Lending Club Ordered to Cease Operations in Massachusetts

The Commonwealth of Massachusetts has ordered Lending Club to cease operations within its borders and refund all origination fees, late fees and default charges made to borrowers in the state since April 17^th, 2007. Massachusetts’s Commissioner of Banks has also ordered Lending Club to pay fees totaling $21,330.00 directly to the state

At this point, it’s not entirely clear why Massachusetts has given Lending Club the boot, but it appears that there has been an ongoing investigation into the company since 2008:

WHEREAS, an examination/inspection of LendingClub was conducted pursuant to General Laws chapter 140, sections 96 to 114A, as of June 9, 2008 (the “examination/inspection”). Because of concerns regarding the Corporation’s compliance and financial condition, the examination/inspection continued in 2010 and concluded on March 10, 2011, to assess the Corporation’s level of compliance with applicable Massachusetts and federal laws and the Division’s regulations governing the conduct of those engaged in the business of a small loan company in the Commonwealth; and WHEREAS, the Report of Examination/Inspection (the “Report”) issued pursuant to the Division’s examination/inspection of LendingClub alleged violations of state laws and regulations including deficiencies in LendingClub’s current financial condition and compliance program.

The order stated that Lending Club failed to file is 2009 Small Loan Company Annual Report on time. The company was assessed a $2,650 fee for failing to file its report on time. In addition, Massachusetts demanded that Lending Club pays a $200.00 fee to pay for “the Division’s relocation investigation fee, in consideration of the Corporation’s change of office location, in accordance with M.G.L. chapter 140, section 102.”

The largest fee demanded by Massachusetts was to pay for the investigation, totaling $18,480. The order stated, “Within twenty (20) days of the execution of the Consent Agreement, LendingClub shall submit payment of eighteen thousand four hundred eighty ($18,480.00) in satisfaction of the full amount owed for the costs of the Division’s examination/inspection, as also set forth in the invoice issued to LendingClub.”

Perhaps the most damning part of the order was that Lending Club has been ordered to cease its lending operations within the state no later than 60 days from the date of the order (June 1^st). Lending Club has been open to borrowers in the state of Massachusetts since 2007. The company has not accepted investors from Massachusetts; however, investors are currently able to buy notes on Lending Club’s secondary market, FolioFN. It’s unclear whether or not this order will affect the ability for investors to buy Lending Club notes on FolioFN.

You can read the full order at Massachusetts’s Consumer Affairs and Business Regulation Website.

Lending Club’s Rob Garcia was not immediately available for comment.

CommunityLend COO Colin Henderson first reported this story on his blog, The Bankwatch.