LendingClub knowingly misled consumers into believing their loans would come with no hidden fees and knew its loan application process led to consumer confusion, the Federal Trade Commission told a California federal judge Monday, seeking a quick win in its Truth In Lending Act case against the online lender.
The FTC urged U.S. Magistrate Judge Jacqueline Scott Corley during a videoconference Monday to grant the government's summary judgment motion and end a legal battle that began when the FTC sued LendingClub in 2018, alleging that it lured prospective borrowers with marketing pledges of "no hidden fees" and then removed hidden origination fees from the total loan amount.
"Their advertisements primed consumers not to expect hidden fees," FTC attorney Katharine Roller told Judge Corley, arguing that the matter can be decided on its face.
LendingClub urged the court to allow the case to go to trial and to allow expert witnesses to weigh in, saying that many genuine issues of material fact existed regarding whether LendingClub hid its origination fees — deducted when loan funds are initially disbursed — and arguing that the company had strong evidence contradicting those claims.
"You can't grant summary judgment because the facts must be assessed and sorted out," LendingClub's counsel Sean Royall, of Kirkland & Ellis, told the judge. "That's why we need a trial."
But Judge Corley said she thought LendingClub had imposed hidden fees.
"When a consumer is told there are no hidden fees, they aren't going to go looking for it," Judge Corley said.
Judge Corley also wondered aloud whether LendingClub's marketing statements of "No Hidden Fees" was likely to deceive a reasonable consumer, whether the FTC had shown that as a matter of law and whether the company had in fact deceived consumers.
The FTC sued LendingClub in April 2018, alleging that its ads constituted deceptive business practices. The San Francisco-based company moved to dismiss the case, arguing that its origination fee is not hidden from consumers during application.
LendingClub says its website disclosures complied with Truth In Lending Act requirements governing what consumers must be told about loan fees and the form in which the information must be provided.
In September 2018, upon learning that LendingClub had stopped making the No Hidden Fee promise, Judge Corley encouraged the parties to settle and avoid "an enormous waste of court resources."
But on Monday, with no settlement in sight, the FTC urged the judge to grant its motion for summary judgment, while LendingClub urged the court to let it to defend itself at trial against the government's claims.
The FTC told Judge Corley that it had evidence that tens of thousands of consumers contacted LendingClub trying to understand why they never received the full amount of their loan and evidence that LendingClub knew their application flow process led to consumer confusion.
But LendingClub's attorneys said a facial review would not be appropriate, as the facts are in dispute.
Judge Corley said that while the case had initially been set to go to trial in mid-June, she doesn't know "what the world will look like" then and whether the novel coronavirus pandemic would still necessitate a moratorium on trials.
Counsel for LendingClub declined to comment.
The FTC did not immediately respond to Law360's requests for comment Monday.
The FTC is represented in-house by Katharine Roller, Matthew Wilshire and Helen Clark.
LendingClub is represented by Michael Sean Royall and Rich Cunningham of Kirkland & Ellis LLP; and Dave Grable and Diane Doolittle of Quinn Emanuel.
The case is Federal Trade Commission v. LendingClub Corp., number 3:18-cv-02454, in the U.S. District Court for the Northern District of California.