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Some consumers paid more than they expected on their loans, and this week they’re seeing some repercussions for their lender.
LendingClub a company that pairs borrowers and investors for peer-to-peer lending, was sued by the Federal Trade Commission this week, after regulators said the company did not make its fees clear enough.
“We’re thankful for the federal regulator using its enforcement authorities, particularly while the CFPB has dialed that back significantly under its new leadership,” said Rebecca Borne, senior policy counsel at the Center for Responsible Lending, a nonprofit based in Durham, N.C.
Here’s what happened and how you can avoid the same unwelcome surprise on a loan:
What happened at LendingClub
The Federal Trade Commission said LendingClub lured in new customers promising “no hidden fees,” but when the consumers got their loans, “origination fees” — fees lenders sometimes charge to take out the loan — were factored into their interest rates.
LendingClub in a blog post said the company does “not agree” with the FTC on the topic and is “very disappointed that it was not possible to resolve this matter constructively with the agency’s current leadership.”
The company does explain how it charges fees on its website, on a page called “Rates & Fees,” it said. But the FTC took issue with the company saying it has “no hidden fees” in some of its company literature.
How to avoid the same fate
Some lenders, such as Marcus (part of Goldman Sachs ), SoFi and LightStream, do not charge fees, such as origination fees, on their loans, said Nick Clements, co-founder of personal-finance company MagnifyMoney.
But others, including Prosper, Avant and LendingClub, do charge. In general, lenders that require higher credit scores for their borrowers also have fairly good terms, including low fees, Clements said.
How can you tell if you are being overcharged?
Pay attention to both the interest rate advertised, as well as the annual percentage rate (APR), Clements said. If they’re different, the lender is likely factoring additional fees into your annual percentage rate.
You may need to borrow more money than you expected if that’s the case, he said, because the total amount you would receive will be less than you asked for.
Research several lenders before choosing which one you want, he said. And if there are any unfamiliar terms, or any confusion about how much you’ll pay back monthly, ask.