Online lending start-up LendUp, which touted itself as a better and more affordable alternative to traditional payday lenders, will pay $ 6.3 million in repayments and penalties after regulators uncover a widespread violation of rules in the company.
The California Department of Business Oversight, which oversees lenders doing business in California, and the Federal Consumer Financial Protection Bureau said Tuesday that LendUp was charging illegal fees, miscalculated interest rates, and failed to report information to the credit bureaus despite its promise to do so.
San Francisco-based LendUp will reimburse approximately $ 3.5 million – including $ 1.6 million to California customers – as well as fines and penalties to the Department of Business Oversight and the CFPB.
Regulatory action is a black eye on LendUp, which has established itself as a more reputable player in an industry known to take advantage of desperate and cash-strapped consumers. On its website, the company states that access to credit is a fundamental right and it promises “to make our products as easy to understand as possible”.
LendUp is backed by some of the biggest names in Silicon Valley, including venture capitalists Andreessen Horowitz and Kleiner Perkins Caufield & Byers, as well as GV, the venture capital arm of Google Inc. This summer it raised 47 , $ 5 million from GV and others to investors to roll out a credit card aimed at consumers with bad credit.
But regulators said the company, originally called Flurish, made several basic mistakes, such as not correctly calculating the interest rates disclosed to customers and advertising loans to clients. clients who lived in states where these loans were not available.
“LendUp has marketed itself as a user-friendly and tech-friendly alternative to traditional payday loans, but it hasn’t paid enough attention to consumer financial laws,” CFPB director Richard Cordray said in a statement. announcing the execution measure.
Regulators reviewed LendUp’s practices between 2012, the year the company was founded, and 2014. In a statement, chief executive Sasha Orloff said the company’s youth had played a role.
“These regulatory measures address legacy issues that mostly date back to our early days as a company, when we were a start-up startup with limited resources and only five employees,” Orloff said. “At that time, we didn’t have a fully-built compliance department. We should have.”
While a “go fast, make mistakes” philosophy is common in Silicon Valley, it is not viewed favorably by regulators. Cordray, in his statement, said youth is no excuse.
“Start-ups are like established businesses in that they must treat consumers fairly and comply with the law,” he said.
In addition to overcharging customers due to miscalculated interest and illegal charges, LendUp also misled borrowers about how the company’s loans could help improve their credit scores and lead to out-of-pocket loans. lower rates going forward, the CFPB said.
The regulator discovered that LendUp had promised to release information to the credit bureaus, but did not begin to do so until 2014, more than a year after the company started making loans.
Additionally, CFPB said LendUp’s ad was misleading, claiming that regular borrowers could get larger loans at lower rates. Between 2012 and 2015, the company made this request nationwide, although the low-rate loans were only available to customers in California.
LendUp has grown rapidly in recent years, issuing $ 22.3 million in loans in California last year, more than double the 2014 figure.
The company offers payday loans online – up to $ 250, paid off in one lump sum after up to a month – with rates of up to 600%, as well as larger loans of up to $ 500 that carry rates lower and are reimbursed additionally. some months.
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11:25 am: This article has been updated with additional details on allegations of misconduct by the company’s investors and regulators.
This article was originally published at 10 a.m.