Commitments and Contingencies

Operating Lease Commitments

Total facilities rental expense for the second quarter and first half of 2018 was $4.3 million and $8.6 million, respectively. Total facilities rental expense for the second quarter and first half of 2017 was $4.0 million and $7.8 million, respectively. Sublease rental income for both the second quarters of 2018 and 2017 was $0.1 million. Sublease rental income for both the first halves of 2018 and 2017 was $0.2 million. Minimum lease payments for the second quarter and first half of 2018 were $3.8 million and $7.8 million, respectively. Minimum lease payments for the second quarter and first half of 2017 were $3.4 million and $7.0 million, respectively. As of June 30, 2018, the Company pledged $0.8 million of cash and $5.5 million in letters of credit as security deposits in connection with its lease agreements.

The Company’s future minimum payments under non-cancelable operating leases in excess of one year and anticipated sublease income as of June 30, 2018, were as follows:



	Operating Leases		Subleases			Net
2018	$	8,612	$	(155	)	$	8,457
2019	16,626		(39		)	16,587
2020	17,557		—			17,557
2021	17,844		—			17,844
2022	13,519		—			13,519
Thereafter	32,644		—			32,644
Total	$	106,802	$	(194	)	$	106,608

Loan Purchase Obligation

Under the Company’s loan account program with WebBank, which serves as the Company’s primary issuing bank, WebBank retains ownership of the loans it originates that are facilitated through the Company’s lending marketplace for two business days after origination. As part of this arrangement, the Company is committed to purchase the loans at par plus accrued interest, at the conclusion of the two business days. As of June 30, 2018 and December 31, 2017, the Company was committed to purchase loans with an outstanding principal balance of $50.9 million and $54.2 million at par, respectively.

Loan Repurchase Obligations

The Company is generally required to repurchase loans, notes or certificates in events of verified identity theft. The Company may also repurchase certain loans, notes or certificates in connection with certain customer accommodations. In connection with certain whole loan and CLUB Certificate sales, as well as to facilitate access to securitization markets, the Company has agreed to repurchase loans if representations and warranties made with respect to such loans are breached, and such breach has a material adverse effect on the loans. In the case of certain securitization transactions, the Company has also agreed to repurchase or substitute loans for which a borrower fails to make the first payment due under a loan. The Company believes such provisions are customary and consistent with institutional loan and securitization market standards.

In addition to and distinct from the repurchase obligations described in the preceding paragraph, the Company performs certain administrative functions for a variety of retail and institutional investors, including executing, without discretion, loan investments as directed by the investor. To the extent loans do not meet the investor’s investment criteria at the time of issuance, or are transferred to the investor as a result of a system error by the Company, the Company repurchases such loans, notes or certificates at par.

As a result of the loan repurchase obligations described above, the Company repurchased $2.0 million and $1.1 million in loans, notes and certificates during the first halves of 2018 and 2017, respectively.

Purchase Commitments

As required by applicable regulations, the Company must make firm offers of credit as a result of pre-approval direct mail it sends out, where the consumers continue to meet the credit worthiness criteria which were used to screen them. If such loans are accepted by the applicants but not otherwise funded by investors on the platform, the Company is required to provide funding for the loans. The Company was not required to purchase any such loans during the first half of 2018. Additionally, loans in the process of being facilitated through the Company’s platform and originated by the Company’s issuing bank partner at June 30, 2018, were substantially funded in July 2018. As of the date of this report, no loans remained without investor commitments and the Company was not required to purchase any of these loans.

In addition, if neither the education and patient finance reporting unit (PEF) nor the Company can arrange for other investors to invest in or purchase loans that PEF facilitates and that are originated by an issuing bank partner but do not meet the credit criteria for purchase by the issuing bank partner (Pool B loans), PEF and the Company are contractually committed to purchase these loans. As of June 30, 2018 and December 31, 2017, the Company had a $9.0 million deposit in a bank account to secure potential future purchases of these loans, if necessary. The funds are recorded as restricted cash on the Company’s Condensed Consolidated Balance Sheets. During the first half of 2018, the Company was required to purchase $9.8 million of Pool B loans. Pool B loans are held on the Company’s Condensed Consolidated Balance Sheets and have an outstanding principal balance and fair value of $23.9 million and $21.5 million as of June 30, 2018, respectively, and $20.1 million and $18.2 million as of December 31, 2017, respectively. The Company believes it will be required to purchase additional Pool B loans during 2018 as it seeks to arrange for other investors to invest in or purchase these loans.

