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The following is an excerpt from a S-1 SEC Filing, filed by LENDINGCLUB CORP on 6/20/2008.
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LENDINGCLUB CORP - S-1 - 20080620 - LEGAL_PROCEEDINGS
Legal Proceedings
 
We are not currently subject to any material legal proceedings. We are not aware of any litigation matters which have had, or are expected to have, a material adverse effect on us.


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Prior Operation of the Lending Club Platform
 
Our Prior Operating Structure
 
From the launch of our platform in May 2007 until April 7, 2008, the operation of our platform differed from the structure described in this prospectus, and we did not offer Notes. Instead, our platform allowed unsecured member loans to be transferred directly to lender members.
 
Under this system, lender members received the transfer of anonymized individual promissory notes corresponding to their purchase price. Each member loan was automatically divided from inception into separate promissory notes in amounts that matched the principal purchase commitments from lender members for the particular member loan. At closing, WebBank indorsed the promissory notes to us, and we transferred each promissory note to the applicable lender member, subject to our loan sale and servicing agreement. Our loan sale and servicing agreement provided that we retained the right to service the member loans. Borrower member names appeared as Lending Club screen names on the electronically executed promissory notes. We maintained custody of the promissory notes on behalf of our lender members. We charged lender members a fee of 1.00% of all payments of interest, principal, late fees and recoveries received in respect of the member loans. We disclaimed any obligation to guarantee the promissory notes or support the credit risk of borrower members.
 
From April 7, 2008 until the date of this prospectus, we did not offer lender members the opportunity to make any purchases on our platform. During this time, we also did not accept new lender member registrations or allow new funding commitments from existing lender members. We continued to service all previously funded member loans, and lender members had the ability to access their accounts, monitor their member loans, and withdraw available funds without changes. The borrowing side of our platform was generally unaffected during this period. Borrower members could still apply for member loans, but these member loans were funded and held only by Lending Club.
 
Securities Law Compliance
 
From May 2007 through April 7, 2008, we sold approximately $7.4 million of loans to persons unaffiliated with Lending Club through this operating structure whereby we assigned promissory notes directly to lender members. We did not register the offer and sale of the promissory notes offered and sold through the Lending Club platform under the Securities Act of 1933 or under the registration or qualification provisions of the state securities laws. In our view, analyzing whether or not the operation of the Lending Club platform involved an offer or sale of a “security” involved a complicated factual and legal analysis and was uncertain. If the sales of promissory notes offered through our platform were viewed as a securities offering, we would have failed to comply with the registration and qualification requirements of federal and state law and our lender members who hold these promissory notes may be entitled to rescission of unpaid principal, plus statutory interest. Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act of 1933 is one year from the violation.
 
If we were required to provide rescission to all holders of interests in loans offered through the Lending Club platform, we believe we would be required to make an aggregate payment of approximately $6.4 million to these holders. If a significant number of our lender members sought damages or rescission, or if we were subject to a class action securities lawsuit, our ability to maintain our platform and service the member loans to which your Notes correspond may be adversely affected.
 
GOVERNMENT REGULATION
 
Overview
 
The consumer loan industry is highly regulated. Lending Club, and the member loans made through our platform, are subject to extensive and complex rules and regulations, licensing and examination by various federal, state and local government authorities. These authorities impose obligations and restrictions on our activities and the member loans made through the Lending Club platform. In particular, these rules limit the fees that may be assessed on the member loans, require extensive disclosure to, and consents from, our participants, prohibit


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discrimination and impose multiple qualification and licensing obligations on Lending Club. Failure to comply with these requirements may result in, among other things, revocation of required licenses or registration, loss of approved status, voiding of the loan contracts, class action lawsuits, administrative enforcement actions and civil and criminal liability. While compliance with such requirements is at times complicated by our novel business model, we believe we are in substantial compliance with these rules and regulations. These rules and regulations are subject to continuous change, however, and a material change could have an adverse effect on our compliance efforts and ability to operate.
 
