On Tuesday, September 27, 2016, the CFPB and the California Department of Business Oversight ("DBO") announced separate enforcement actions against Flurish, Inc., an online lender that does business as "LendUp" in California and two dozen other states. LendUp agreed to pay, collectively, $3.43 million in restitution to consumers and $2.8 million in civil money penalties to the CFPB and California DBO.
CFPB Consent Order
The CFPB alleged that LendUp engaged in unfair, deceptive and abusive acts or practices ("UDAAP") in violation of the Consumer Financial Protection Act ("CFPA") and violated certain consumer protection statutes, including the Fair Credit Reporting Act ("FCRA") and Truth in Lending Act ("TILA"). The CFPB questioned LendUp's marketing practices, fees policies, and its failure to furnish information to the consumer reporting agencies. While the CFPB has used its UDAAP authority on many occasions, the consent order is noteworthy because it represents the CFPB's first such action against an alternative lender. Although the CFPB touts support for innovation in the financial services industry, it announced its intention to treat start-ups "just like established companies."
Although raising TILA and FCRA issues, the CFPB's principal focus was on LendUp's marketing practices. The CFPB alleges that LendUp deceptively marketed the benefits of its loan program to consumers in violation of the CFPA. According to the CFPB, LendUp marketed the "LendUp Ladder" as a way for consumers to build credit and attain financial stability. The "LendUp Ladder" included four levels—Silver, Gold, Platinum and Prime—and at each level, consumers could borrow more money at lower interest rates. The CFPB also said that LendUp advertised that it would report credit information and payment history to the consumer reporting agencies. The CFPB alleged, however, that the Platinum and Prime level loans were not offered to consumers outside of California and that LendUp did not furnish "any information, about any loans" to the consumer reporting agencies. The CFPB also alleged that LendUp imposed undisclosed fees on consumers, in violation of the CFPA.
As part of the consent order, LendUp is required to provide restitution of $1.83 million to the estimated 50,000 affected consumers and pay a civil money penalty of $1.8 million. In addition, LendUp will be required to regularly review its marketing materials and website content and perform due diligence on service providers used in marketing the loan program to ensure that marketing materials are not misleading to consumers.
California DBO Consent Order
Concurrently, the California DBO announced a settlement with LendUp for allegedly violating California payday and installment lending laws. LendUp is licensed under the California Finance Lenders Law and California's payday lending statute, the California Deferred Deposit Transaction Law. The California DBO alleged that, among other things, LendUp failed to disclose the expedited loan fees as finance charges and understated annual percentage rates.
As part of the settlement, LendUp will refund $1.6 million to consumers for the alleged unlawful fees and interest (of which over a $1 million has already been refunded to consumers) and pay the California DBO $1 million in administrative penalties and costs.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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