Back in 2012-13, when LendUp was a fintech startup with as few as five employees, it misled some customers about its ability to build their credit scores and get them loans. This week, the payday loan company paid a high price for those youthful indiscretions: $6.3 million in fines and refunds, as mandated by federal and state regulators.
The penalty sends a message to LendUp’s fellow fintech startups that compliance controls need to be in place from day one. Being young and small is no excuse, the Consumer Financial Protection Bureau (CFPB) now says—a precedent that had yet to be established at the time of the violations.
According to the Washington Post, the penalty puts LendUp investor Google Ventures (now GV) in an awkward position, especially as parent company Alphabet has already taken a tough stance on payday lenders, in May banning them from advertising on Google. It also raises questions about investor Andreessen Horowitz’s startup support services model of venture capital, as the Financial Times notes.