Author Topic: FTC Files Complaint Against LC, Accuses of Deceptive Practices  (Read 8129 times)

Rob L

  • Hero Member
  • *****
  • Posts: 2043
    • View Profile
See:

https://www.bloomberg.com/news/articles/2018-04-25/ftc-files-complaint-against-lendingclub-over-hidden-fees-loans

Stock is now at $3.02, down $0.24 or about 7%. At its low so far earlier today, it reached $2.92.

Tomp

  • Newbie
  • *
  • Posts: 24
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #1 on: April 25, 2018, 12:53:36 PM »
Been saying these men are incompetent crooks since LC was at $25.....hmm why do think Larry just resigned from the Board.

Tomp

  • Newbie
  • *
  • Posts: 24
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #2 on: April 25, 2018, 01:05:47 PM »
https://www.ftc.gov/system/files/documents/cases/lending_club_complaint.pdf

This is really damning....I'm in this space and this stuff is compliance 101. Institutional Investors have been calling LC out on it (noted in the complaint). Can't even fathom how egregious their actions were.


Fred93

  • Hero Member
  • *****
  • Posts: 2143
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #4 on: April 25, 2018, 02:02:08 PM »
I've read the complaint.  I don't find it "damning" at all.  I find it typical bureaucratic regulatory hooha.

The primary issue is that FTC says that the loan application fee is "hidden".  In other words, LC isn't clear ENOUGH about it.  They do mention it several places, so it isn't completely hidden.  This is about whether it is obvious ENOUGH.

A few other issues thrown in...

Second issue is that FTC is claiming violation of privacy regulations, because LC didn't deliver the "privacy notice" to customers well enough.  FTC admits that you can click on something and read the privacy notice, but that isn't good enough because LC didn't stick it in the customer's face.  You know, I get these damn privacy notices now required by law from a zillion financial companies, and I've stopped reading them.  They do nothing to improve my privacy.  Therefore it is difficult for me to have sympathy with the FTC on this one.

Third issue is that LC has occasionally made accidental double withdrawals from some borrower's bank accounts.  We knew this, because we've heard people discuss this on this forum.  However, what is not clear is how often this has happened.  The FTC complaint doesn't say.  It says "numerous instances".  Well, that could mean that FTC received three or four complaints out of over 1.5 million loans.  We just don't know. 

Fourth issue is that FTC claims that LC's language is not clear enough about the status of the application as it proceeds, and some people thought their loan was approved when it was not yet approved, so were surprised later to find they didn't get the loan.  I know that some people were surprised, but I wonder if there is a specific regulation about how obvious or in-your-face the language needs to be.

In my prior experiences with regulators in general, and FTC in particular, I find many of their actions petty and idiotic.  In the past, in my opinion, the FTC has often undertaken massive campaigns that were extralegal, ie without statutory authority or regulatory process.  (In other words, there needs to be a law passed by congress, and regulations written and subject to public review, and printed in the Federal Register.  Often the FTC has acted without this authority.)   That said, they certainly do have clear legal authority on the privacy notice issue, although the issue that the customer had to click a link does make it seem somewhat petty.  The FTC has the authority to be petty.

You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

However, regulators have a big stick, so LC is in some serious legal trouble here, which will distract management and probably result in the payment of a substantial fine.  In addition, regulators have a "kick 'em while they're down" mentality, so expect extra scrutiny to be applied on all regulatory interfaces for the next year or two.

Some of these issues are clearly a failure of LC's compliance function.  I believe a lot of internal functions have gone downhill since Renaud left.  I see it in other areas.  Why should compliance be any different.  They don't have people who are on their toes any more.



Tomp

  • Newbie
  • *
  • Posts: 24
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #6 on: April 25, 2018, 02:11:14 PM »
I've read the complaint.  I don't find it "damning" at all.  I find it typical bureaucratic regulatory hooha.

The primary issue is that FTC says that the loan application fee is "hidden".  In other words, LC isn't clear ENOUGH about it.  They do mention it several places, so it isn't completely hidden.  This is about whether it is obvious ENOUGH.

A few other issues thrown in...

Second issue is that FTC is claiming violation of privacy regulations, because LC didn't deliver the "privacy notice" to customers well enough.  FTC admits that you can click on something and read the privacy notice, but that isn't good enough because LC didn't stick it in the customer's face.  You know, I get these damn privacy notices now required by law from a zillion financial companies, and I've stopped reading them.  They do nothing to improve my privacy.  Therefore it is difficult for me to have sympathy with the FTC on this one.

