Shares of LendingClub Corp., once the Wall Street darling of online lenders, tumbled to a record low Wednesday after U.S. regulators accused it of misleading consumers with hidden fees and charging borrowers even when they paid off loans.
The Federal Trade Commission said in a complaint that LendingClub's conduct, at times flagged by its own compliance department as problematic, violated federal law protecting consumers from unfair and deceptive practices. The shares declined 15% to close at $2.77 on Wednesday; earlier in the day, they were down more than 17%. The stock has dropped nearly 33% this year, and it's down more than 80% from the initial public offering.
"Many consumers are forced to pay overdraft fees, while other consumers are unable to pay other bills because they do not have access to the money that defendant improperly withdrew," the FTC said in the lawsuit filed in San Francisco.
LendingClub, based in San Francisco, said it is "disappointed" with the FTC's lawsuit.
The case is a yet another setback for the company and its chief executive, Scott Sanborn. Once heralded as an innovative firm that would disrupt the lending industry, the venture sold shares to the public in 2014 and soon soared to a market valuation of more than $10 billion. But it has struggled with a series of scandals in recent years. In 2016, its founder and then-CEO, Renaud Laplanche, resigned amid an internal investigation into a botched loan sale.
Peer-to-peer or marketplace loan platforms such as LendingClub act as intermediaries, matching online borrowers with investors. In 2016, the company said that employees had falsified information on some loans and that Laplanche had failed to disclose his interests in a fund that LendingClub was considering investing in.
"In our decade-plus history we have helped more than 2 million people access low-cost credit and have co-founded two associations that raised the bar for transparency," the company said in a statement addressing the FTC case. The "allegations cannot be reconciled with this longstanding record of consumer satisfaction that's reflected in every available objective metric."
According to the FTC, LendingClub promised borrowers "no hidden fees" but deducted hundreds or thousands of dollars in hidden upfront fees from loans. The company also falsely told loan applicants that "investors have backed your loan" while knowing that many of them would never get a loan, a practice that delayed applicants from seeking loans elsewhere, according to the FTC.
In some cases, LendingClub also withdrew double payments from consumers' accounts and charged those who paid off their loans, costing consumers overdraft fees, the FTC said.
"This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders," said Reilly Dolan, acting director of the FTC's consumer protection unit. "Stopping this kind of conduct will help consumers make informed choices about loan offers."
1:20 p.m.: This article was updated with LendingClub shares' closing price.
11:15 a.m.: This article was updated throughout with additional details and background information, including comment from LendingClub.