34 ms·

Regulators Shut Down Lending Platform (YC Alum) LendUp

669 points by boeingUH60 5y ago

darig 5y ago
londons_explore 5y ago
It appears LendUp was given plenty of notice of these issues, which look pretty correctable, yet somehow they didn't manage to do that? Why? Surely simple things like "Your advertising misrepresents the way your service works" can be fixed by adding a few more weasel words to the claims?
riedel 5y ago
I was curious about the general sentiment of HN to lendup. If anyone else cares: https://news.ycombinator.com/item?id=10956780 https://news.ycombinator.com/item?id=10956780
- mwnivek 5y ago
  Note that LendUp spun off its credit card business (Mission Lane) in December 2018. https://www.pymnts.com/loans/2019/lendup-credit-card-business-mission-lane/ https://www.pymnts.com/loans/2019/lendup-credit-card-busines...
AlexandrB 5y ago
From a linked press release RE: violations of the Military Lending Act: > The MLA puts in place protections in connection with extensions of consumer credit for active-duty servicemembers and their dependents, who are defined as “covered borrowers.” These protections include a maximum allowable annual percentage rate of 36%, known as a Military Annual Percentage Rate (MAPR), a prohibition against required arbitration, and certain mandatory loan disclosures. These seem like good[1], common-sense, consumer protections. Why aren't these extended to credit consumers in general and not just military personnel? [1] I think one quibble might be the 36% max APR. This might be too low for some high risk customers to be able to get credit at all. But I'm not sure if there's any research around what a reasonable number might be instead.
- wiredfool 5y ago
  The reason that this is different than what you might expect from a free market approach is that part of the “being in the military” is a host of new rules that have the force of law, and one of these is to not default on loans. If you do, and your CO gets a call, then you’re in for a bad time.
  - cheschire 5y ago
    Well the existence of rules in itself does not justify more rules. That's just bureaucracy. But I think what you're driving at is there are rules in place for military folks designed to keep them from becoming targets of manipulation, keep them from making poor household decisions that would distract them from regulatory tasks, etc. I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. I suspect the primary motivation to get most of these types of laws passed is to protect the government.
    - wiredfool 5y ago
      No, I didn’t go into the multiple levels of chesterton's fence. I pointed out how the risk is different than the assumed free for all that is the free market. I will not potentially get thrown in the brig for defaulting on a payment. A private could be.
    - mpyne 5y ago
      > I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. On the contrary, for reasons political ('everyone loves the troops'), administrative (Congress in many ways writes the 'Employee Handbook' for military personnel), and logistical (the military is heavily made up of people straight out of high school), there are several protections in law designed to protect military on active duty. We can cancel leases with landlords with nothing more than valid assignment orders, at any time. We can vote in elections using the easiest process there is, including instant registration and the ability to fax the vote over. And, yes, there are restrictions on lending to those on active duty to try to keep us out of trouble. Even though active duty personnel do make convenient targets of political affection, it's not all done out of a sense to protect the individual. Active duty personnel have clearances, access to government facilities, and so on. Protecting them from getting into stupid situations is to the government's benefit. But that all said, we get a lot of protections that exceed what the government deems necessary for its benefit. Just look at the differential treatment provided to military and government civilians (who also have clearances, access, etc etc) if you want to see.
inopinatus 5y ago
TLDR: a loan shark bites the dust. Only notable because this one was backed by the sand hill road mob.
- vmception 5y ago
  > “LendUp was backed by some of the biggest names in venture capital,” said CFPB Director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.” Juicy!
  - notyourday 5y ago
    They should go after the board as officers and directors of the company do not get corporate protection. We need to have officers and directors of those companies to go to jail. Alas CFPB is pretty toothless.
  - sokoloff 5y ago
    It amuses me that the adverb "illegally" is important to include in that sentence.
    - voiper1 5y ago
      Hah, but it was absolutely necessary. The government can't shut down companies merely for lying or legally cheating customers...
      - vmception 5y ago
        Exactly, and by “shutdown” they mean “shutters lending for now” The business is still available to do anything and is well capitalized. The regulator has to make it seem like a laser strike from orbit, using words like “LendUp was backed by some” in the past tense as if the company is dissolved, but its not and still is backed by the same capital sources. Time to remedy the operation, challenge the CFPB in court, pivot etc
darkstar999 5y ago
And they weren't even taken down for being a loan shark, where they can make over 600% interest in some states. https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loan-rate-in-each-state.html https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loa...
- pc86 5y ago
  Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)? I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.
  - joe-collins 5y ago
    If you shy away from defending payday loans, you may be aware of how easily those loans can "get away" from their financially-unstable borrowers and turn into longer-term cash sinks. In light of that, how is it not fair to consider the interest rate over a longer period?
  - AlexandrB 5y ago
    APR is the financial equivalent of those labels in the grocery store that give price/100g (or price/oz if you prefer). It allows you to compare the cost of borrowing money across a range of products regardless of a loan's duration, compounding frequency, or non-interest fees. So yes, it's very fair.
    - ahmedfromtunis 5y ago
      Not the OP but I always fail to see how this is useful in the real world (I'm sure you already guessed I'm no financial guru). Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
      - 5y ago
sandofsky 5y ago
They don't spell it out in the press release, but the 2016 settlement included a $3.63 Million fine. https://www.consumerfinance.gov/about-us/newsroom/lendup-enforcement-action/ https://www.consumerfinance.gov/about-us/newsroom/lendup-enf... According to Crunchbase, LendUp has $361M in funding. Maybe they thought that a few million here and there is a drop in the bucket, and they stand to lose more if reforming themselves impacts growth. Turns out you have more to worry about than escalating fines.
- vmception 5y ago
  Yeah, CFPB is one of the newest, or maybe the newest, federal agency. The other consumer protection agencies (FTC) lack teeth. So it is a decent gamble to test the authority. Of course they could just stop the predatory practices, but lets not be crazy here.
- veltas 5y ago
  It seemed to me like the business is having financial trouble and cannot pay a fine like last time, so has to be penalized in another fashion, maybe I'm misreading it. > The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay.
  - dragonwriter 5y ago
    > It seemed to me like the business is having financial trouble They were ordered to pay $1.2 million in fines and restitution for the military lending violations earlier this year, and ordered not to collect (or sell or assign) on a bunch of those illegal loans, plus the new case has them prohibited from making any new loans and from collecting (selling/assigning) on a large share of their remaining outstanding loans. So, yeah, they are having financial problems.
mhoad 5y ago
Just as a heads up the Consumer Financial Protection Bureau recently launched a whistleblowing program for people who work in tech who see sketchy stuff going on around them that is worth checking out if you have something to share https://go.usa.gov/xe66f https://go.usa.gov/xe66f
- deleted 5y ago
  [deleted]
- whimsicalism 5y ago
  I feel like if we really cared about this, we would offer bounties or % of penalty. Oh and exempt workplace from two-party consent recording rules.
  - ceejayoz 5y ago
    The SEC offers that. https://www.sec.gov/whistleblower https://www.sec.gov/whistleblower > The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected. Someone made $114M this way. https://www.sec.gov/news/press-release/2020-266 https://www.sec.gov/news/press-release/2020-266 If you like the idea, there's a bill proposed to give the same ability to the CFBP. https://www.banking.senate.gov/newsroom/majority/cortez-masto-introduces-bill-to-incentivize-whistleblowers-to-report-consumer-fraud-to-the-consumer-financial-protection-bureau https://www.banking.senate.gov/newsroom/majority/cortez-mast...
    - whimsicalism 5y ago
      Yes, I've heard of this for the SEC. Where I'd really like it to be done is minimum wage law violations. Of course, that'll never happen.
      - javajosh 5y ago
uniqueuid 5y ago
Can anybody enlighten me: > The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay. Does this mean the fine is levied against individual executives, rather than the company itself?
- pc86 5y ago
  No
tw04 5y ago
>A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” LendUp told consumers that by repaying loans on time and taking free courses offered through its website, consumers would move up the “LendUp Ladder” and, in turn, receive lower interest rates on future loans and access to larger loan amounts. As alleged in the complaint, in reality, as tens of thousands of LendUp’s customers climbed the “LendUp Ladder,” they failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans. While the initial founding direction seems well intentioned, it sounds like they were scamming customers, or unable to actually follow-through on the promise to consumers. Glad the regulators are actually enforcing some of the rules.
- polygotdomain 5y ago
  While it does seem like a scam, I think the "following through" aspect was doomed from a business perspective. Credit, and therefore rates, is based on a consumer's history, not their knowledge. While poor financial decisions can certainly be chalked up to not knowing any better, knowledge of what you should do goes out the door when there's bills to pay and not enough money to cover them all. Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Following through would mean exposing the business to risk that customers, in spite of climbing their made up ladder, still made payments. Considering the other shady stuff that this thread is talking about, it doesn't surprise me that they didn't choose to take on that risk. Of course the irony in all of this is that the very thing that would've prevented customers from making the right choice even though they were gaining financial knowledge is the loans that LendUp was handing out. I wonder if the pitfalls of payday loans was part of that knowledge track. I doubt it.
