Lending Club Scam: A Guide to Identifying and Avoiding Advance-Fee Loans

Lending Club, a peer-to-peer lending platform, has been accused of facilitating advance-fee loans. These loans require borrowers to pay upfront fees in exchange for a loan that may never be disbursed.

Beware of websites that claim to offer guaranteed approval or low interest rates. According to our research, these websites are often scams designed to steal your money.

Advance-fee loans are typically characterized by upfront fees that are not refundable. In some cases, these fees can be as high as 10% of the loan amount.

If a lender asks for payment before disbursing the loan, it's likely a scam. Always verify the lender's legitimacy before making a payment.

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Lending Club was charged by the Federal Trade Commission (FTC) with falsely promising consumers "no hidden fees" when in fact they deducted hundreds or thousands of dollars in hidden up-front fees from loans.

The company ignored warnings from its own internal review and an attorney for one of its largest investors that its claims were deceptive and likely to mislead consumers.

Lending Club also allegedly told loan applicants that "Investors Have Backed Your Loan" while knowing many would never get a loan, delaying applicants from seeking loans elsewhere.

The FTC alleges Lending Club withdrew double payments from consumers' accounts, continued to charge those who cancelled automatic payments or paid off their loans, and failed to get consumers' acknowledgment of its information-sharing policy as required by law.

Here are some of the specific ways Lending Club allegedly deceived consumers:

The Federal Trade Commission (FTC) has charged Lending Club with deceiving consumers, a serious issue that affects many people. This case highlights the importance of lenders providing truthful information to consumers.

Lending Club falsely promised consumers that they would receive a loan with "no hidden fees", when in reality, the company deducted hundreds or even thousands of dollars in hidden up-front fees from the loans.

The FTC's complaint states that Lending Club recognized the problem of hidden fees, but ignored warnings from its own internal review and an attorney for one of its largest investors.

Lending Club's deceptive "no hidden fees" claim was made even more prominent over time, despite the warnings. This is a red flag for consumers, as it suggests a lack of transparency in the lending process.

The FTC also alleges that Lending Club falsely told loan applicants that "Investors Have Backed Your Loan" while knowing that many of them would never get a loan. This practice delayed applicants from seeking loans elsewhere.

Here are some of the ways Lending Club allegedly deceived consumers:

The FTC has charged Lending Club with violating the FTC Act and the Gramm-Leach-Bliley Act. The case will be decided by the court.

His analysis proved correct, Lending Club disclosed that 32 loans had indeed been taken out in 2009 at the end of the year.

These loans were taken out by the CEO Laplanche and his family.

The Lending Club reported that the loans were made "to help increase reported platform loan volume for December 2009."

This revelation raises more questions than answers, particularly about the need to make the loans look subtly different from each other.

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Advance-fee loan scams are a type of personal loan scam where scammers promise access to credit in exchange for an upfront fee, regardless of your credit history. This is a red flag, as legitimate lenders don't ask for fees before approving a loan.

Scammers often buy marketing lists of people who have applied or searched online for payday loans, a type of predatory loan aimed at people with bad credit. They may contact you by phone, email, text, or social media with "deals" that seem too good to be true.

Here are 8 red flags to watch out for:

Advance-fee loan scams are a type of personal loan scam where scammers promise access to credit in exchange for an upfront fee.

Scammers often target people with bad credit by buying marketing lists of those who have applied for payday loans online. They may contact you by phone, email, text, or social media with attractive credit financing rates and terms.

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To get you to pay the upfront fee, scammers will ask you to pay "processing" fees or other fees first. They might tell you to pay with a prepaid debit card, gift card, cryptocurrency, wire transfer, or bank transfer.

Once the scammer has your payment method, they'll disappear with your money.

Here's a breakdown of how advance-fee loan scams typically work:

It's essential to be cautious and not fall for these scams. Always research the company and read reviews before applying for a loan. If a deal seems too good to be true, it probably is.

Cultures driving fraud in marketing and sales can have devastating consequences, as seen in the case of Lending Club. The company's focus on rapid growth led to some questionable practices that raised red flags.

Chasing poorer quality loans to achieve growth targets is a common pitfall. This can result in approving loans that are more likely to default, ultimately harming both the borrower and the lender.

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Suspending income verification, as Lending Club did, can also be a problem. This practice may seem harmless, but it can mask underlying issues with a borrower's creditworthiness.

Splitting loans when they're being securitized can be another issue. This practice can make it difficult to track the performance of individual loans and may lead to further problems down the line.

These practices, while not necessarily evidence of fraud, can create an environment where fraud is more likely to occur. It's essential for companies to strike a balance between driving growth and maintaining integrity in their operations.

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Real lenders won't ask you to pay an upfront fee in exchange for the promise of funding before you apply for a loan.

Legitimate lenders will typically require a hard credit pull before final approval, but this is a normal part of the loan application process.

Advance-fee loan scams, on the other hand, are not to be confused with origination fees charged by some lenders, which are a small percentage of the total loan value and deducted when your loan is funded.

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Origination fees are not a guarantee of approval, and legitimate lenders won't guarantee approval just because you paid a fee.

At LendingClub, they'll never ask you to send any fees or money in advance before you receive your loan proceeds.

Any loan broker or service that attempts to charge fees or request payments on their behalf is likely an imposter.

Scam lenders may advertise guaranteed approval with no credit check or say that bad credit is no problem, but this is a major red flag.

