Online Lender Settles With FTC Over Refinancing Misrepresentations

Financial Services Law

Issuing a warning to other lenders, the Federal Trade Commission (FTC) reached a deal with an online lender over charges the company violated the FTC Act by making false statements about student loan refinancing.

The California-based company misrepresented how much money student loan borrowers have saved or will save by refinancing, the agency alleged.

What happened

Since at least April 2016, the online lender made “prominent” false statements about loan refinancing savings in television, direct mail and internet ads, the FTC said. One online ad stated, “Refinancing student loans saves $22,359 on average,” while another claimed, “Start saving on your student loans. Average monthly savings $292.”

But the promised savings were not the actual average savings, according to the agency’s complaint. To boost its claims, the lender excluded categories of consumers, with the result of increasing the average savings—in some cases doubling it.

For example, when the lender made lifetime savings claims, the FTC alleged the lender excluded borrowers whose loans have a longer term than the previous student loans those consumers refinanced. This meant borrowers typically ended up paying more money (on average, thousands of dollars), the agency said. On the occasions that the lender did disclose the categories of borrowers excluded from its calculations, the disclosures were “buried” in fine print, the FTC asserted.

The allegedly deceptive refinancing claims were not the only problem for the online lender. According to the FTC, the lender also misrepresented loan options for which consumers would pay more on a monthly basis or over a lifetime under certain refinancing plans.

To settle the charges of violating Section 5 of the FTC Act, the online lender agreed to stop making deceptive claims about how much money student loan borrowers have saved or will save from refinancing their loans, absent reliable evidence to back up those claims. Public comment will be accepted on the proposed consent order through November 28.

“Student loan debt is a huge problem facing students and graduates across the country,” FTC Chair Joe Simons said in a statement about the case. “Lenders who offer refinancing options must be upfront with students about savings. They cannot make deceptive claims and bury the truth in fine print.”

To read the FTC’s complaint, click here.

To read the FTC’s proposed consent order, click here.

Why it matters

For fintech companies, the message is clear: Pay more attention to compliance, particularly with regard to advertising. As part of its announcement about the proposed consent order, the FTC warned other lenders to review their advertising to ensure they are not making false or unsubstantiated claims, or else face similar actions. Further, in a separate statement about the case, Commissioner Rohit Chopra expressed his displeasure that the agency lacked the ability to seek civil penalties in similar cases and proposed that the agency work together with the Bureau of Consumer Financial Protection (CFPB) and/or state attorneys general in order to seek such penalties in future cases.