  - emodendroket 5y ago
    I suppose in theory, in the very long run, improving one's credit by paying off loans in a timely fashion could lead to that result eventually.
  - tw04 5y ago
aw3rt34t34t 5y ago
> LendUp has been subject to multiple enforcement actions by the CFPB. In addition to ordering LendUp in 2016 to stop misrepresenting the benefits of borrowing from the company, the CFPB sued LendUp in 2020 for allegedly violating the Military Lending Act and obtained a judgment against LendUp in that action. In September 2021, the CFPB filed this third action alleging that LendUp: So YC funded a payday lender that targeted active duty military service members?
- colechristensen 5y ago
  That seems to be a fair assessment.
- newbie789 5y ago
- dang 5y ago
  YC wouldn't do that. I don't know the history here but I do know that both founders left the company years ago (which is pretty unusual). I can only assume that a lot changed since they started 10 years ago (they were in W12).
  - emodendroket 5y ago
    When did that happen? According to this piece, the first regulatory action against them for these practices was in 2016.
    - _liam 5y ago
      Looks to have been in 2018 or 2019
      - emodendroket 5y ago
        2019 looks right based on these sources: https://debanked.com/2019/01/lendup-gets-a-shake-up/ https://debanked.com/2019/01/lendup-gets-a-shake-up/ https://www.crunchbase.com/person/jacob-rosenberg https://www.crunchbase.com/person/jacob-rosenberg (it would seem Rosenberg actually left in 2018) Though according to the first one Orloff stayed on the board even after that point.
emodendroket 5y ago
So in the end, I suppose it was not so different from a payday lender after all.
aj7 5y ago
Venture capital, Harvard, Stanford, it’s all the same racket. Because the best deals and students come to YOU, you don’t actually have to DO anything. So it’s no wonder this scam possess the smell test.
qwertyuiop_ 5y ago
What is “fintech” about payday lending ?
- darig 5y ago
- missedthecue 5y ago
  putting it on a slick website instead of in a musty pawn shop in the bad part of town.
mmaunder 5y ago
As an immigrant I can tell you that the USA is basically Jurassic Park. The monsters are mostly predatory companies. It can be a lot of fun but it’s very easy to do worse than die - to end up a slave for the rest of your life to one of the predators. Along with bullshit like making options trading available to kids, debt is probably one of the velociraptors. It is a trap sprung at the very start of your adult life when you’re most vulnerable, as a student loan. It’s sprung when you’ve lost your job, are vulnerable and are about to become homeless. It’s sprung when you’re already in debt and vulnerable, by other lenders. Anyone see a pattern here? Debt preys on the vulnerable, turns them into something that delivers returns for decades to the holders, and wraps all that up into tidy looking financial products. The business of debt is the financial equivalent of the US pork industry: Everyone treats it as part of American life, but the details would make most people throw up. Anyone remember microfinance? That was the same play: usury with a fresh coat of paint. I’m seeing posts here making it sound like 36% APR is acceptable. Look up usury folks. This is it. Debt that is intentionally structured so that it can never be repaid and keeps the borrower harnessed to the cart. It’s incredible how folks, particularly in the US, have become this morally uncalibrated.
- fallingknife 5y ago
  I agree with most of what you are saying, except for: > to end up a slave for the rest of your life to one of the predators One of the best parts of the US system is that you can always file bankruptcy and live to fight another day
- entangledqubit 5y ago
  Also, to make sure there's enough prey, let's not make financial education a requirement, in general, so people can make well reasoned choices...
  - bequanna 5y ago
    What kind of additional financial education would you recommend? I think we are already doing a decent putting this info in front of our young. I grew up very rural and solidly lower middle class. We learned to balance checkbooks in 8th grade, had an accounting class in 11th, and a “life skills” required course that taught about budgets, loans, interest rates, credit cards, apartment leases, and so on. I am in my late 30s and everyone Ive ever mentioned this to was exposed to pretty much the same set of things before they left high school.
kaminar 5y ago
hardwaresofton 5y ago
Seemingly little known fact, the boom in credit card and essentially usury law skirting was enabled by a Supreme Court decision, the “Marquette Decision”. The Marquette decision allowed companies to export their interest rates, such that they could use usury laws in the state where the card is issued, NOT where the bank is headquartered. This is what made credit cards profitable. https://youtube.com/watch?v=2mHsTKvAuZc&t=393 https://youtube.com/watch?v=2mHsTKvAuZc&t=393 It’s rarely mentioned in “history of credit cards” pop history. Somehow all the “Jurassic park” aspects of America seem to start with a little sprinkle of deregulation.
- hn_throwaway_99 5y ago
