Fintech innovators are known for pushing boundaries. Their ability to think out-of-the-box is considered a major success factor. However, when it comes to regulatory rules there’s a point where an adman’s creative license can turn into a compliance infraction. LendingClub learned this lesson the hard way when the FTC filed a complaint against them for deceptive advertising claims.
LendingClub, the San Francisco based peer-to-peer lender, was driving traffic to their digital platform by promising “no hidden fees”. Applicants were surprised and angry to find hundreds, or even thousands of dollars, had been deducted from their initial funding to cover previously undisclosed fees. The FTC complaint says the company continued to make deceptive claims even after a warning from their own compliance department saying their advertising messages were “…likely to mislead the consumer.”
To read the full complaint click to FTC Charges LendingClub with Deceiving Consumers.
Why would an established corporation in a highly regulated financial category ignore the warnings of their own compliance department? It looks like a calculated risk designed to meet aggressive sales targets in a fiercely competitive online lending marketplace. Over the past few years low fee and no fee offers have become mandatory in order to attract Millennials. These savvy young borrowers are frustrated with a confusing array of fees that can substantially increase the cost of a loan. And it’s easy for them to shop around with so many digital lending platforms.
Here’s a sample of advertising headlines currently used by major online lenders:
- Marcus by Goldman Sachs: $0 fee personal loan
- SoFi: $0 fee personal loan
- TD Bank: no fee personal unsecured loan
- LightStream (online lending division of SunTrust Bank): No Fees. The ad copy elaborates on this blanket promise with, “There are no fees for loan origination, prepayment, or anything else.”
It may be tempting to lure traffic to an online lending platform with clever advertising headlines, and then use body copy or disclosure statements to provide detail. However, harsh regulatory penalties can make this content strategy backfire, wiping out any short-term gains derived from increased sales.
At InnReg we help fintech developers understand when to follow regulatory rules to the letter. As well as when and how to use a more creative, solution-driven compliance approach that doesn’t increase regulatory risk.
Please don’t hesitate to reach out for a regulatory review of your online lending program, including marketing strategies and advertising claims.