NY Regulators Launch Lending Club Probe

DFS Investigates Lending Club

In the latest chapter of the Lending Club drama, on Thursday (May 19), it came to light that New York’s highest-ranking financial regulator has launched an official inquiry into the online alternative lender. The newest probe, as disclosed to The Wall Street Journal by an unnamed source familiar with the matter, would be the third one levied at the firm since its founder and CEO stepped down earlier in May.

The regulator, the New York Department of Financial Services (DFS), has sent a subpoena to Lending Club, seeking information that spans interest rates and loans tied to New Yorkers, the source noted. The newest inquiry, according to WSJ, is not related to the events that led directly to the departure of CEO Renaud Laplanche.

Lending Club, for its part, said that it plans to cooperate with the DFS investigation, which also looks for information on underwriting and other business procedures and how these myriad practices square with consumer protection laws and laws governing fair business practices. The requested New York information dates back to 2013.

As was widely reported, the May 9 disclosure that $22 million in loans that had been sold to Jefferies, along with matters related to a personal investment by the CEO in a client, led to his downfall. SEC filings also revealed a grand jury subpoena from the U.S. Justice Department. And, of course, the firm also faces a legal challenge to its business model, as questions remain over state usury caps tied to loans made.

Since the announcement of Laplanche’s departure and the revelation of possible improper business practices, shares of Lending Club have been cut roughly in half.