On December 21, 2021, the CFPB announced that LendUp Loans, an online lender with heavy venture capital backing, has agreed to halt making any new loans and collecting on certain outstanding loans in order to resolve a September 2021 lawsuit. The lawsuit alleges that LendUp continued to engage in illegal and deceptive marketing despite a 2016 consent order.
This is not the first time LendUp has been subject to actions by the CFPB. The CFPB also sued LendUp in 2020 for alleged violations of the Military Lending Act.
The September 2021 lawsuit alleges that LendUp:
- Deceived consumers about the benefits of repeat borrowing: LendUp misrepresented the benefits of repeatedly borrowing from the company by advertising that borrowers who climbed the LendUp Ladder would gain access to larger loans at lower rates when, in fact, that was not true for tens of thousands of consumers.
- Violated the CFPB’s 2016 order: The CFPB’s 2016 order prohibits LendUp from misrepresenting the benefits of borrowing from the company. LendUp’s continued misrepresentations about the LendUp Ladder violate this order.
- Failed to provide timely and accurate adverse-action notices required by fair lending laws: Adverse-action notices inform consumers why they were denied credit. Timely and accurate notices are vital to maintain a transparent underwriting process and protect consumers against credit discrimination. LendUp failed to provide adverse-action notices within the 30 days required by the Equal Credit Opportunity Act (ECOA) for over 7,400 loan applicants. LendUp also issued over 71,800 adverse-action notices that failed to accurately describe the main reasons why LendUp denied the applications as required by ECOA and Regulation B.
The “LendUp Ladder” was a program offered by LendUp which promised consumers that repaying loans on time and taking free courses offered through its website would result in lower interest rates on future loans and access to larger loan amounts. The CFPB’s complaint alleges that tens of thousands of LendUp customers participated in the program, but still failed to qualify for larger loan amounts and continued to be offered similar, or higher, interest rates.
To resolve the allegations, the CFPB filed a proposed stipulated final judgment and order. If the order is entered by the court, LendUp will be prohibited from making new loans, collecting on outstanding loans to harmed consumers, selling consumer information, and making misrepresentations when providing loans or collecting debt.
There is also a $100,000 civil money penalty, based on LendUp’s demonstrated inability to pay.
This order should be especially interesting for those in the industry who have been exploring providing consumers with financial literacy services, or connections to debt relief assistance. While some may argue that merely providing consumers with information could not be viewed as harmful (and of course, this case is not one of providing the consumers with truthful information), it’s clear that the CFPB is paying close attention to anything that could be labeled as misinformation. Those in the ARM industry should ensure any information presented to consumers is clear, transparent, and actionable, and that there are adequate policies and procedures governing the presentation of that information.