Lending Club announced today that its chairman and CEO has stepped down after an internal review found that he had violated the company’s business practices.
The news of Renaud Laplanche’s departure, which came as the company reported quarterly earnings, has pummeled Lending Club’s stock, sending it down more than 25% in early trading.
The review related to the sale of $22 million worth of “near-prime” loans to a single investor, and found that the sale went against the investor’s expressed wishes. “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,” Hans Morris, a director who was named to the newly created role of executive chairman, said in a release. Scott Sanborn, Lending Club’s president, will take over as acting CEO.
The departure comes as Lending Club deals with increased scrutiny from regulators and Wall Street. Recently, Lending Club had to change its fee structure, and now pays its bank partner, WebBank, which finances the loan, based on performance. Previously, WebBank was only paid a flat fee, meaning it was paid whether or not the loan was repaid. The change came as the result of a ruling by the Second U.S. Circuit Court of Appeals in the case Madden vs Midland, which called this business model into question.
Wall Street seems to be cooling on the alternative lending market as a whole. OnDeck, a small business lender, is now trading at around $5 a share, after going public at around $20 in December 2014. Prosper, a consumer lending startup, is looking for a bank to package up its loans into bonds, after Citibank suddenly stopped doing so.