Credit Support Agreement

The Company is subject to a credit support agreement with Cirrix Capital (Investment Fund). The credit support agreement requires the Company to pledge and restrict cash in support of its contingent obligation to reimburse the Investment Fund for net credit losses on loans underlying the Investment Fund’s certificates that are in excess of a specified, aggregate net loss threshold. On April 14, 2017, the credit support agreement was terminated effective December 31, 2016. However, the Company remains subject to the credit support agreement for credit losses on loans underlying the Investment Fund’s certificates that were issued on or prior to December 31, 2016. The Company pledged and restricted cash in the amount of $0.9 million and $2.2 million as of June 30, 2018 and December 31, 2017, respectively, to support this contingent obligation. The Company’s maximum exposure to loss under this credit support agreement was limited to $6.0 million as of June 30, 2018 and December 31, 2017, for which no liability has been accrued as of June 30, 2018 or December 31, 2017.

Legal

The Company is subject to various claims brought in a litigation or regulatory context. The Company has recently settled certain significant class action lawsuits filed in 2016; continues to address and defend against derivative lawsuits, “opt-out” lawsuits, and federal regulatory actions relating to and arising from the internal board review described more fully in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Board Review” contained in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the Board Review); continues to address federal and state regulatory examinations and actions relating to the Company’s business practices and licensing; and is a party to a number of routine litigation matters arising in the ordinary course of business. The majority of these claims and proceedings relate to or arise from alleged state or federal law and regulatory violations, or are alleged commercial disputes and alleged consumer complaints. The Company accrues for costs related to contingencies when a loss from such claims is probable and the amount of loss can be reasonably estimated. In determining whether a loss from a claim is probable and the loss can be reasonably estimated, the Company reviews and evaluates its litigation and regulatory matters on at least a quarterly basis in light of potentially relevant factual and legal developments. If the Company determines an unfavorable outcome is not probable or the amount of loss cannot be reasonably estimated, the Company does not accrue for a potential litigation loss. In those situations, the Company discloses an estimate of the reasonably possible losses or a range of reasonably possible losses, if such estimates can be made. Except as otherwise specifically noted below, at this time, the Company does not believe that it is possible to estimate the reasonably possible losses or a range of reasonably possible losses related to the matters described below.

Settlement of Class Action Filed In 2016

During the year ended December 31, 2016, several putative class action lawsuits alleging violations of federal securities laws were filed in state and federal courts. These cases were ultimately settled as more fully described below.

Cases were filed in California Superior Court, naming as defendants the Company, current and former directors, certain officers, and the underwriters in the December 2014 initial public offering (the IPO). All of these actions were consolidated into a single action (Consolidated State Court Action), entitled In re LendingClub Corporation Shareholder Litigation, No. CIV537300. Following multiple demurrers, which were granted in part and denied in part, the Plaintiffs filed a Second Amended Consolidated Complaint, which became the operative pleading. In April 2017 the plaintiffs filed their motion for class certification, which the Company opposed. The motion was granted in part in a June 2017 Order. The Court set the trial date for October 2018.

In May 2016, two related putative securities class actions (entitled Evellard v. LendingClub Corporation, et al., No. 16-CV-2627-WHA, and Wertz v. LendingClub Corporation, et al., No. 16-CV-2670-WHA) were filed in the United States District Court for the Northern District of California, naming as defendants the Company and certain of its officers and directors; these matters were subsequently consolidated into a single action. After a motion to dismiss, which was ultimately granted in part and denied in part, the plaintiffs filed an amended complaint and the parties began discovery. In September 2017 the plaintiffs filed their motion for class certification, which the Company opposed. The motion was granted in an October 2017 Order. In that Order, the Court also granted a motion by the plaintiffs in the Consolidated State Court Action to intervene in the federal action.

Following court-ordered mediation in November 2017 and January 2018, the Company agreed to a preliminary settlement in which the Company would pay a total of $125.0 million in exchange for a dismissal of both the federal and state securities class actions with prejudice. Of that amount, $47.75 million will be paid from insurance. The Court issued an order granting preliminary approval of the settlement on March 16, 2018 and set a hearing for final approval of the settlement for July 19, 2018. To satisfy the payment obligations, insurance carriers directly paid $38.2 million to a settlement administrator in March 2018 and an additional $9.6 million in April 2018. The Company paid $14.75 million to the settlement administrator in April 2018 and paid the remaining $62.5 million in July 2018. The Court approved the settlement on July 19, 2018 and these matters will be dismissed with prejudice. Settlement proceeds will be distributed to members of the impacted class.

