"Defendant conducts a credit pull on applicants’
credit reports. Defendant then immediately rejects those consumers that it determines do not
meet certain baseline criteria. Defendant refers to this step as “front-end” denial..."Although Defendant tells consumers that its loans contain “No hidden fees,” Defendant
nevertheless charges consumers an up-front fee that is not clearly and conspicuously disclosed.
This fee is calculated as a percentage—on average, approximately 5 percent—of the consumer’s
requested loan amount, and often amounts to more than a thousand dollars...Defendant deducts the hidden up-front fee from the promised “Loan Amount” before
disbursing the loan funds to the consumer. As a result, the amount of money that Defendant
disburses to a consumer’s bank account is always substantially smaller than the promised “Loan
Amount.” And because consumers must pay interest on the entire “Loan Amount,” including the
fee, Defendant’s hidden fee leaves consumers paying interest on principal that they never
received...Defendant has ignored these warnings. Rather than improving over time, Defendant’s
violations have become more egregious over the years: when redesigning the application flow in
the winter of 2014, Defendant increased the prominence of the “No hidden fees” representation
and decreased the prominence of the tooltip...On desktops and mobile phones, after consumers agree to the loan terms and enter bank
account information, they then click a “Done!” button and are taken to a screen that has stated, in
large type: “Your [amount requested] loan is on the way. What’s next?” The amount that
Defendant promises is “on the way” is the same “Loan Amount” that Defendant promised the
consumer on the Loan Offer page. For example, a consumer who was promised a $10,000 loan
amount will see on this screen a representation that “Your $10,000 loan is on the way...Although Defendant has told each consumer who completed a loan application that his or
her “loan is on the way,” a consumer’s application in fact must undergo two additional processes
after completion in order to receive final approval. First, an application must attract sufficient
investor backing, and second, an application must pass Defendant’s stringent “back-end” credit
review—so called to distinguish it from the lighter, “front-end” review that Defendant conducts
while the consumer’s application is still in progress...If a consumer has garnered investor funding—but before Defendant has finished the
“back-end” review of their applications—Defendant has sent such consumers various email
messages communicating that the consumers will receive loans...In reality, however, many consumers who received such emails were subsequently
rejected based on Defendant’s “back-end” credit review and never received a loan from
Defendant. For example, of the at least approximately 196,000 consumers who received the
above email, at least approximately 43,000 were subsequently rejected. The “back-end” credit
review is searching and often involves, inter alia, an additional credit inquiry, a phone call to the
consumer, requests for additional documentation, and detailed review of the consumer’s tax and
bank records...Defendant’s default method of receiving consumers’ scheduled monthly payments is
automatic electronic bank account withdrawal via ACH transfer. In numerous instances, Defendant has withdrawn money from consumers’ bank accounts
without consumers’ authorization, or in amounts in excess of the amount consumers authorized
Defendant to withdraw...As a result of Defendant’s unauthorized charges, many consumers are forced to pay
overdraft fees, while other consumers are unable to pay other bills because they do not have
access to the money that Defendant improperly withdrew...Defendant’s conduct is governed by the Privacy Rule prior to October 28, 2014, and
by Reg. P after that date. The GLB Act authorizes both the CFPB and the Federal Trade
Commission to enforce Reg. P. 15 U.S.C. § 6805...Defendant failed to comply with the requirements of the Privacy Rule and Reg. P.
Specifically, Defendant failed to deliver the initial privacy notice so that each customer can
reasonably be expected to receive actual notice. 16 C.F.R. § 313.9; 12 C.F.R. § 1016.9. For
example, until at least the end of 2016, Defendant did not require customers to acknowledge
receipt of the notice as a necessary step to obtaining a particular financial product or service. 16
C.F.R. § 313.9, and Reg. P, 12 C.F.R. § 1016.9. Instead, Defendant required customers to agree
policy. In order to reach the privacy notice that Defendant was required to provide to customers,
a customer would need to click on a link that did not indicate it was related to privacy, and then
led. Customers were not provided a clear and conspicuous privacy notice before they submitted
nonpublic personal information to Defendant...Customers were only provided a link leading directly to the notice after they had applied
for a personal loan. Defendant’s own compliance group had recommended repeatedly that the
company require customer acknowledgment in the years prior to the 2016 change...Consumers have suffered and will continue to suffer substantial injury as a result of
Defendant’s violations of the FTC Act and the Privacy Rule. In addition, Defendant has been
unjustly enriched as a result of their unlawful acts or practices. Absent injunctive relief by this
Court, Defendant is likely to continue to injure consumers, reap unjust enrichment, and harm the
Why did it take so long for the FTC to act? And what about the Consumer Financial Protection Bureau re privacy issues? See FTC FinTech Series: Marketplace Lending
June 9, 2016
Transcript, here. See also here, June 9 2016 ("8 of 15 mention “No Hidden Fees”).