  Thanks for the info, very interesting and not something I was aware of. Although I'd disagree with the idea that generic "deregulation" is the problem here, at least in this case. In my mind it's just a good example of all the inevitable "race to the bottom" dynamic that happen where the laws of the sales location can be skirted by instead only applying the laws of the production location. Basically, locales realize they can get a huge economic boon to themselves that is only possible because they are essentially exporting their shitty policy outside their borders. Tax havens are perhaps the best example. No country could survive as a tax shelter if businesses could only do business within their borders. But instead, you have small countries that offer no/low taxes because they can pull in tons of business from gigantic markets outside their borders. It happens all over the place: 1. In the Marquette example, states try to pull in lots of banking business by having easy usury laws, but the vast majority of those banks's customers are from other states. 2. A couple states have gotten rid of "the rule against perpetuities" to attract perpetual trusts, even though most of the trust business occurs elsewhere. 3. Businesses can extract huge tax concessions from states by offering to set up headquarters in a state, even if most of the business is done outside that state.
  - hardwaresofton 5y ago
    I agree that the generic idea of "deregulation" is sometimes not to blame but I do want to point out that the Marquette decision is basically the lynchpin in this particular case AFAIK -- usury laws AKA consumer protection regulation (which is the regulation that was bypassed/minimized in this sense) already differed from state to state, but that wasn't enough incentive for banks to move their headquarters. Intranational competition/racing to the bottom is fine within the bounds of regulation -- capitalism is a powerful force but in my opinion the job of the government is to set the guard rails. The EU problem is an international problem which is why it's so much harder to solve. You can't force another nation to charge certain % for taxes but there are other things you can do. Unfortunately most of the actions you can take to disincentivize that behavior aren't quite so friendly, so the politics intensifies and countries go for what they can get away with. The control dynamic is different compared to intranational regulation. There's certainly competition between states and companies but it's always when the guard rails bend/break that we see explosions in a certain kind of activity and then the repercussions 5-10 years later. It happens over and over again in history -- regulations that reduce corporate tax rates, roll back environmental protections, etc -- it happens across party lines, and there's usually a happy/boom period for a while for some market participants... Then the chickens come home to roost. The addition of regulation can do it too, of course, and some of the time the ambitions are noble, but to me the removal of regulation that was well established (for a good reason) and the subsequent ill effects always feels the most avoidable.
ConcernedCoder 5y ago
I'm always amazed at the sheer magnitude of crimes commited by "businesses" with nothing but an eventual fine(s) as a slap on the wrist... Individuals are routinely dragged off to jail for doing much less to the public, if they're lucky enough not to be choked in the street until dead...
- ComputerGuru 5y ago
  But that didn't happen here?
maddynator 5y ago
Can someone share how is then any different from another company like Affirm? They are a public company and this seems very similar to them at high-level
gameswithgo 5y ago
I wish that our very large corporations could also be shut down for practices like that, but instead we bail them out. Vote harder I guess?
pyrophane 5y ago
What collection tactics did LendUp use? In addition to extremely high interest rates, a lot of these companies rely on being pretty aggressive to get people to pay. I kind of assume that without that these products don't really work. Was the idea that the "ladder" was meant to be a carrot sub for the near "we'll break your legs" stick tactics that a lot of other lenders in that space use?
throwaway1901az 5y ago
ransom1538 5y ago
Is this the same as "self.com" ?
- sucrose 5y ago
  You mean self.inc? No, they don't lend money.
xivzgrev 5y ago
That’s too bad. I always liked their ladder concept, but looks like it was at least partial bullshit As much as legal and compliance slow your work down, this is why they’re important folks!
hardwaresofton 5y ago
This is possibly the quickest I've seen something not age well: https://youtu.be/uvw-u99yj8w?t=1077 https://youtu.be/uvw-u99yj8w?t=1077 Great advice from Jared but the example is unfortunate with this news. Would love to hear/see writeups/talks on how YC and the founders handle this unique situation in the future -- what happens when regulators this deep in your fondue as a startup? Is it a reconsider-pivot-and-proceed or a burn-it-all-down moment?
jollybean 5y ago
Google investing in payday lenders, doing God's Work there. Like they couldn't find something else for that money to do? Like even just giving it away.
jimnotgym 5y ago
So what happens now? Directors go to jail? Directors get banned from being Directors? Or they just walk away with their bonuses intact?
outside1234 5y ago
Just wait until they shut all of A16z’s crypto startups down…
thecleaner 5y ago
I like news where the US federal govt is like - nah ah, you dont get away with this. It's good learning in how to regulate enough to ensure economic growth.
temphnaccount 5y ago
Funny as I saw example of LendUp yesterday in How to Get Startup Ideas by YC (https://youtu.be/uvw-u99yj8w?t=1072 https://youtu.be/uvw-u99yj8w?t=1072). Apparently Payday loaning was broken and scammy industry. (So they decided to scam some more I guess)
husamia 5y ago
It's morally unacceptable to participate in such practices.