Licensing And Consumer Protection Laws
 
State Licensing Requirements
 
Lending Club is a licensed lender or loan broker in a number of states and is otherwise authorized to conduct its activities on a uniform basis in all other states and the District of Columbia, with the exceptions of Idaho, Indiana, Iowa, Maine, Mississippi, North Carolina and North Dakota. Lending Club does not provide services to borrower members who are residents of Idaho, Indiana, Iowa, Maine, Mississippi, North Carolina and North Dakota. State licensing statutes impose a variety of:
 
  •  recordkeeping requirements;
 
  •  restrictions on loan origination and servicing practices, including limits on finance charges and fees;
 
  •  disclosure requirements;
 
  •  examination requirements;
 
  •  surety bond and minimum net worth requirements;
 
  •  financial reporting requirements;
 
  •  notification requirements for changes in principal officers, stock ownership or corporate control;
 
  •  restrictions on advertising; and
 
  •  review requirements for loan forms.
 
The statutes also subject Lending Club to the supervisory and examination authority of state regulators in certain cases. Because of our relationship with WebBank, we are generally able to arrange loans with borrowers located throughout the United States except for the states of Idaho, Indiana, Iowa, Maine, Mississippi, North Carolina and North Dakota.
 
State Usury Limitations
 
Applicable federal law and judicial interpretations permit FDIC-insured depository institutions, such as WebBank, to “export” the interest rate permitted under the laws of the state where the bank is located, regardless of the usury limitations imposed by the state law of the borrower’s residence unless the state has chosen to opt out of the exportation regime. WebBank is located in Utah, and Utah law does not limit the amount of interest that may be charged on loans of the type offered through the Lending Club platform. Although some states have opted out of the exportation regime, judicial interpretations support the view that such opt outs only apply to loans “made” in those states. A loan made through the Lending Club platform by WebBank may be subject to state usury limits if the loan is deemed subject to the usury laws of a state that has opted-out of the exportation regime.
 
State Disclosure Requirements and Other Substantive Lending Regulations
 
Lending Club also is subject to state laws and regulations that impose requirements related to loan disclosures and terms, credit discrimination, credit reporting, debt collection and unfair or deceptive business practices. Our ongoing compliance program seeks to comply with these requirements.


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Truth in Lending Act
 
The Truth in Lending Act (TILA), and Regulation Z, which implements it, require lenders to provide consumers with uniform, understandable information concerning certain terms and conditions of their loan and credit transactions. These rules apply to WebBank as the creditor for member loans originated on the Lending Club platform, but because the transactions are carried out on our hosted website, we facilitate compliance. For closed-end credit transactions of the type provided through our platform, these disclosures include providing the annual percentage rate, the finance charge, the amount financed, the number of payments and the amount of the monthly payment. The creditor must provide the disclosures before the loan is closed. TILA also regulates the advertising of credit and gives borrowers, among other things, certain rights regarding updated disclosures and the treatment of credit balances. Our platform provides borrowers with a TILA disclosure at the time a borrower member posts a loan request on the platform. If the borrower member’s request is not fully funded and the borrower chooses to accept a lesser amount offered, we provide an updated TILA disclosure. We also seek to comply with TILA’s disclosure requirements related to credit advertising.
 
Equal Credit Opportunity Act
 
The federal Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against credit applicants on the basis of race, color, sex, age, religion, national origin, marital status, or the fact that all or part of the applicant’s income derives from any public assistance program or the fact that the applicant has in good faith exercised any right under the federal Consumer Credit Protection Act or any applicable state law. Regulation B, which implements ECOA, restricts creditors from requesting certain types of information from loan applicants and from making statements that would discourage on a prohibited basis a reasonable person from making or pursuing an application. These requirements apply both to a lender such as WebBank as well as to a party such as Lending Club that regularly participates in a credit decision. Lender members may also be subject to the ECOA in their capacity as purchasers of Notes, if they are deemed to regularly participate in credit decisions. In the underwriting of member loans on the platform, both WebBank and Lending Club seek to comply with ECOA’s provisions prohibiting discouragement and discrimination. As further measures, borrowers are instructed not to provide the type of information that creditors are not permitted to request from applicants under the ECOA and the note purchase agreement requires lender members to comply with the ECOA in their selection of member loans they designate for funding.
 
The ECOA also requires creditors to provide consumers with timely notices of adverse action taken on credit applications. WebBank and Lending Club provide prospective borrowers who apply for a loan through the platform but are denied credit with a joint adverse action notice in compliance with the ECOA requirements (see also below regarding “Fair Credit Reporting Act”).
 