Third issue is that LC has occasionally made accidental double withdrawals from some borrower's bank accounts.  We knew this, because we've heard people discuss this on this forum.  However, what is not clear is how often this has happened.  The FTC complaint doesn't say.  It says "numerous instances".  Well, that could mean that FTC received three or four complaints out of over 1.5 million loans.  We just don't know. 

Fourth issue is that FTC claims that LC's language is not clear enough about the status of the application as it proceeds, and some people thought their loan was approved when it was not yet approved, so were surprised later to find they didn't get the loan.  I know that some people were surprised, but I wonder if there is a specific regulation about how obvious or in-your-face the language needs to be.

In my prior experiences with regulators in general, and FTC in particular, I find many of their actions petty and idiotic.  In the past, in my opinion, the FTC has often undertaken massive campaigns that were extralegal, ie without statutory authority or regulatory process.  (In other words, there needs to be a law passed by congress, and regulations written and subject to public review, and printed in the Federal Register.  Often the FTC has acted without this authority.)   That said, they certainly do have clear legal authority on the privacy notice issue, although the issue that the customer had to click a link does make it seem somewhat petty.  The FTC has the authority to be petty.

You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

However, regulators have a big stick, so LC is in some serious legal trouble here, which will distract management and probably result in the payment of a substantial fine.  In addition, regulators have a "kick 'em while they're down" mentality, so expect extra scrutiny to be applied on all regulatory interfaces for the next year or two.

Some of these issues are clearly a failure of LC's compliance function.  I believe a lot of internal functions have gone downhill since Renaud left.  I see it in other areas.  Why should compliance be any different.  They don't have people who are on their toes any more.

$25 to $2.92........all is well-my bad

jd

  • Jr. Member
  • **
  • Posts: 65
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #7 on: April 25, 2018, 02:32:09 PM »
Quote
$25 to $2.92........all is well-my bad

Does every stock that goes down equal crimes being committed?  Does every stock going up equal total compliance?


toben88

  • Newbie
  • *
  • Posts: 14
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #8 on: April 25, 2018, 04:52:23 PM »
I bought a tiny bit of stock at $7.00 thinking the company is going to turn around as the investing side was working for me.
At $5 I bought a little bit more thinking we are getting cheap.
When it went below $4 I bought a whole bunch thinking all the bad news is behind them and all they need to do is not have a major screw up, they would easily become profitable this year and the stock to go back up.  So much for that idea...




Rob L

  • Hero Member
  • *****
  • Posts: 2043
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #9 on: April 25, 2018, 05:50:25 PM »
You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

That was my first thought. Mentioned it to my wife so she'll vouch. Just my suspicious mind.

MoMoney

  • Newbie
  • *
  • Posts: 30
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #10 on: April 25, 2018, 06:22:12 PM »
I bought a tiny bit of stock at $7.00 thinking the company is going to turn around as the investing side was working for me.
At $5 I bought a little bit more thinking we are getting cheap.
When it went below $4 I bought a whole bunch thinking all the bad news is behind them and all they need to do is not have a major screw up, they would easily become profitable this year and the stock to go back up.  So much for that idea...

Value and price are two different things. Lending club's fundamental's have not changed, but their price has. I don't see the recent FTC development as a major risk and am happy with Lending club's response. Lending club is probably the most conservative company now after their CEO's ouster as far as making sure they are abiding by the books to the point that sometimes it interferes with their growth but I am very happy with the current price of shares and picked up a lot today. I would be happier the lower it goes. Excluding cash the company is valued lower than half a billion dollars. Much lower than prosper and other companies in the industry where it originates way more loans than those companies. Financials look really good. The company could easily be profitable if they wanted too. There is also going to be major consolidation this year in fintech according to industry experts. A lot of banks are also interested in entering this space. They would much rater pick up a stablished company that's industry leader than start over. That's actually my biggest worry for lending club. I'm worried that they will be at the risk of a take over this cheap, and never realize their full valuation. But at this price, there is not much downside risk but a lot of upside risk.

Rob L

  • Hero Member
  • *****
  • Posts: 2043
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #11 on: April 25, 2018, 06:49:08 PM »
Conflicting claims?
Guess consumers don't bother with the CFPB.