669 points by boeingUH60 5y ago

It appears LendUp was given plenty of notice of these issues, which look pretty correctable, yet somehow they didn't manage to do that? Why? Surely simple things like "Your advertising misrepresents the way your service works" can be fixed by adding a few more weasel words to the claims?

riedel 5y ago

I was curious about the general sentiment of HN to lendup. If anyone else cares: https://news.ycombinator.com/item?id=10956780 https://news.ycombinator.com/item?id=10956780

mwnivek 5y ago
Note that LendUp spun off its credit card business (Mission Lane) in December 2018. https://www.pymnts.com/loans/2019/lendup-credit-card-business-mission-lane/ https://www.pymnts.com/loans/2019/lendup-credit-card-busines...

AlexandrB 5y ago

From a linked press release RE: violations of the Military Lending Act: > The MLA puts in place protections in connection with extensions of consumer credit for active-duty servicemembers and their dependents, who are defined as “covered borrowers.” These protections include a maximum allowable annual percentage rate of 36%, known as a Military Annual Percentage Rate (MAPR), a prohibition against required arbitration, and certain mandatory loan disclosures. These seem like good[1], common-sense, consumer protections. Why aren't these extended to credit consumers in general and not just military personnel? [1] I think one quibble might be the 36% max APR. This might be too low for some high risk customers to be able to get credit at all. But I'm not sure if there's any research around what a reasonable number might be instead.

wiredfool 5y ago
The reason that this is different than what you might expect from a free market approach is that part of the “being in the military” is a host of new rules that have the force of law, and one of these is to not default on loans. If you do, and your CO gets a call, then you’re in for a bad time.
- cheschire 5y ago
  Well the existence of rules in itself does not justify more rules. That's just bureaucracy. But I think what you're driving at is there are rules in place for military folks designed to keep them from becoming targets of manipulation, keep them from making poor household decisions that would distract them from regulatory tasks, etc. I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. I suspect the primary motivation to get most of these types of laws passed is to protect the government.
  - wiredfool 5y ago
    No, I didn’t go into the multiple levels of chesterton's fence. I pointed out how the risk is different than the assumed free for all that is the free market. I will not potentially get thrown in the brig for defaulting on a payment. A private could be.
  - mpyne 5y ago
    > I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. On the contrary, for reasons political ('everyone loves the troops'), administrative (Congress in many ways writes the 'Employee Handbook' for military personnel), and logistical (the military is heavily made up of people straight out of high school), there are several protections in law designed to protect military on active duty. We can cancel leases with landlords with nothing more than valid assignment orders, at any time. We can vote in elections using the easiest process there is, including instant registration and the ability to fax the vote over. And, yes, there are restrictions on lending to those on active duty to try to keep us out of trouble. Even though active duty personnel do make convenient targets of political affection, it's not all done out of a sense to protect the individual. Active duty personnel have clearances, access to government facilities, and so on. Protecting them from getting into stupid situations is to the government's benefit. But that all said, we get a lot of protections that exceed what the government deems necessary for its benefit. Just look at the differential treatment provided to military and government civilians (who also have clearances, access, etc etc) if you want to see.

inopinatus 5y ago

TLDR: a loan shark bites the dust. Only notable because this one was backed by the sand hill road mob.

vmception 5y ago
> “LendUp was backed by some of the biggest names in venture capital,” said CFPB Director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.” Juicy!
- notyourday 5y ago
  They should go after the board as officers and directors of the company do not get corporate protection. We need to have officers and directors of those companies to go to jail. Alas CFPB is pretty toothless.
- sokoloff 5y ago
  It amuses me that the adverb "illegally" is important to include in that sentence.
  - voiper1 5y ago
    Hah, but it was absolutely necessary. The government can't shut down companies merely for lying or legally cheating customers...
    - vmception 5y ago
      Exactly, and by “shutdown” they mean “shutters lending for now” The business is still available to do anything and is well capitalized. The regulator has to make it seem like a laser strike from orbit, using words like “LendUp was backed by some” in the past tense as if the company is dissolved, but its not and still is backed by the same capital sources. Time to remedy the operation, challenge the CFPB in court, pivot etc

darkstar999 5y ago

And they weren't even taken down for being a loan shark, where they can make over 600% interest in some states. https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loan-rate-in-each-state.html https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loa...

