Fintech Firm LendUp Pays $3.6 Million Over Misleading Borrowers

  • Enforcement action brought by CFPB and California agency
  • LendUp is among first online lender to face major penalty

LendUp has agreed to pay $3.63 million to settle allegations by a federal regulator that the online lending company didn’t help customers get cheaper loans and build credit as promised, representing one of the first major enforcement actions against a fintech company.

The lender, affiliated with San Francisco-based Flurish Inc., didn’t have lower priced loans available to consumers where they were advertised, misled customers about the true cost of the loans offered and at times didn’t provide borrowers’ information to credit reporting companies, the Consumer Financial Protection Bureau said in a statement Tuesday. 

“LendUp pitched itself as a consumer-friendly, tech-savvy alternative to traditional payday loans, but it did not pay enough attention to the consumer financial laws,” CFPB Director Richard Cordray said in a statement.

Regulators have been under pressure to adopt rules for technology companies offering financial services products to ensure safety without stifling innovation. There’s been even more urgency amid a scandal that engulfed online lending pioneer LendingClub Corp. earlier this year. The CFPB has also been working to finalize tougher rules for payday lenders and crack down on firms that prey on desperate people and trap them in debt.

LendUp agreed to provide $1.83 million in refunds and pay a civil penalty of $1.8 million, the CFPB said. The lender agreed to pay $2.7 million in a separate settlement with the California Department of Business Oversight.

LendUp is an online direct lender of small-dollar loans, designed to be a safer alternative to payday loans that borrowers rely on for emergency cash. The company says its key differentiator from payday lenders is in its transparent pricing and a structure that allows customers to work toward lower rates and build credit.

The CFPB’s review addresses legacy issues that mostly date back to 2012 and 2013, when the firm was a startup with limited resources, according to a LendUp statement.

“We take our commitment to operating in a transparent, compliant and socially responsible way very seriously, which is why we’ve fully addressed the issues cited in the consent order, including discontinuing some services,” the company said. “We have also worked to refund all affected customers.”

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