From the FTC:
"33. In fact, many consumers who apply for a loan from Defendant do not know that
Defendant will deduct an up-front fee from their loan proceeds. Indeed, consumers frequently
complain that they only discovered the fee after Defendant disbursed their loan proceeds, when
they noticed that the amounts disbursed were smaller than they were expecting. At least tens of
thousands of consumers contacted Defendant after their loan proceeds were disbursed to ask
about the up-front fee or to ask why they did not receive the full loan amount.
"

From LC's rebuttal:

We track all of our customer inquiries and complaints as part of our ongoing process of transparency and continuous improvement. The percentage of borrowers who complain about the origination fee is just a fraction of one percent. As we drive for more transparency, LendingClub voluntarily registered in the CFPB’s public Consumer Complaint Database in 2015. Since then, with more than two million borrowers served, the CFPB has registered fewer than 15 complaints about LendingClub’s origination fees.

Tomp

  • Newbie
  • *
  • Posts: 24
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #12 on: April 26, 2018, 01:27:33 AM »
You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

That was my first thought. Mentioned it to my wife so she'll vouch. Just my suspicious mind.

Entirely possible....also possible that LC's "studies" which they touted in their response were likely due to connections of Larry Summers. So...alls fair, live by the sword/die by the sword. Hard to believe that this was "sudden" and Larry didn't know it was going done when he left the Board only 3 weeks ago. It is completely f*cked up that FTC currently only has 2 of the five directors positions filled and I guess one is leaving. Tough to deal with a gutted government, MAGA and whatnot.

Fred93

  • Hero Member
  • *****
  • Posts: 2143
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #13 on: April 26, 2018, 04:56:21 AM »
Conflicting claims?

The claims look completely consistent (ie not conflicting) to me.  It appears that each side is simply choosing which statistic to tout, to make a statement that sounds the best for their side.

Quote
From the FTC:
"33. In fact, many consumers who apply for a loan from Defendant do not know that
Defendant will deduct an up-front fee from their loan proceeds. Indeed, consumers frequently
complain that they only discovered the fee after Defendant disbursed their loan proceeds, when
they noticed that the amounts disbursed were smaller than they were expecting. At least tens of
thousands of consumers contacted Defendant after their loan proceeds were disbursed to ask
about the up-front fee or to ask why they did not receive the full loan amount.
"

When I first read that I thought it was strange that FTC was quoting the number people contacted LC to ask about the fee, rather than the number of people who contacted CFPB/FTC/etc.  I also thought it was strange to that FTC quoted the number of complaints, rather than the fraction of customers who complained.  Obviously its the fraction that matters.

10,000 people asking divided by 2,000,000 loans = 0.5% which seems like a small number.  Obviously when you're writing a complaint (which is like writing a press release) and trying to make every part of it sound big and bold you wouldn't want to use a number like one half of one percent, because that just doesn't sound big and bold, where as "tens of thousands" (whatever that means exactly) does sound big. 

By the way, technically, "tens of thousands" could mean anything from 10,000 to 99,999, but I believe the number is nearer the low end for the simple reason that if there had been say 75,000 complaints, the FTC would have touted that number, because it sounds bigger and bolder than "tens of thousands".  If "tens of thousands" is the boldest statement the complaint-writers (functionally similar to prosecuting attorneys) could come up with, chances are that the actual number was something like 10,001.

Quote
From LC's rebuttal:
We track all of our customer inquiries and complaints as part of our ongoing process of transparency and continuous improvement. The percentage of borrowers who complain about the origination fee is just a fraction of one percent.

LC's "a fraction of one percent" statement above is perfectly consistent with the calculation I did above from FTC's number.


Quote
with more than two million borrowers served, the CFPB has registered fewer than 15 complaints about LendingClub’s origination fees.

Interesting number to know, and pretty damning for the CFPB/FTC.  The FTC touted as a major problem transparency of this fee based on their receipt of "fewer than 15" complaints out of 2 million loans?  The FTC people behind this should lose their jobs.

« Last Edit: April 26, 2018, 05:09:12 AM by Fred93 »

Rob L

  • Hero Member
  • *****
  • Posts: 2043
    • View Profile
Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #14 on: April 27, 2018, 05:20:19 PM »
FWIW LC closed at an all time low today of $2.70 (-5.6%) on modest volume.
The low print of the day was $2.68, the high $2.93.
If there was any important news I missed it. Just the usual law firms soliciting shareholders with large losses to join a suit.
Sure wonder if Mr. Chen is a buyer here? IIRC his last average price was around $3.50. He started buying at $3.14 and stopped at $3.80.
Maybe we will find out Monday.