LendingClub FTC Litigation Update
Update as of July 14, 2021: LendingClub has entered into an agreement with the Federal Trade Commission (FTC) which, subject to court approval, will conclude the agency's previously disclosed investigation and litigation (the Settlement).
A little over a year ago the FTC filed a complaint against LendingClub. When the FTC complaint was filed last April, we described in a blog post the reasons the company denies the allegations. To be clear, we respect the FTC and its mission of promoting clarity and transparency for consumers. We too are passionate about making sure our customers have the information they need to make informed decisions to promote their financial health.
We reiterate our belief that LendingClub has not violated any law enforced by the FTC and our hope that we can resolve this matter in a mutually agreeable way. There has been a lot of activity behind the scenes since our blog post last year and we wanted to update our stakeholders on the process so far and the actions we have taken since the lawsuit was filed.
Status of the FTC Action
The litigation is currently proceeding through the discovery process, and both sides are exchanging relevant information. Although the litigation continues, LendingClub also remains open to pursuing a potential amicable resolution of the claims with the FTC. In addition, the Company has taken actions since the filing of the FTC’s lawsuit, including those discussed below, that we believe are in line with the FTC expectations.
Updates to LendingClub’s Website
Over the last year, one of the things we’ve done is expand and accelerate our long-standing practice of periodically reevaluating our marketing, advertising, and the loan application process to identify potential areas for improvement. This process has led us to make two changes that relate to the FTC’s allegations.
Removal of the “No Hidden Fees” Statement and Related Bandit Icon
First, immediately after the FTC filed its lawsuit in April of last year, we began removing the “No Hidden Fees” statement and the associated bandit icon from our marketing collateral and loan application flows. This process was completed shortly thereafter in May 2018. The FTC’s complaint alleges that prior use of this statement on LendingClub’s site was deceptive. We removed the “No Hidden Fees” statement and icon to eliminate any dispute about the use of the language and icon going forward.
Notably, this change had no discernible impact on borrower behavior or our business—loan applications did not decline, application completion rates did not decrease, and we did not observe any material impact on applicant or borrower complaint or inquiry rates.
Updates to the Loan Options Page
Second, LendingClub launched an updated version of the Loan Option page in the personal loan application flow at the end of February 2019, which shows both the origination fee and the amount of cash the borrower will receive at loan disbursement broken out from the total cost of the loan expressed as an APR.
Here is an example of how the updated page appears on an iPhone 7:
Among other things, these changes are in line with our clean, easy-to-read design ethos and facilitate a positive experience for prospective borrowers accessing the site using smartphones or tablets, as well as laptop and desktop computers, and they also address one of the issues on which the FTC is focused.
Borrower Satisfaction and Understanding of the Origination Fee
In addition to reevaluating our marketing, advertising, and the loan application process, we are continuing to monitor the available metrics of customer satisfaction and understanding of the terms of the loans available through our platform to assess whether there has been consumer misunderstanding or confusion regarding our platform.
We noted in our post when the lawsuit was filed that the “percentage of borrowers who complain about the origination fee is just a fraction of one percent.” This remains true.
We also noted in our post that our Net Promoter Score (NPS), a widely accepted cross-industry measure of customer satisfaction,* has consistently been in the 70s. NPS scores in this range far exceed the publicly reported scores for the banking and credit card industries. (banking industry average NPS is 35 and credit card industry average NPS is 31). And even after the FTC filed its suit, our NPS has remained at this level.
The ratings and reviews we receive through our website and on third-party sites likewise show exceptional consumer satisfaction. Through reviews collected directly by LendingClub, as of April 4, 2019, our customers on average rate us at 4.8/5 stars. Consumers rate LendingClub highly on third-party sites as well. On Credit Karma, LendingClub’s rating is 4.8/5 stars; on LendingTree, LendingClub’s rating is 4.7/5; and on Nerd Wallet it is 4.5/5 stars. These high measures of customer satisfaction strongly support the conclusion that consumers understand and value the loans available through our platform.
Finally, in connection with our work on the FTC lawsuit, we have begun working with leading consumer perception experts to help us in our effort to assess borrower understanding of the 1%-6% origination fee associated with personal loans available through our platform. The preliminary results of these tests support our view that borrowers understand, and are highly satisfied with, loans available through LendingClub.
We’re excited about the changes we have made, which we anticipate will only enhance consumers’ understanding of the loans available through our platform and help us to fulfill our mission of enabling consumers’ financial health and freedom. Again, we believe that LendingClub has not violated any law enforced by the FTC and hope that we can resolve this matter in a mutually agreeable way.
*NPS is calculated by subtracting the percentage of respondents who give the company a rating between 1 and 6 (the “detractors”) from the percentage of respondents who give the company a rating of 9 or 10 (the “promoters”).