Excerpt
The FTC sued LendingClub and found the company liable for deducting hidden up-front fees from loans and failing to provide consumers with clear and conspicuous privacy notices. Despite claiming "no hidden fees," LendingClub was found to have charged borrowers hundreds or even thousands of dollars in undisclosed fees.
Our analysis
In April 2018, the FTC sued LendingClub for violating several laws and using deceptive patterns to deceive loan applicants. LendingClub falsely promised borrowers that they would receive a specific loan amount with "no hidden fees," but in reality, the company deducted hundreds or even thousands of dollars in hidden up-front fees from the loans. LendingClub also misled consumers by approving loans that were not actually approved and taking money from consumers' bank accounts without authorization. Despite warnings from its own compliance department, LendingClub continued to use dark patterns and conceal the up-front fee that was likely to mislead consumers. This conduct violated Section 5(a) of the FTC Act, which prohibits deceptive acts or practices that misrepresent or omit material facts. Additionally, LendingClub's actions were deemed unfair under Section 5 of the FTC Act because they caused substantial injury to consumers that they could not reasonably avoid themselves and were not outweighed by any benefits. Moreover, LendingClub failed to provide consumers with clear and conspicuous privacy notices as required by both the Privacy Rule and Reg. P. Both the initial and annual privacy notices must be accurate and reflect the financial institution's privacy policies and practices.
Outcome
LendingClub Corporation has settled charges with the Federal Trade Commission, agreeing to pay $18 million and adhere to new guidelines. The settlement requires LendingClub to make clear and conspicuous disclosures about any fees charged upfront, as well as the total amount of funds borrowers will receive. Additionally, the settlement prohibits LendingClub from making false or misleading statements to loan applicants.
Parties
Federal Trade Commission and Lending Club Corporation
Case number
Case 3:18-cv-02454
Decision
Related deceptive patterns
Hidden costs involve obscuring or omitting additional fees, charges, or costs until the user is well into the purchasing or sign-up process. By that point, the user has already invested time and effort into the transaction and is more likely to proceed despite the unexpected costs.
Sneaking involves intentionally withholding or obscuring information that is relevant to the user (e.g. additional costs or unwanted consequences), often in order to manipulate them into taking an action they would not otherwise choose.
Related laws
Prohibits deceptive acts or practices that misrepresent or omit material facts.
Requires financial institutions to notify customers about privacy policies, sets conditions for disclosing information to third parties, and provides opt-out rights to customers.
Requires financial institutions to protect the confidentiality and security of customers' personal information.
Requires financial institutions to provide privacy notices to customers and to safeguard nonpublic personal information.
Requires financial institutions to disclose to customers their privacy notices explaining how their personal information is collected, shared, and protected.