroactively to the customer and as such was not up to the Lending Clubs standards of transparency, consumer friendliness and responsible lending, Renaud Laplanche, chief executive officer of Lending Club, said in a press release.
In an interview, Laplanche said the product has been replaced with one that makes clear that no interest is charged retroactive to the promotional period. With Springstones product, he said, It would be tricky for consumers because some might not understand that no interest is only conditional and some interest could be charged during the period. Its not the kind of product we like. We changed that into what we a call a true no-interest loan for six months or 12 months, and the length of the period is always in the headline.
The enforcement action comes as the focus on the marketplace lending industry continues to grow in Washington. The CFPB already has enforcement authority for marketplace lenders, and last month the Treasury Department released a public information request seeking more details about the sector.
Springstones health care financing program was conducted from January 2009 through December 2014. The CFPB said the agency found that health care providers trained and monitored by Springstone in the marketing of deferred-interest loans misled consumers about the terms.
In some cases, dental office staff told consumers that the deferred-interest product was a no-interest loan and failed to mention they would have to pay 22.98% interest on the loan if they didnt pay it off in full by the end of the promotional period, the agencys press release said.