Last week, the Federal Trade Commission filed a lawsuit against LendingClub, an online lender, for allegedly misrepresenting the fees it charges to originate a loan.
The company was accused of advertising “no hidden fees” in its promotional materials, but when consumers would receive the proceeds from their loans in their bank accounts, the amounts would be “hundreds or even thousands of dollars short
of expectations due to a hidden up-front fee” charged by the company, according to the FTC’s complaint.
While there might not be any immediate collection-related issues associated with the case, it does raise a number of questions that debt buyers and collectors may want to try to answer before it’s too late.
For example, LendingClub has been an active seller of portfolios to debt buyers. What happens to debt buyers who bought loans that may be impacted by this case? Will those loans be invalidated? Will borrowers simply stop making payments because they think the loans could be illegal?
What about collection agencies that are hired by debt buyers who purchased portfolios that have LendingClub loans in them. If the loans are deemed to be unlawful, could those agencies face Fair Debt Collection Practices Act violations if they try to collect on those loans?
It’s not a stretch to expect that borrowers who obtained loans from LendingClub will stop making payments as a result of the FTC’s actions because they expect the loans to be deemed fraudulent. The ramifications of that action could ripple through the ARM industry for a long time.
At this point, most of this is just speculation so it’s easy to lob questions into the air as an exercise in creative thinking. But you do not have to be that creative or paranoid to see a scenario where collectors or debt buyers suddenly become implicated in this case’s fallout.