The Company was self-insured for the deductible amount under its director and officers’ liability insurance policy for these matters. The Company exceeded the deductible in 2016 and was reimbursed by insurance carriers for costs related to the litigations and investigations prior to the settlement. As a result of such reimbursed costs and the amount to be paid in the settlement, the policy limits under available insurance policies have been exhausted.

“Opt-Out” Lawsuits

In May 2018, following the preliminary approval of the settlement of the class action lawsuits discussed above, two plaintiffs separately filed actions (Fred Alger Management, Inc. et al v. LendingClub Corporation, et al., No. 3:18-cv-02872-JCS and Valinor Capital Partners, LP et al. v. LendingClub Corporation, et al., No. 3:18-cv-02887-WHO) in the United States District Court for the Northern District of California, naming as defendants the Company and two of its former officers. These plaintiffs formally “opted out” of participation in the settlement of the class action lawsuits to pursue their claims separately. The Company will vigorously defend against the claims made in these lawsuits. Because these lawsuits relate to the matters in the 2016 class action lawsuits, the Company will not have insurance coverage available for costs associated with these “opt-out” lawsuits as the policy limits under available insurance policies have been exhausted.

Derivative Lawsuits

In May 2016 and August 2016, respectively, two putative shareholder derivative actions were filed (Avila v. Laplanche, et al., No. CIV538758 and Dua v. Laplanche, et al., CGC-16-553731) against certain of the Company’s current and former officers and directors and naming the Company as a nominal defendant. Both actions were voluntarily dismissed without prejudice. On December 14, 2016, a new putative shareholder derivative action was filed in the Delaware Court of Chancery (Steinberg, et al. v. Morris, et al., C.A. No. 12984-CB), against certain of the Company’s current and former officers and directors and naming the Company as a nominal defendant. In addition, on August 18, 2017, another putative shareholder derivative action was filed in the Delaware Court of Chancery (Fink et. al. v. Laplanche, et. al., Case No. 2017-0600). These matters arise from claims that the Board allegedly breached its fiduciary duty by failing to provide adequate oversight over the Company’s practices and procedures, and purports to plead derivative claims under Delaware law and federal securities law. The court ultimately consolidated the cases, selecting the Steinberg plaintiffs as lead plaintiffs, and designating the Steinberg complaint as the operative complaint. On November 6, 2017, a new putative shareholder derivative action was filed in the Northern District of California (Sawyer v. Sanborn, et al., No. 3:17-cv-06447), against certain of the Company’s current and former officers and directors and naming the Company as a nominal defendant. This action is based on allegations similar to those in the securities class action litigation, as described above. The plaintiffs in the Steinberg action were permitted to join with the plaintiffs in the Sawyer action for the purposes of settlement. The Court in the Sawyer action concurrently ordered all parties (including the intervening Steinberg plaintiffs) to participate in a mediation in May 2018, but that mediation did not result in a settlement. In July 2018, the Company brought a motion to dismiss the Sawyer matter on the grounds that the action was not filed within the applicable statute of limitations. It is not possible for the Company to predict the outcome of either of these derivative litigation matters.

Regulatory Investigations Following the Board Review

On May 9, 2016, following the announcement of the Board Review, the Company received a grand jury subpoena from the U.S. Department of Justice (DOJ). The Company also received formal requests for information from the SEC. The DOJ and the SEC are investigating matters related to the subject of the Company’s Board Review and statements made in the Company’s public filings.

The Company continues cooperating with the DOJ and SEC in their ongoing investigations, including with respect to the potential settlement of these matters. No assurance can be given that settlement with the DOJ or SEC can be reached or as to the timing or outcome of these matters. However, to the extent that the Company continues to incur expenses to defend or respond to these investigations, insurance policy coverage limits under the Company’s 2016 policies have been exhausted, as described above, so that the Company will likely have no insurance available to offset any additional costs.

FTC Lawsuit

In 2016, the Company received a formal request for information from the Federal Trade Commission (the FTC). The FTC commenced an investigation concerning certain of the Company’s policies and practices and related legal compliance.

