# LendUp (2011 – 2022)

- URL: https://girisimcikafasi.com/en/startup-graveyard/lendup/
- Sector: Fintech
- Country: United States
- Total funding: $325 million
- Cause of closure: Regulation and legal issues

## What did it do?

LendUp was a direct lender offering online payday loans, instalment loans and credit cards to consumers with low credit scores. Claiming to assess creditworthiness using publicly available data, the company positioned itself as a socially responsible lender giving underbanked Americans cheaper credit and a way to build their credit scores. It issued its credit cards in partnership with Beneficial State Bank.

## Why did it shut down?

As early as its founding period, Time magazine pointed out that LendUp's fees looked much like those of other payday lenders. In September 2016 the company paid USD 6.3 million in penalties for deceptive practices and widespread violations of payday and instalment lending laws. In 2020 the CFPB sued the company for violating a law that protects military personnel. In December 2021 a CFPB order found that LendUp had misled consumers and repeatedly breached the 2016 order, and permanently banned the company from lending. The company stopped lending in January 2022.

## The story

In November 2012 Time magazine was questioning the claim of a newly founded start-up. LendUp said it was not like other payday lenders; yet borrowing USD 200 for two weeks cost a little over USD 30 in fees, much the same as its rivals. That question would follow the company throughout its ten-year story.

LendUp was founded in 2011 by stepbrothers Sasha Orloff and Jake Rosenberg and went through Y Combinator. The company offered online payday loans, instalment loans and credit cards to consumers with low credit scores, describing its customers as the emerging middle class. It positioned itself as a socially responsible lender for underbanked Americans. It raised a total of USD 325 million in equity and debt financing from investors including PayPal, Kleiner Perkins, Google Ventures, Andreessen Horowitz and QED Investors; in January 2016 it raised USD 150 million for its credit card product alone.

In September of that year the regulators stepped in. LendUp had to pay a total of USD 6.3 million to the CFPB and the California regulator for deceptive practices and widespread violations of payday and instalment lending laws. The Financial Times headlined a critical piece at the time "LendUp: playing with people's lives". In December 2018 the credit card business was sold off and became a separate company called Mission Lane. In 2019 Anu Shultes was appointed CEO and the company focused on personal loans. In 2020 the CFPB sued LendUp for violating a law that protects military personnel.

The final blow came in December 2021. Under a court-approved CFPB order, LendUp had misled consumers about its credit reporting practices and access to credit, failed to deliver the credit-building opportunities it had promised, misrepresented loan terms and costs, and repeatedly breached the 2016 order. The order permanently banned the company from lending and imposed a USD 100,000 penalty. LendUp stopped lending in January 2022. In May 2024 the CFPB announced it would distribute around USD 40 million to affected consumers.

LendUp's story shows that a social impact narrative is no shield in a regulated industry. The company said it was different; the regulators looked not at the narrative but at the practices and the records.

## Lessons

- If you market yourself on a social impact claim, show with independent data that your pricing and practices genuinely back it up.
- If you have signed a consent order with a regulator, monitor compliance with every clause through a dedicated team and regular internal audits; a second breach is often the end of the company.
- If you promise vulnerable customers a benefit such as building their credit score, do not market it until you can deliver it systematically.

## Sources

- [LendUp](https://en.wikipedia.org/wiki/LendUp)
- [Google-funded loan startup to pay $6.3m for 'deceptive' practices](http://www.theguardian.com/technology/2016/sep/28/lendup-fine-google-payday-loan-deceptive-practices)
- [Lender ordered to pay total $6.3 million over payday-loan and installment-lending violations.](https://www.wsj.com/articles/fintech-upstart-lendup-fined-by-cfpb-california-regulator-1474993380)