pc86 5y ago
Is it really fair to calculate an annual interest rate when the loan term in question 14 days (literally one payday)? I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.
- joe-collins 5y ago
  If you shy away from defending payday loans, you may be aware of how easily those loans can "get away" from their financially-unstable borrowers and turn into longer-term cash sinks. In light of that, how is it not fair to consider the interest rate over a longer period?
- AlexandrB 5y ago
  APR is the financial equivalent of those labels in the grocery store that give price/100g (or price/oz if you prefer). It allows you to compare the cost of borrowing money across a range of products regardless of a loan's duration, compounding frequency, or non-interest fees. So yes, it's very fair.
  - ahmedfromtunis 5y ago
    Not the OP but I always fail to see how this is useful in the real world (I'm sure you already guessed I'm no financial guru). Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
    - 5y ago

sandofsky 5y ago

They don't spell it out in the press release, but the 2016 settlement included a $3.63 Million fine. https://www.consumerfinance.gov/about-us/newsroom/lendup-enforcement-action/ https://www.consumerfinance.gov/about-us/newsroom/lendup-enf... According to Crunchbase, LendUp has $361M in funding. Maybe they thought that a few million here and there is a drop in the bucket, and they stand to lose more if reforming themselves impacts growth. Turns out you have more to worry about than escalating fines.

vmception 5y ago
Yeah, CFPB is one of the newest, or maybe the newest, federal agency. The other consumer protection agencies (FTC) lack teeth. So it is a decent gamble to test the authority. Of course they could just stop the predatory practices, but lets not be crazy here.
veltas 5y ago
It seemed to me like the business is having financial trouble and cannot pay a fine like last time, so has to be penalized in another fashion, maybe I'm misreading it. > The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay.
- dragonwriter 5y ago
  > It seemed to me like the business is having financial trouble They were ordered to pay $1.2 million in fines and restitution for the military lending violations earlier this year, and ordered not to collect (or sell or assign) on a bunch of those illegal loans, plus the new case has them prohibited from making any new loans and from collecting (selling/assigning) on a large share of their remaining outstanding loans. So, yeah, they are having financial problems.

mhoad 5y ago

Just as a heads up the Consumer Financial Protection Bureau recently launched a whistleblowing program for people who work in tech who see sketchy stuff going on around them that is worth checking out if you have something to share https://go.usa.gov/xe66f https://go.usa.gov/xe66f

deleted 5y ago
[deleted]
whimsicalism 5y ago
I feel like if we really cared about this, we would offer bounties or % of penalty. Oh and exempt workplace from two-party consent recording rules.
- ceejayoz 5y ago
  The SEC offers that. https://www.sec.gov/whistleblower https://www.sec.gov/whistleblower > The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected. Someone made $114M this way. https://www.sec.gov/news/press-release/2020-266 https://www.sec.gov/news/press-release/2020-266 If you like the idea, there's a bill proposed to give the same ability to the CFBP. https://www.banking.senate.gov/newsroom/majority/cortez-masto-introduces-bill-to-incentivize-whistleblowers-to-report-consumer-fraud-to-the-consumer-financial-protection-bureau https://www.banking.senate.gov/newsroom/majority/cortez-mast...
  - whimsicalism 5y ago
    Yes, I've heard of this for the SEC. Where I'd really like it to be done is minimum wage law violations. Of course, that'll never happen.
    - javajosh 5y ago

uniqueuid 5y ago

Can anybody enlighten me: > The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay. Does this mean the fine is levied against individual executives, rather than the company itself?

pc86 5y ago
No

tw04 5y ago

>A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” LendUp told consumers that by repaying loans on time and taking free courses offered through its website, consumers would move up the “LendUp Ladder” and, in turn, receive lower interest rates on future loans and access to larger loan amounts. As alleged in the complaint, in reality, as tens of thousands of LendUp’s customers climbed the “LendUp Ladder,” they failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans. While the initial founding direction seems well intentioned, it sounds like they were scamming customers, or unable to actually follow-through on the promise to consumers. Glad the regulators are actually enforcing some of the rules.

polygotdomain 5y ago
While it does seem like a scam, I think the "following through" aspect was doomed from a business perspective. Credit, and therefore rates, is based on a consumer's history, not their knowledge. While poor financial decisions can certainly be chalked up to not knowing any better, knowledge of what you should do goes out the door when there's bills to pay and not enough money to cover them all. Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Following through would mean exposing the business to risk that customers, in spite of climbing their made up ladder, still made payments. Considering the other shady stuff that this thread is talking about, it doesn't surprise me that they didn't choose to take on that risk. Of course the irony in all of this is that the very thing that would've prevented customers from making the right choice even though they were gaining financial knowledge is the loans that LendUp was handing out. I wonder if the pitfalls of payday loans was part of that knowledge track. I doubt it.
- emodendroket 5y ago
  I suppose in theory, in the very long run, improving one's credit by paying off loans in a timely fashion could lead to that result eventually.
- tw04 5y ago

aw3rt34t34t 5y ago

> LendUp has been subject to multiple enforcement actions by the CFPB. In addition to ordering LendUp in 2016 to stop misrepresenting the benefits of borrowing from the company, the CFPB sued LendUp in 2020 for allegedly violating the Military Lending Act and obtained a judgment against LendUp in that action. In September 2021, the CFPB filed this third action alleging that LendUp: So YC funded a payday lender that targeted active duty military service members?