On April 25, 2018, the FTC filed a lawsuit in the Northern District of California (FTC v. LendingClub Corporation, No. 3:18-cv-02454) alleging causes of action for violations of the FTC Act, including deception in connection with disclosures related to the Company’s origination fees and certainty of loan approval, unfairness in making unauthorized charges to borrowers’ bank accounts and violation of the Gramm-Leach-Bliley Act regarding the Company’s practices in delivering its privacy notice. In June 2018, the Company brought a motion to dismiss the complaint, which is currently set for hearing on September 13, 2018. While the Company is not able to predict with certainty the timing, outcome, or consequence of this litigation, it believes that it has been in compliance with all applicable federal and state laws related to this matter and will vigorously defend the lawsuit.

Class Action Lawsuits Following Announcement of FTC Litigation

In April 2018, following the announcement of the FTC’s litigation against the Company, putative shareholder class action litigation was filed against the Company and certain of its current and former officers and directors alleging violations of securities laws in connection with the Company’s description of fees in securities filings. A motion to consolidate the matters and determine a lead plaintiff has been set for November 2018. These lawsuits are in the early stages. The Company denies the allegations and will vigorously defend against the allegations.

Derivative Lawsuit Following FTC Litigation

In July 2018, a putative shareholder derivative action was filed in the Northern District of California (Baron v. Sanborn, et al. No. 3:18-cv-04391), against certain of the Company’s current and former officers and directors and naming the Company as a nominal defendant. This action is based on allegations that the individuals breached their fiduciary duties to the Company by permitting the actions alleged in the FTC’s complaint and the description of fees and other practices in the Company’s securities filings.

Regulatory Investigation by the State of Massachusetts

In June 2018, the Company received a civil investigative demand from the office of the Attorney General of the State of Massachusetts relating to the Company’s advertising and disclosure practices with respect to Massachusetts’ consumers. The Company is cooperating with the investigation. This matter is in its early stages and while the Company is not able to predict with certainty the timing, outcome, or consequence of the investigation.

Regulatory Examinations and Actions Relating to the Company’s Business Practices and Licensing

The Company has been subject to periodic inquiries and enforcement actions brought by federal and state regulatory agencies relating to the Company’s business practices, the required licenses to operate its business and its manner of operating in accordance with the requirements of its licenses. In the past, the Company has successfully resolved inquiries in a manner that was not material to its results of financial operations in any period and that did not materially limit the Company’s ability to conduct its business. At the state level, the Company is currently in discussions with the Colorado Department of Law (the CDL) concerning the licenses required for the Company’s servicing operations and the structure of its offerings in the State of Colorado. No assurance can be given as to the timing or outcome of the CDL inquiry or any other matters.

In addition, the Company has also responded to inquiries from the California Department of Business Oversight and the New York Department of Financial Services regarding the operation of the Company’s business and the overall “FinTech” industry, but to date has received no indication that these inquiries will lead to any enforcement or other actions.

Putative Class Actions

In December 2017, a putative class action lawsuit was filed against the Company in the State of Nevada (Moses v. Lending Club, 2:17-cv-03071-JAD-PAL) alleging violations of the federal Fair Credit Reporting Act. The complaint alleges that the Company improperly accessed the credit report of the plaintiff, who had formerly had a loan serviced by the Company. The complaint further alleges, on information and belief, that the Company improperly accessed credit reports of other similarly situated individuals. The lawsuit is in its early stages and the Company denies the allegations of the complaint and will vigorously defend against the allegations, including a motion to stay the class action on the grounds that the plaintiff has waived the right to bring a class action on must individually arbitrate any claim.

Certain Financial Considerations Relating to Litigation and Investigations

The Company had $89.6 million and $129.9 million in accrued contingent liabilities and $0 and $52.1 million in insurance reimbursements receivable associated with the matters discussed above at June 30, 2018 and December 31, 2017, respectively. The decrease in accrued contingent liabilities and insurance reimbursements receivable as of June 30, 2018 compared to December 31, 2017 was primarily a result of insurance reimbursement payments of $47.75 million made by insurance carriers and payments of $14.75 million made by the Company to the plaintiffs in the first half of 2018 in the class action litigation settlement described above, partially offset by $25.8 million in accrued contingent liabilities in the first half of 2018 related to ongoing governmental and regulatory investigations and ongoing litigation related to legacy matters. Class action settlement and regulatory litigation expense for the second quarter and first half of 2018 was $12.3 million and $25.8 million, respectively. The Company had no Class action settlement and regulatory litigation expense during the second quarter and first half of 2017. In addition to the foregoing, the Company is subject to, and may continue to be subject to, legal proceedings and regulatory actions in the ordinary course of business. No assurance can be given as to the timing or outcome of any of these matters.