Is the LendingClub Legitimate? An In-Depth Look at Its History and Controversies

In the early 2010s, peer-to-peer lending platforms like LendingClub became very popular because they made it easy for investors to fund loans and earn good returns. However, LendingClub has had some problems over the years, which has made many people wonder if it is really a legitimate company.

In this article, we’ll take an in-depth look at LendingClub’s history, business model, controversies, and whether it can be considered a safe and legitimate option today.

A Brief History of LendingClub

LendingClub was founded in 2006 in San Francisco as one of the first peer-to-peer lending marketplaces. The idea was simple – connect investors looking to earn interest with borrowers needing loans. Investors could view loan listings on the platform and choose which to fund earning interest payments in return.

The platform grew quickly, facilitating over $2 billion in loans by 2012. LendingClub had its IPO in 2014, making it the first peer-to-peer lender to go public.

However, the platform ran into issues in 2016 when an internal review found it had sold $22 million in loans that did not meet investor criteria. This led to the resignation of the company’s founder and CEO, Renaud Laplanche.

Since then, LendingClub has tightened its practices and shifted its model. It originated all loans through a bank briefly before getting its own banking charter and federal license in 2020. The company also discontinued its peer-to-peer investing program for retail investors in favor of selling loans to institutional investors.

Today, LendingClub focuses primarily on originating personal and business loans directly as an online lender. However, it still faces lingering questions about its business practices and legitimacy.

How LendingClub’s Current Business Model Works

As it stands now, LendingClub is only an online direct lender and doesn’t offer peer-to-peer investment. Here is a list of its main loan products and services:

• Personal loans: Personal loans with fixed rates and terms from $1,000 to $40,000 can be used to pay off debt, make big purchases, fix up your house, and other things. The loan terms are between 3 and 5 years, and the APRs range from 8% to 35%. 99%.

• Business loans – Provides term loans and lines of credit ranging from $5,000 to $500,000 for small businesses. Also offers larger commercial real estate and equipment financing loans.

• Auto refinancing lets people who already have auto loans refinance them at possibly lower rates to lower their monthly payments. Refinancing amounts range from $4,000 to $55,000.

• LendingClub Bank – Operates an online bank offering checking accounts, savings accounts, and certificates of deposit (CDs) with competitive rates. Deposits are FDIC insured.

LendingClub funds loans through a mix of retail deposits, institutional capital, and securitization. It earns revenue through interest income on the loans it originates.

Concerns and Controversies Surrounding LendingClub

While LendingClub has taken steps to address past issues, several controversies still linger regarding its legitimacy and business practices:

• SEC investigation (2016) – LendingClub was investigated for knowingly selling $22 million in loans to investors that did not meet the stated criteria. The CEO resigned as a result.

• FTC lawsuit (2018) – The FTC sued LendingClub for falsely promising “no hidden fees” but actually deducting hundreds or thousands in fees from loans. Also accused of unauthorized withdrawals. Case still ongoing.

• Hidden fees – Despite claiming to offer loans with “no hidden fees,” LendingClub charges origination fees of 1% to 8% on loans. This has led to accusations of deceptive marketing.

• Credit reporting issues – Some customers report LendingClub misreporting loan payments or default information to credit bureaus, harming their credit scores.

• Collections complaints – Many complaints about aggressive collections tactics when borrowers default on loans. Limited options offered to struggling borrowers.

• Scams and fraud – LendingClub’s name has been frequently used by scammers claiming to represent the company. Results in identity theft for victims.

While LendingClub has sought to improve its practices, these past issues still raise concerns for some consumers about whether the company can be considered fully legitimate in its current form.

Is LendingClub Considered Safe and Legitimate Today?

Despite past controversies, there are signs LendingClub has reformed and operates legitimately today:

• Gotten state lending licenses and FDIC bank charter showing compliance with regulations.

• Discontinued problematic peer-to-peer lending program at root of many issues.

• A+ rating with Better Business Bureau with most recent complaints about borrower issues, not company practices.

• 4.58/5 consumer rating on BBB based on over 1,000 reviews. Recent reviews are overwhelmingly positive.

• Backed and partnered with trusted institutions like banks and the SBA.

• Loans now vetted by bank partner before being sold to investors, reducing risk.

• Over 4.7 million customers served and $70 billion in loans funded since 2007 founding.

So while LendingClub is not perfect, it does appear to have cleaned up its practices compared to 5 or 10 years ago. For borrowers with good credit, LendingClub personal loans remain a quick, convenient option that can provide competitive rates.

However, borrowers with lower credit scores or debt issues should approach with more caution given past complaints about collections and credit reporting. Doing your due diligence is advised before borrowing.

The Bottom Line – Cautious Optimism for LendingClub’s Future

LendingClub’s checkered past makes it difficult to definitively deem it 100% legitimate, but recent reforms suggest it is moving in the right direction. The discontinuation of its peer-to-peer model in particular helped resolve many issues at the root of controversies.

That said, LendingClub still has work to do rebuilding consumer trust. We recommend approaching with cautious optimism – don’t assume it is free of issues, but also don’t write it off completely without closer review. Do your homework to determine if it meets your specific borrowing needs.

With billions lent and generally positive recent reviews, LendingClub appears to have learned from past missteps. If it stays on its current path, we could see a return to it being considered a mainstream and fully legitimate lending option once again.