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LendUp Shuttering Operations After Reaching Settlement With CFPB

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Posted on the December 21, 2021

The digital payday lender LendUp is shutting down operations after settling a lawsuit with the Consumer Financial Protection Bureau.

It’s a major downfall for the Silicon Valley-backed lender, which had billed itself as an alternative to traditional payday lenders by offering to bring down borrowers’ interest rates on future loans as they paid back their prior ones.

But LendUp repeatedly came under scrutiny from the CFPB, which said the company failed to live up to that promise to tens of thousands of customers — even after the agency penalized it in 2016.

“We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers,” CFPB Director Rohit Chopra said in a press release.

In an emailed statement, LendUp Loans said it is ”pleased to have fully resolved its litigation with the CFPB” and noted it did not admit to liability in its agreement with the agency.

“As has previously been reported in the news, LendUp ceased originating loans in the summer. It expects to complete the wind-down of its operations in early 2022,” LendUp said in a statement.

Axios reported in August that LendUp had stopped making loans this summer.

LendUp’s investors include Google Ventures, Andreessen Horwitz, Kleiner Perkins, PayPal Holdings, and QED Investors.

LendUp’s parent also operates a digital bank that is not affected by the settlement. The bank, Ahead Financials, was launched last year. It offers customers no-fee checking accounts, debit cards, as well as financial education.

The settlement with the CFPB prohibits LendUp from collecting on its loans and making new ones, either directly or indirectly through other lenders. It also prevents LendUp from selling consumer data. The agreement is pending approval from the U.S. District Court for the Northern District of California.

LendUp has agreed to pay $100,000 to the CFPB, an amount that the two agreed to based on the company’s “limited ability to pay,” according to the settlement.

The settlement also proposes $40.5 million in restitution fees to affected consumers. But LendUp will not have to pay that amount as long as it pays the agency the $100,000 fine and the CFPB does not find evidence that LendUp misrepresented its financial standing.

The agency said it will work to pay consumers through existing money in its civil penalty fund.

The agreement settles a lawsuit that the CFPB filed in September, alleging violations of a 2016 enforcement action over the company’s “LendUp Ladder” program. The agency has long accused the company of misrepresenting the benefits of repeat borrowing by claiming that certain borrowers would gain access to larger loans at lower rates.

Instead, the agency said that LendUp charged 140,000 repeat borrowers the same interest rate or a higher one even after the consumers repaid their loans on time and took free courses offered through the company’s website. The lawsuit also claimed LendUp reduced the maximum loan size for many borrowers, and it said LendUp failed to provide timely and accurate notices to consumers whose loan applications were denied.

The CFPB and LendUp had earlier settled a 2020 lawsuit that alleged LendUp violated the Military Lending Act by making loans at interest rates that exceeded the federal rate cap for military borrowers.

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Michigan license number:   DM-0016282 Available to the public and licensed in Michigan.

Section 13(1)  When a licensee establishes a debt management plan for a debtor, the licensee may charge and receive an initial fee of $50.00

Section 13(2)  A licensee shall attempt to obtain consent to participate in a debt management plan from at least 51%, in number or dollar amount, of the debtor’s creditors within 90 days after establishing the debt management plan. If the required consent is not actually received by the licensee, the licensee shall provide notice to the debtor of the lack of required consent and the debtor may, at its option, close the account. If the debtor decides to close the account, any unexpended funds shall be returned to the debtor or disbursed as directed by the debtor.

Sec. 14. (1) A contract between a licensee and debtor shall include all of the following:

(a) Each creditor to which payments will be made and the amount owed each creditor. A licensee may rely on records of the debtor and other information available to it to determine the amount owed to a creditor.

(b) The total amount of the licensee’s charges.

(c) The beginning and termination dates of the contract.

(d) The principal amount and approximate interest charges of the debtor’s obligations to be paid under the debt management plan.

(e) The name and address of the licensee and of the debtor.

(f) Any other provisions or disclosures that the director determines are necessary for the protection of the debtor and the proper conduct of business by a licensee.

Sec. 18. (1) In addition to the fee described in section 13(1), a licensee may charge a reasonable fee for providing debt management services under a debt management plan. The fee under this subsection shall not exceed 15% of the amount of the debt to be liquidated during the express term of the plan.

(2) A licensee may offer a debtor the option to purchase credit reports or educational materials and products, and charge a fee to the debtor if the debtor elects to purchase any of those items from the licensee.  Fees charged under this subsection are not subject to the 15% limitation on fees described in subsection (1).

(3) Except for a cancellation described in subsection (4), in the event of cancellation of or default in the performance of the contract by the debtor before its successful completion, a licensee may collect $25.00 in addition to any fees and charges of the licensee previously received by the licensee. This $25.00 fee is not subject to the 15% limitation on fees and charges under subsection (1).

(4) A contract is in effect when it is signed by the licensee and the debtor and the debtor has made a payment of any amount to the licensee. The debtor has the right to cancel the contract until 12 midnight of the third business day after the first day the contract is in effect by delivering written notice of cancellation to the licensee. A cancellation described in this section is not subject to, and a licensee shall not collect, the fee described in subsection (3).

(5) If a debtor fails to make a payment of any amount to a licensee within 60 days after the date a payment is due under a contract, the licensee may, in its discretion, cancel the debt management contract if it determines that the plan is no longer suitable for the debtor, the debtor fails to affirmatively communicate to the licensee the debtor’s desire to continue the plan, or the creditors of the debtor refuse to continue accepting payments under the plan.

(6) A licensee shall not contract for, receive, or charge a debtor an amount greater than authorized by this act. A person that violates this subsection, except as the result of an inadvertent clerical or computer error, shall return to the debtor the amount of the payments received from or on behalf of the debtor and not distributed to creditors, and, as a penalty, an amount equal to the amount overcharged.

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