Fintech Upstart LendUp Fined by CFPB, California Regulator
Fintech upstart LendUp was fined by the Consumer Financial Protection Bureau and a California state regulator over widespread violations of payday- and installment-lending laws.
The San Francisco-based lender, which specializes in small-dollar loans to risky borrowers, agreed to pay $2.7 million in a settlement Tuesday with the California Department of Business Oversight. That was for what the state regulator said were illegal fees the company charged borrowers and for understating annual percentage rates on some loans as well as requiring borrowers to sign up for both payday and installment loans, in violation of lending laws.
The CFPB ordered LendUp to pay $3.6 million for failing to deliver the promised benefits of its products.
The regulator found the company didn’t give consumers the opportunity to build credit or access to cheaper loans, as it had claimed it would.
The California regulator found violations in its examinations of LendUp, which launched in 2012 with the official name Flurish Inc., for lending practices from 2012 to 2014.
The company said the regulatory actions “address legacy issues that mostly date back to our early days as a company, when we were a seed-stage startup with limited resources and as few as five employees.” The company added that it didn’t have “a fully built-out compliance department” at the time and should have had it. “We are a different company today,” it said.
LendUp didn’t admit wrongdoing in the California agreement and neither admitted nor denied wrongdoing in the CFPB settlement.
The CFPB findings call into question many elements of LendUp’s business model, which the company claimed would make its loans more beneficial to subprime borrowers. The regulator found the company misled consumers about receiving lower interest rates on additional loans they received from LendUp. LendUp also advertised its loans as credit-building opportunities but didn’t provide information about any loans to credit-reporting firms until at least February 2014.
LendUp is among the most well-funded fintech lenders, with backers that include GV, the venture-capital investment arm of Google’s parent company, Alphabet Inc. and Kleiner Perkins Caufield & Byers. Spokespeople for both investors declined to comment Tuesday.
LendUp has focused on extending payday loans that the company refers to as short-term or single-payment loans, mostly to borrowers who can’t get credit from banks. The loans, as of June, ranged from $100 to $500, with repayment periods of seven to 60 days and APRs that could exceed 600%. In many states, the company has touted its larger, longer-term installment loans on which rates run as high as 279%.
The settlement with the state regulator reveals that pricing was at times even more onerous. The company also charged borrowers fees to receive loans on the same day they were approved and to extend repayment periods on its payday loans to 30 days from 15 days, the California regulator said. The investigation also found that borrowers who wanted to get an installment loan had to get a payday loan, a violation of lending laws.
The settlements come as the installment-loan industry is booming. Several online installment lenders have emerged in recent years, fueled in part by a pending CFPB rule the companies expect will be a setback for payday loans. Consumer advocates have been warning about onerous terms for many installment loans, which they say result in high default rates.
Despite targeting borrowers with low credit scores, LendUp has quickly expanded and gained the attention of Silicon Valley investors. It recently raised $47.5 million in an equity fundraising to expand its credit-card business, which it first rolled out last year.
LendUp extended nearly 75,200 installment loans in California last year, up about 110% from a year prior, according to the California DBO. The amount lent out on these loans last year surpassed $22 million, up 225%.
Missed payments are also high. Some 29%, or 5,921, of the unsecured installment loans outstanding at the end of last year were 30 or more days past due, according to a report from the California DBO.
Source: WSJ
