Adding to growing concerns about the quality of the industry's loans, the leading marketplace lender is parting ways with its leader and founder due to improprieties that only fed those fears.
Lending Club announced last week that its CEO and founder, Renaud Laplanche, is stepping down as the result of an internal investigation into sales of $22 million in sub-prime loans.
Marketplace lenders like Lending Club connect individuals and businesses in need of loans with investors.
This peer-to-peer form of lending cuts out the banks, but investors and analysts have been increasingly expressing fears that this all might be too good to be true. They fear that marketplace lenders may be operating under rules that aren't tight enough.
In Lending Club's case, the company's probe of itself determined that it had violated the instructions of the single investor who bought $22 million in what the company called "near-prime" loans.
The San Francisco-based company asserted that the issue wasn't about the credit quality or the sizes of the loans. However, it admitted that "certain personnel" seemed aware that the sales of the loans didn't "meet the investor's criteria."
The whole investigation into the loans in question began last month with the discovery of change made to application dates for $3 million of the lent money. And that investigation uncovered another, "unrelated" matter, which included a failure to declare personal interest in a fund the company was also looking at.
Lending Club has already began taking steps to remedy "the material weaknesses in internal control over financial reporting identified in the first quarter of 2016."
Several of those steps apparently included the resignation Laplanche, the promotion of Scott Sanborn, president to CEO, and the installation of director Hans Morris as executive chairman.
"A key principle of the company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees," Morris said. "While the financial impact of this $22 million in loan sales was minor, a violation of the Company's business practices along with a lack of full disclosure during the review was unacceptable to the board."
