On September 27, LendUp, an online payday lending company based in San Francisco, entered into a Consent Order with the Consumer Financial Protection Bureau and the California Department of Business Oversight over allegations that LendUp violated the Consumer Financial Protection Act and Regulation Z of the Truth In Lending Act by misleading consumers about the prospects of improving their credit through the company’s lending program.
LendUp offers single-payment loans and installment loans in 24 states. According to the CFPB’s Consent Order, Lendup marketed its loan program with claims that it would build consumers’ credit, build consumers’ credit scores, furnish information regularly to consumer reporting agencies, and offer consumers access to “more money at better rates for longer periods of time” than other options available to consumers. LendUp advertised its “LendUp Ladder” program whereby consumers could obtain financial stability by taking out its payday loans, repaying them on time, and completing financial education courses, which would allow them to take out additional payday or installment loans with more favorable terms.
The CFPB alleged that LendUp and its parent company, Flurish Inc., made false promises that consumers would be able to climb up the “LendUp ladder” and rebuild their credit by paying back loans they took out, which would qualify them for loans on better terms that would be reported to credit bureaus and consequently improve their credit scores.
Additionally, the CFPB alleged that LendUp failed to provide consumers with clear information about the annual percentage rates on loans and did not begin reporting borrowers’ information to consumer credit bureaus until at least February 2014. LendUp also failed to have written policies and procedures governing the accuracy of those reports until April 2015, according to the CFPB.
LendUp agreed to pay $3.63 million in the CFPB settlement, including $1.83 million in refunds and a $1.8 million civil money penalty, and $2.68 million to California, including $1.62 million in refunds.
As we wrote here, the CFPB and FTC have indicated that fintech companies should expect increased regulatory scrutiny and oversight and comply with federal consumer financial protection laws. As CFPB head Richard Cordray noted in the CFPB’s press release in the LendUp action, “[S]tart-ups are just like established companies in that they must treat consumers fairly and comply with the law.”