colechristensen 5y ago
That seems to be a fair assessment.
newbie789 5y ago
dang 5y ago
YC wouldn't do that. I don't know the history here but I do know that both founders left the company years ago (which is pretty unusual). I can only assume that a lot changed since they started 10 years ago (they were in W12).
- emodendroket 5y ago
  When did that happen? According to this piece, the first regulatory action against them for these practices was in 2016.
  - _liam 5y ago
    Looks to have been in 2018 or 2019
    - emodendroket 5y ago
      2019 looks right based on these sources: https://debanked.com/2019/01/lendup-gets-a-shake-up/ https://debanked.com/2019/01/lendup-gets-a-shake-up/ https://www.crunchbase.com/person/jacob-rosenberg https://www.crunchbase.com/person/jacob-rosenberg (it would seem Rosenberg actually left in 2018) Though according to the first one Orloff stayed on the board even after that point.

emodendroket 5y ago

So in the end, I suppose it was not so different from a payday lender after all.

aj7 5y ago

Venture capital, Harvard, Stanford, it’s all the same racket. Because the best deals and students come to YOU, you don’t actually have to DO anything. So it’s no wonder this scam possess the smell test.

qwertyuiop_ 5y ago

What is “fintech” about payday lending ?

darig 5y ago
missedthecue 5y ago
putting it on a slick website instead of in a musty pawn shop in the bad part of town.

mmaunder 5y ago

As an immigrant I can tell you that the USA is basically Jurassic Park. The monsters are mostly predatory companies. It can be a lot of fun but it’s very easy to do worse than die - to end up a slave for the rest of your life to one of the predators. Along with bullshit like making options trading available to kids, debt is probably one of the velociraptors. It is a trap sprung at the very start of your adult life when you’re most vulnerable, as a student loan. It’s sprung when you’ve lost your job, are vulnerable and are about to become homeless. It’s sprung when you’re already in debt and vulnerable, by other lenders. Anyone see a pattern here? Debt preys on the vulnerable, turns them into something that delivers returns for decades to the holders, and wraps all that up into tidy looking financial products. The business of debt is the financial equivalent of the US pork industry: Everyone treats it as part of American life, but the details would make most people throw up. Anyone remember microfinance? That was the same play: usury with a fresh coat of paint. I’m seeing posts here making it sound like 36% APR is acceptable. Look up usury folks. This is it. Debt that is intentionally structured so that it can never be repaid and keeps the borrower harnessed to the cart. It’s incredible how folks, particularly in the US, have become this morally uncalibrated.

fallingknife 5y ago
I agree with most of what you are saying, except for: > to end up a slave for the rest of your life to one of the predators One of the best parts of the US system is that you can always file bankruptcy and live to fight another day
entangledqubit 5y ago
Also, to make sure there's enough prey, let's not make financial education a requirement, in general, so people can make well reasoned choices...
- bequanna 5y ago
  What kind of additional financial education would you recommend? I think we are already doing a decent putting this info in front of our young. I grew up very rural and solidly lower middle class. We learned to balance checkbooks in 8th grade, had an accounting class in 11th, and a “life skills” required course that taught about budgets, loans, interest rates, credit cards, apartment leases, and so on. I am in my late 30s and everyone Ive ever mentioned this to was exposed to pretty much the same set of things before they left high school.

kaminar 5y ago

hardwaresofton 5y ago

Seemingly little known fact, the boom in credit card and essentially usury law skirting was enabled by a Supreme Court decision, the “Marquette Decision”. The Marquette decision allowed companies to export their interest rates, such that they could use usury laws in the state where the card is issued, NOT where the bank is headquartered. This is what made credit cards profitable. https://youtube.com/watch?v=2mHsTKvAuZc&t=393 https://youtube.com/watch?v=2mHsTKvAuZc&t=393 It’s rarely mentioned in “history of credit cards” pop history. Somehow all the “Jurassic park” aspects of America seem to start with a little sprinkle of deregulation.

