LendingClub, the Silicon Valley firm that blazed a trail in digital lending, has long contended that its online consumer loans do not carry hidden fees.

But that advertising claim is now under attack in a lawsuit filed Wednesday by the Federal Trade Commission. The suit tees up an unlikely fight between the Trump administration and one of the fintech sector’s best-known names over the reach of longstanding consumer protection rules.

In the lawsuit, the FTC alleges that LendingClub has been using deception to lure prospective borrowers, who are often surprised to be charged an origination fee that may be $1,000 or more.

“This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders,” Reilly Dolan, acting director of the FTC’s bureau of consumer protection, said in a press release.

“Stopping this kind of conduct will help consumers make informed choices about loan offers.”

The FTC’s lawsuit includes images from LendingClub’s website it cites as evidence that the company deceived borrowers.


In response, LendingClub said that the FTC’s allegations are unwarranted, both factually and legally.

“The company is disappointed that it was not possible to resolve this matter constructively with the agency’s current leadership and intends to oppose the claims and work towards an early resolution of the matter in federal court,” the San Francisco-based firm said in a press release.

The FTC’s lawsuit grew out of an investigation that began almost two years ago, amid an unrelated scandal at LendingClub that resulted in the departure of CEO Renaud Laplanche. Two months ago, the company stated in a regulatory filing that it was cooperating closely with the FTC’s staff.

LendingClub runs an online marketplace where borrowers, who are often looking to refinance credit card debt at a lower interest rate, get paired up with hedge funds, banks, individual savers or other investors. These investors earn interest from the loans, while LendingClub generates much of its revenue from the origination fees.

The FTC’s complaint alleges that LendingClub ignored warnings about its advertising practices from both its own compliance department and an unnamed investor.

A LendingClub webpage where loan applicants landed after filling out an application said “No hidden fees.” But elsewhere on the page was a green dot with a white question mark inside. If the applicant clicked on that dot, the origination fee was disclosed in a box that popped up.

The lawsuit cites an internal compliance review at LendingClub, which noted that the origination fee disclosure was not readily apparent unless the borrower clicked on the green dot.

“This omission could be perceived as deceptive as it is likely to mislead the consumer,” the company’s compliance review stated.

One customer who applied for $15,000 to cover relocation expenses was surprised to receive only $14,000, as a result of a $1,000 upfront fee, according to the lawsuit.

The complaint states that “I didn’t receive the full loan amount” was identified in the company’s training materials as one of two main complaints that customer service representatives should be prepared to address from customers who had received their loan proceeds.

The FTC’s lawsuit also alleges that at least 43,000 LendingClub applicants received emails suggesting that they had been approved for a loan, when in fact they had only cleared a preliminary hurdle and were subsequently rejected.

The emails stated: “Great news! Investors have backed your loan 100%. Your money is almost in your hands.”

In a separate allegation, the lawsuit contends that on numerous occasions, LendingClub withdrew money from consumers’ bank accounts without their permission or in amounts exceeding what was authorized.

The FTC is seeking preliminary injunctive relief, a permanent injunction against LendingClub, and an unspecified sum of money to redress the alleged injury to consumers.

LendingClub responded to the lawsuit with a blog post that provides a detailed rejoinder to the FTC.

The company notes that the “Rates and Fees” tab on its website explains its origination fee. The firm also pointed out that it uses a government-approved form that lays out exactly how much loans will cost.

“A borrower cannot receive a LendingClub loan without reviewing and acknowledging this disclosure,” the blog post stated.

LendingClub also said that the Consumer Financial Protection Bureau has registered fewer than 15 complaints about its origination fees in the last three years.

Regarding the emails that went to borrowers who were not yet fully approved, LendingClub said that they were sent in error for just 88 days in 2015.

The FTC's decision to file suit on Wednesday appears to have caught LendingClub by surprise.

A source familiar with the talks between the FTC and LendingClub argued that the agency may have been motivated to act quickly by the impending departure later this week of Commissioner Terrell McSweeny.

The FTC currently has just two members, and McSweeny’s departure could undermine the agency’s ability to conduct business, the source argued. President Trump’s four nominees to the FTC are currently pending before the Senate.

An FTC spokesman did not immediately respond to a request for comment.

McSweeny, a Democrat, and Republican acting Chair Maureen Ohlhausen both voted to approve the FTC’s lawsuit.

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