SAN FRANCISCO (CBS SF) — A San Francisco startup with millions in venture capital funding – hailed by many as an alternative to abusive payday lending – has agreed to pay millions in redress for overcharging consumers and using deceptive marketing tactics.
The financial technology company LendUp, which bills itself a “payday loan alternative” agreed this week to pay $6.3 million to customers and regulators following allegations of widespread violations of payday and installment loan laws.
While LendUp CEO Sasha Orloff did not respond to a CBS San Francisco inquiry, the vice president of the East Coast public relations firm Glover Park Group Sarah Craighill, provided a statement on behalf of LendUp.
The statement from LendUp describes the recent regulatory actions as addressing “legacy issues that mostly date back to our early days as a company.” Craighill declined to say when corrective measures were taken by LendUp and declined to comment on what products, policies or fees LendUp has changed since reaching settlements with California and federal regulators.
But the allegations against LendUp stem from actions as recent as June 2016, when LendUp was found to have been allowing customers access to loans that were allowed in California but prohibited in the customers’ home states, according to the voluntary agreement worked out between the U.S. Consumer Financial Protection Bureau and LendUp.
While eighteen U.S. states and the District of Columbia prohibit high-cost payday lending, California does not.
LendUp charges annual percentage rates of more than 700 percent in some cases, according to a payday loan calculating tool on their website.
Some LendUp customers, as recently as March 2016, were unlawfully charged for expedited-funding fees, according to the agreement.
LendUp allegedly practiced deceptive marketing and advertising campaigns as well as unfairly levied extension and default fees. LendUp also allegedly violated the Truth In Lending Act when it failed to include annual percentage rate (APR) disclosures in advertisements, provided inaccurate credit disclosures in loan contracts and provided inaccurate information to consumer reporting agencies.
“We are a different company today,” LendUp maintains in its 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 by our regulators, including discontinuing some services. We have also worked to refund all affected customers.”
Among the venture capital firms that have provided over $100 million in backing to LendUp since 2012 are Google Ventures, Andreessen Horowitz, Kleiner Perkins and more.
This summer, Google announced that it is banning ads for payday loans. In a May blog post, Google director of global product policy David Graff said,”Research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that.”
California Department of Business Oversight Commissioner Jan Lynn Owen maintains that “The illegal fees affected thousands of California borrowers and showed a persistent failure by LendUp to comply with California consumer protection laws.”
Owen said the settlement will help borrowers that were harmed and ensure that LendUp is held accountable.
LendUp prides itself on lowering borrowing costs, expanding access to credit, and providing credit-building opportunities to customers. On its website it states that unlike traditional payday lenders, “we don’t have dangerous debt traps.”
But California law is already designed to protect consumers from payday debt traps.
By Hannah Albarazi – Follow her on Twitter: @hannahalbarazi.