Legitimate lenders don't offer approval until they've thoroughly reviewed your financial details, including your credit history and income.

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Personal loan scams are on the rise, making it crucial to know the warning signs. With eight red flags to watch out for, you can protect yourself from falling victim to loan scams.

Unbeknownst to many, personal loan scams often target people who are in urgent need of cash. A loan scam may promise you a large sum of money with little to no credit check, which is a red flag.

Be wary of loans that require you to pay upfront fees. These fees are often a sign of a scam, as legitimate lenders do not charge fees before disbursing the loan.

Legitimate lenders will not pressure you into making a decision on the spot. They will give you time to review the terms and conditions of the loan.

Some loan scams may claim to be affiliated with government agencies or well-known companies. Be cautious of loans that claim to be endorsed by the government or a reputable company.

Be on the lookout for loans that have unusually low interest rates or no interest rates at all. These loans are often too good to be true and may be a sign of a scam.

Legitimate lenders will have a physical address and contact information. Be wary of loans that only have a PO box or no contact information at all.

With these eight red flags in mind, you can better protect yourself from falling victim to loan scams.

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Scammers often avoid listing contact information, making it difficult for people to get their money back once the relationship turns sour. If they do provide contact information, they may ask you to reach out to them in unusual ways, such as messaging apps.

Legitimate lenders offer contact information so borrowers can reach them with inquiries or concerns. They use the types of communication channels you expect to use when you contact a business, such as mail, phone, and email.

A lack of contact information is a significant red flag when evaluating a potential lender. If you can't find a lender's contact information, proceed with caution.

Be wary of lenders who only provide a P.O. box address or no address at all. This is a tactic scammers use to hide their identities and escape being caught.

Be cautious of lenders who ask for upfront fees. Legitimate lenders won't ask you to pay an upfront fee in exchange for the promise of funding before you apply for a loan.

Some scammers may try to confuse you with origination fees, which are a small percentage of the total loan value and deducted when your loan is funded. Origination fees are not the same as upfront fees.

Never pay a broker fee to facilitate a loan through LendingClub or any other service. Anyone who attempts to charge you a broker fee is likely an imposter.

If a lender doesn't have a physical address, it's a significant red flag. Scammers often avoid listing physical addresses to hide their identities and escape being caught.

Legitimate lenders, even those operating primarily online, should have a physical business address where their employees work. This is a basic expectation when dealing with a business.

You can verify a lender's location with basic online research. If you can't find any information about their physical address, it's best to proceed cautiously.

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A suspicious lender's website can be a major red flag. Criminals may create fake bank or lender websites that look similar to the real sites, hoping you give them your personal information.

It's a good idea to look up company websites on your own, rather than clicking the link a potential scammer provides. Carefully examine the URL to make sure it matches the bank name.

You should always make sure that any website that requests your personal or financial information is secure and properly encrypted. Look for indicators such as "https" (not just "http") in the website address and a padlock icon in the browser bar signaling a secure connection.

Some signs of a suspicious website include:

Legitimate lenders don't offer approval until they've thoroughly reviewed your financial details, including your credit history and income. This process is how they know if you can repay the loan.

Scammers often target guaranteed approval loan scams to consumers with poor credit histories or financial difficulties who cannot get other loans. The offers that are often too good to be true, usually are just that, says Celia Winslow, executive vice president of the American Financial Services Association (AFSA).

You should be wary of lenders who promise guaranteed approval with no credit check or say that bad credit is no problem. This is a major red flag that can indicate a scam.

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If you think you've been scammed by Lending Club, take immediate action to protect yourself. Stop communicating with the scammer and don't make any more payments.

Take steps to secure your information, especially if you gave the scammer your Social Security number. Visit IdentityTheft.gov to see what steps to take.

Report the company to the authorities, gathering detailed information and any evidence of the scam. Contact the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB) or local law enforcement agencies.

Here are the steps to report the scam and try to get a refund:

Monitor your financial accounts regularly for any suspicious activity or unauthorized transactions, and consider placing a fraud alert on your accounts.

If you suspect a fraudulent lender has tricked you, stop communicating with the scammer immediately. Don't reply to emails or messages the scammer sends, and don't make any more payments to the scammer.

Take steps to secure your information by visiting IdentityTheft.gov if you gave the scammer information they could use to commit identity theft, such as your Social Security number.

Report the company to the authorities, gathering detailed information and any evidence of the scam. Contact the Federal Trade Commission (FTC), Consumer Financial Protection Bureau (CFPB), or local law enforcement agencies.

Try to get a refund by asking the bank or company you used to send the money if there's a way to get the money back. If you paid the scammer, you may be able to recover your funds.

Monitor your financial accounts regularly for any suspicious activity or unauthorized transactions. Consider placing a fraud alert on your accounts to protect yourself.

Request free copies of your credit reports from AnnualCreditReport.com to watch your credit report. You can also consider placing a credit freeze to protect yourself.

Here's a list of steps to take if you suspect you've been scammed:

If you paid the scammer, you may be able to recover your funds by contacting the company you used to send the money.

Be cautious of unusually favorable lender terms. If a potential lender offers you a much higher loan amount or a far lower interest rate than you were expecting, it may be a scam.

Legitimate lenders tailor their personal loan terms to the borrower's financial situation, considering factors like credit score, income, and employment history. They typically reserve the best personal loan rates for borrowers with good credit.

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