Many things about LendUp’s marketing and advertising practices raised red flags to the CFPB—so many that LendUp became subject to the CFPB's first enforcement action against a marketplace lender. The CFPB ordered the company to provide $1.83 million in consumer restitution and pay a civil penalty of $1.8 million—a hard blow to the young business.
This enforcement action is proof that marketplace lenders are not immune to regulation and enforcement actions, despite their operation outside of traditional banking settings.
This LendUp case follows the heels of preliminary research done by the FTC and OCC to examine the industry’s promise and possible risks it presents to consumers. The FTC hosted a marketplace lending forum in June as part of their FinTech series, and the OCC released a white paper on FinTech and banking in the spring. The CFPB has now come in on the enforcement side of things to regulate marketplace lenders, a sign that regulatory agencies are ready to act on harmful and deceptive business practices in this industry.
Here are some lessons for marketplace lenders and other brands from this case:
- Be accurate about the geographic availability of your products. LendUp failed to disclose that their lower-priced loans were not available outside of California. Since marketplace lenders have a nationwide customer base for their online products and services, they need to disclose any and every product variance from state to state.
- Disclose your APR rates in all ad formats. APR rates are easy to plug into web pages, but the challenge of including them in banner and display ads is not an excuse to leave them out. LendUp included display ads on Facebook and in internet search results that had a slider a.k.a. carousel view, which had allowed consumers to view various loan amounts and repayment terms but did not disclose the APR as required by law. Marketers need to design these ads with disclosure inclusion at top of mind.
- Be explicit about conditional pricing policies. “There’s always a catch,” as the saying goes. LendUp borrowers received discounts on origination fees if they chose an earlier repayment date, but if borrowers later extended the repayment date, LendUp reversed those discounts. Because LendUp did not disclose this up front, many borrowers found this out only after the fact. The CFPB has made it clear that companies must disclose any conditions associated with any offers.
- Check your advertised finance charges for accuracy. For consumers who utilized services with additional fees, LendUp had failed to include these fees in their APR calculation, advertising it as less than it actually was. All fees need to be accounted for in advertised charges.
Disclosures are key for marketplace lenders as they continue to disrupt the consumer finance space. Innovation and regulation go hand in hand, and this is THE wake-up call for marketplace lenders to become aligned.