Lendio Settles Charges Over Undisclosed Fees and Conflicts of Interest in Paycheck Protection Program Loan Processing

Lendio, an online small business lending marketplace, agreed to settle federal charges that it failed to adequately disclose fees it received from lenders in connection with Paycheck Protection Program loan applications it processed on behalf of small business borrowers during the COVID-19 pandemic.DOCUMENTED The settlement addressed allegations that Lendio presented itself as a free service helping small businesses navigate the PPP application process while receiving payments from lenders that created conflicts of interest the company did not adequately disclose to the borrowers it was serving.

The PPP was established as an emergency program to keep small businesses afloat during pandemic-era business disruptions. The program's design relied on private lenders to originate and process loans, with lenders receiving processing fees from the government based on loan size.DOCUMENTED Lendio served as an intermediary, operating a marketplace where small business owners could apply for PPP loans and be matched with a lender — a role the company described as free and beneficial to borrowers seeking access to relief funds.

The Fee and Referral Structure

The charges centered on the financial arrangements between Lendio and the lenders on its platform.DOCUMENTED When Lendio directed a small business applicant toward a particular lender and that lender originated the PPP loan, Lendio received a portion of the lender's processing fee — an arrangement that gave Lendio a financial incentive connected to which lender it steered applicants toward, not only the quality or terms of the match from the borrower's perspective.

Federal regulators determined that this financial relationship was material information that Lendio was required to disclose clearly to applicants, who might reasonably want to know that the platform connecting them with a lender was also receiving payment from the lender in connection with the referral.REVIEWED The absence of clear disclosure meant that small business owners using the platform could not account for the potential conflict of interest when evaluating whether the lender they were referred to was the best option available to them.

Pandemic Relief Programs and Disclosure Standards

The PPP context made the disclosure failure particularly significant because of the urgency under which small businesses were applying for loans and the degree to which they were relying on intermediaries like Lendio to help them navigate an unfamiliar and rapidly changing program.DOCUMENTED Businesses under financial stress, operating against application deadlines and uncertain about their chances of obtaining relief funds, were not in an ideal position to scrutinize the terms under which an intermediary platform was helping them — making the platform's disclosure obligations more important, not less, than they would be in a routine commercial context.

Federal consumer protection law requires that material information — information that a reasonable consumer would want to know and that might affect their decision — be disclosed clearly and conspicuously before a transaction. The financial relationship between a referral platform and the providers it refers consumers to is generally considered material, particularly when the relationship creates incentives that could influence which provider is selected.REVIEWED

Settlement Requirements

The Lendio settlement required the company to implement clear disclosures of any financial arrangements with lenders on its platform, including the nature and amount of fees received in connection with referrals, before presenting loan options to applicants.DOCUMENTED The disclosures required under the order were designed to ensure that borrowers could make informed decisions about whether to use the platform and which lender options to pursue with awareness of the financial relationships involved.

The settlement also required record-keeping and compliance reporting sufficient for regulators to verify ongoing adherence to the disclosure requirements. The financial component of the resolution addressed the period during which the alleged disclosure failures occurred.DOCUMENTED

What Borrowers Should Know About Lending Intermediaries

The Lendio case illustrates a transparency issue that applies beyond the PPP context to any lending marketplace or financial intermediary that helps consumers or businesses access loans from third-party lenders.REVIEWED When using a marketplace that connects borrowers with lenders, key questions include: Does the platform receive any payment from the lenders it refers borrowers to? Does the platform receive different amounts depending on which lender is selected? Are the loan options presented in any particular order based on referral fees rather than borrower-favorable terms?

Reputable lending marketplaces disclose their compensation arrangements clearly, either in their terms of service or in the loan matching process itself. The presence of lender-side payments to a borrower-facing platform is not inherently inappropriate — it is how many legitimate financial services businesses fund themselves — but the arrangement should be disclosed clearly so that borrowers can account for it in evaluating their options. Businesses that used lending marketplace platforms during the PPP period and were not clearly informed of referral fees in the matching process should review their loan terms and, if they believe they may have been directed away from better options due to undisclosed conflicts, can raise concerns through the settlement's consumer redress process.

Disclosure Standards for Financial Intermediaries Post-Pandemic

The Lendio case contributed to an evolving regulatory expectation that financial marketplace platforms — not only the lenders they connect consumers and businesses with, but the platforms themselves — bear affirmative disclosure obligations when they receive compensation from providers they recommend. This principle applies beyond the PPP context: any comparison platform, lead generator, or marketplace that receives payment from the providers it routes consumers toward should disclose that relationship clearly before the consumer commits to a specific provider. The absence of this disclosure is increasingly treated by regulators not as a technical oversight but as a material omission that affects the consumer's ability to evaluate the platform's recommendations with full information about the financial relationships that may influence them. Lenders and borrowers using marketplace platforms should proactively ask about compensation arrangements as a standard part of the platform evaluation process.

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