Fair Credit Reporting Act
 
The federal Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of information in the files of consumer reporting agencies. FCRA requires a permissible purpose to obtain a consumer credit report, and requires persons to report loan payment information to credit bureaus accurately. FCRA also imposes disclosure requirements on creditors who take adverse action on credit applications based on information contained in a credit report. Effective November 1, 2008, creditors must also develop and implement an identity theft prevention program for combating identity theft in connection with new and existing accounts. WebBank and Lending Club have a permissible purpose for obtaining credit reports on potential borrowers and also obtain explicit consent from borrowers to obtain such reports. As the servicer for the member loans, Lending Club also accurately reports member loan payment and delinquency information to consumer reporting agencies. Finally, WebBank and Lending Club provide a joint ECOA/FCRA adverse action notice to a rejected borrower at the time the borrower is rejected that includes the required disclosures. Lending Club expects to cooperate with WebBank in developing and implementing an identity theft prevention program.


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Fair Debt Collection Practices Act
 
The federal Fair Debt Collection Practices Act (FDCPA) provides guidelines and limitations on the conduct of third-party debt collectors in connection with the collection of consumer debts. The FDCPA limits certain communications with third parties, imposes notice and debt validation requirements, and prohibits threatening, harassing or abusive conduct in the course of debt collection. While the FDCPA applies to third-party debt collectors, debt collection laws of certain states impose similar requirements on creditors who collect their own debts. Lending Club’s agreement with its lender members prohibits lender members from attempting to directly collect on the member loans. Actual collection efforts in violation of this agreement are unlikely given that lender members do not learn the identity of borrower members. Lending Club has contracted with a professional third-party debt collection agency, Collection Bureau Hudson Valley, Inc., to collect delinquent accounts. Hudson Valley is required to comply with the FDCPA in collecting delinquent accounts of Lending Club borrower members.
 
Privacy and Data Security Laws
 
The federal Gramm-Leach-Bliley Act (GLBA) limits the disclosure of nonpublic personal information about a consumer to nonaffiliated third parties and requires financial institutions to disclose certain privacy policies and practices with respect to information sharing with affiliated and nonaffiliated entities as well as to safeguard personal customer information. A number of states have similarly enacted privacy and data security laws requiring safeguards to protect the privacy and security of consumers’ personally identifiable information and to require notification to affected customers in the event of a breach. Lending Club has a detailed privacy policy, which complies with GLBA and is accessible from every page of our website. Lending Club maintains participants’ personal information securely, and does not sell, rent or share such information with third parties for marketing purposes. In addition, Lending Club takes a number of measures to safeguard the personal information of its members and protect against unauthorized access.
 
Servicemembers Civil Relief Act
 
The federal Servicemembers Civil Relief Act (SCRA) allows military members to suspend or postpone certain civil obligations so that the military member can devote his or her full attention to military duties. The SCRA requires Lending Club to adjust the interest rate of borrowers who qualify for and request relief. If a borrower member with an outstanding member loan is called to active military duty and can show that such military service has materially affected the member’s ability to make payments on the loan, Lending Club will reduce the interest rate on the loan to 6% for the duration of the borrower member’s active duty. During this period, the lender members who have purchased Notes dependent on such member loan will not receive the difference between 6% and the loan’s original interest rate.
 
Other Regulations
 
Electronic Fund Transfer Act and NACHA Rules
 
The federal Electronic Fund Transfer Act (EFTA), and Regulation E, which implements it, provides guidelines and restrictions on the electronic transfer of funds from consumers’ bank accounts. In addition transfers performed by Automated Clearinghouse (ACH) electronic transfers are subject to detailed timing and notification rules and guidelines administered by the National Automated Clearinghouse Association (NACHA). Most transfers of funds in connection with the origination and repayment of the member loans and bidding are performed by ACH. Lending Club obtains necessary electronic authorization from members for such transfer in compliance with such rules. Transfers of funds through the platform are executed by Wells Fargo Bank, N.A. and conform to the EFTA, its regulations and NACHA guidelines.
 
Electronic Signatures in Global and National Commerce Act/Uniform Electronic Transactions Act
 
The federal Electronic Signatures in Global and National Commerce Act (ESIGN) and similar state laws, particularly the Uniform Electronic Transactions Act (UETA), authorize the creation of legally binding and enforceable agreements, including electronic promissory notes, utilizing electronic records and signatures. ESIGN and UETA require businesses that want to use electronic records or signatures in consumer transactions to obtain the


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