Some Memorable Quotes:
"Potential competition...if you don't know...the wise thing to do is not to let the merger operate"
"mfn...one of the cleverest strategies I've ever encountered, and people don't get it somehow"
"the important thing is, you can tax people who don't use you"
"I don't have a personal assistant, I don't want a personal assistant"
"What is the right fee for Booking?...I don't know"
"We need the help the consumer...help me...self-regulation is going nowhere"
"Competition policy is slow, and often too late"
"Back and forth process" of regulation "you need to have guidelines and supervision"
"Participative antitrust" (droit de la concurrence participatif, this is the idea, my bet), "regulation reactive to ideas...proposed by the industry"
"You should make regulation agile...and listen to the industry"
"I'm not against breaking up those firms...my gut feeling right now is that it's difficult...harder that it used to be in the past because the technology is moving faster"
Brief discussion of Choi, Jeon, Kim Paper from 29:01
"EISEN: ALL RIGHT. YOU’VE CERTAINLY BEEN WARNING ABOUT THAT. I KNOW YOU LOOK AT BANK REGULATIONS. WHAT ABOUT TECHNOLOGY REGULATIONS? DO YOU THINK WE’RE ABOUT TO SEE A WAVE OF INCREASED SCRUTINY— OBVIOUSLY WE’VE SEEN SCRUTINY, BUT REVELATIONS WHEN IT COMES TO TECH GLOBALLY AND REVELATIONS INTO THEIR COMPETITIVENESS, AND COMPANIES LIKE FACEBOOK, GOOGLE AND AMAZON.
LAGARDE: WELL, AS YOU SAID IN THE IMF, WE SUPPORT FREE MARKET. WE SUPPORT COMPETITION. WE SUPPORT IMPROVED PRODUCTIVITY. WE SUPPORT INNOVATION. AND WE KNOW FOR A FACT THAT WHEN THERE IS TOO MUCH MARKET CONCENTRATION IN THE HANDS OF TOO FEW, WE’RE NOT SEEING COMPETITION, WE’RE NOT SEEING INNOVATION. AND OVER TIME WE ARE SEEING, YOU KNOW, GRADUAL --
EISEN: IS THAT WHEN FACEBOOK IS?
LAGARDE: IT DEPENDS HOW YOU DEFINE THE MARKET. IT DEPENDS WHO SUBSTITUTES. I MEAN, IT’S A VERY COMPLICATED DEBATE.
EISEN: YOU’RE NOT GOING TO CALL ANYONE OUT.
LAGARDE: BUT WE SHOULD ACTUALLY DETERMINE WHETHER OR NOT THERE IS THAT LEVEL OF ACCESS TO MARKET, AND WHETHER OR NOT THE ACCUMULATION OF THAT DATA IN THE HANDS OF A FEW IS NOT GOING TO BE SUCH A BARRIER THAT OTHER ENTREPRENEURS SIMPLY CANNOT ACCESS. SO THE SITUATION IS VERY DIFFERENT FROM WHAT IT WAS IN THE TELECOM AGE OR IN THE GILDED AGE. WE NEED TO REALLY RE-THINK THE WAY IN WHICH THAT SITUATION IS ADDRESSED. COMPETITION IS ENCOURAGED AND IF THAT REQUIRES A NEW SET OF RULES TAKING INTO ACCOUNT THE Intangibility OF THOSE ASSETS, IT NEEDS TO BE DONE. LOOK AT TAX, FOR INSTANCE. IT’S ONE IN WHICH ALL POLICYMAKERS AROUND THE WORLD NEED TO ACTUALLY LOOK AT: WHERE IS VALUE LOCATED? WHERE IS VALUE GENERATED? HOW SHOULD IT BE TAXED AND WHAT REVENUE SHOULD BE CONTRIBUTED BY THOSE PLAYERS?"