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.
Author