hn_throwaway_99 5y ago
Thanks for the info, very interesting and not something I was aware of. Although I'd disagree with the idea that generic "deregulation" is the problem here, at least in this case. In my mind it's just a good example of all the inevitable "race to the bottom" dynamic that happen where the laws of the sales location can be skirted by instead only applying the laws of the production location. Basically, locales realize they can get a huge economic boon to themselves that is only possible because they are essentially exporting their shitty policy outside their borders. Tax havens are perhaps the best example. No country could survive as a tax shelter if businesses could only do business within their borders. But instead, you have small countries that offer no/low taxes because they can pull in tons of business from gigantic markets outside their borders. It happens all over the place: 1. In the Marquette example, states try to pull in lots of banking business by having easy usury laws, but the vast majority of those banks's customers are from other states. 2. A couple states have gotten rid of "the rule against perpetuities" to attract perpetual trusts, even though most of the trust business occurs elsewhere. 3. Businesses can extract huge tax concessions from states by offering to set up headquarters in a state, even if most of the business is done outside that state.
- hardwaresofton 5y ago
  I agree that the generic idea of "deregulation" is sometimes not to blame but I do want to point out that the Marquette decision is basically the lynchpin in this particular case AFAIK -- usury laws AKA consumer protection regulation (which is the regulation that was bypassed/minimized in this sense) already differed from state to state, but that wasn't enough incentive for banks to move their headquarters. Intranational competition/racing to the bottom is fine within the bounds of regulation -- capitalism is a powerful force but in my opinion the job of the government is to set the guard rails. The EU problem is an international problem which is why it's so much harder to solve. You can't force another nation to charge certain % for taxes but there are other things you can do. Unfortunately most of the actions you can take to disincentivize that behavior aren't quite so friendly, so the politics intensifies and countries go for what they can get away with. The control dynamic is different compared to intranational regulation. There's certainly competition between states and companies but it's always when the guard rails bend/break that we see explosions in a certain kind of activity and then the repercussions 5-10 years later. It happens over and over again in history -- regulations that reduce corporate tax rates, roll back environmental protections, etc -- it happens across party lines, and there's usually a happy/boom period for a while for some market participants... Then the chickens come home to roost. The addition of regulation can do it too, of course, and some of the time the ambitions are noble, but to me the removal of regulation that was well established (for a good reason) and the subsequent ill effects always feels the most avoidable.

ConcernedCoder 5y ago

I'm always amazed at the sheer magnitude of crimes commited by "businesses" with nothing but an eventual fine(s) as a slap on the wrist... Individuals are routinely dragged off to jail for doing much less to the public, if they're lucky enough not to be choked in the street until dead...

ComputerGuru 5y ago
But that didn't happen here?

maddynator 5y ago

Can someone share how is then any different from another company like Affirm? They are a public company and this seems very similar to them at high-level

gameswithgo 5y ago

I wish that our very large corporations could also be shut down for practices like that, but instead we bail them out. Vote harder I guess?

pyrophane 5y ago

What collection tactics did LendUp use? In addition to extremely high interest rates, a lot of these companies rely on being pretty aggressive to get people to pay. I kind of assume that without that these products don't really work. Was the idea that the "ladder" was meant to be a carrot sub for the near "we'll break your legs" stick tactics that a lot of other lenders in that space use?

throwaway1901az 5y ago

ransom1538 5y ago

Is this the same as "self.com" ?

sucrose 5y ago
You mean self.inc? No, they don't lend money.

xivzgrev 5y ago

That’s too bad. I always liked their ladder concept, but looks like it was at least partial bullshit As much as legal and compliance slow your work down, this is why they’re important folks!

hardwaresofton 5y ago

This is possibly the quickest I've seen something not age well: https://youtu.be/uvw-u99yj8w?t=1077 https://youtu.be/uvw-u99yj8w?t=1077 Great advice from Jared but the example is unfortunate with this news. Would love to hear/see writeups/talks on how YC and the founders handle this unique situation in the future -- what happens when regulators this deep in your fondue as a startup? Is it a reconsider-pivot-and-proceed or a burn-it-all-down moment?

jollybean 5y ago

Google investing in payday lenders, doing God's Work there. Like they couldn't find something else for that money to do? Like even just giving it away.

jimnotgym 5y ago

So what happens now? Directors go to jail? Directors get banned from being Directors? Or they just walk away with their bonuses intact?

outside1234 5y ago

Just wait until they shut all of A16z’s crypto startups down…

thecleaner 5y ago

I like news where the US federal govt is like - nah ah, you dont get away with this. It's good learning in how to regulate enough to ensure economic growth.

temphnaccount 5y ago

Funny as I saw example of LendUp yesterday in How to Get Startup Ideas by YC (https://youtu.be/uvw-u99yj8w?t=1072 https://youtu.be/uvw-u99yj8w?t=1072). Apparently Payday loaning was broken and scammy industry. (So they decided to scam some more I guess)

husamia 5y ago

It's morally unacceptable to participate in such practices.