LendingClub plunged as much as 17 percent on Wednesday after the Federal Trade Commission alleged that the online lender "deceived customers" on its fee structure.
LendingClub sold users on loans with "no hidden fees," but actually collected "hundreds or even thousands of dollars in hidden up-front fees from the loans," the agency said in a statement.
In its complaint, the FTC said LendingClub knew it was creating problems for consumers and likely misleading them.
It's the latest setback for LendingClub, whose founder was ousted in 2016 after an investigation determined that company employees knowingly sold loans to an investor that did not meet the backer's criteria.
The company pioneered the model of issuing consumer loans over the internet and selling the high-yield debt to investors through a marketplace.
LendingClub shares fell as low as $2.69 immediately following Wednesday's announcement. The stock is down more than 50 percent in the past year and has lost 80 percent of its value since the company went public in late 2014.
LendingClub's website and advertising materials told users there wouldn't be hidden fees. But often users received loans for a smaller amount than they'd applied for, the FTC said, because LendingClub would take a percentage of the loan after a bank had released the money but before LendingClub transferred it to the applicant.
The FTC also said LendingClub falsely told applicants their loans had been backed by investors even though the applicants still had to pass multiple rounds of approval. LendingClub congratulated applicants on their forthcoming funds when it knew many of them would never get a loan, the FTC said.
"This case demonstrates the importance to consumers of having truthful information from lenders, including online marketplace lenders," Reilly Dolan, acting director of the FTC's Bureau of Consumer Protection, said in the statement. "Stopping this kind of conduct will help consumers make informed choices about loan offers."
LendingClub called the allegations "legally and factually unwarranted," and said in a statement that "it intends to oppose the claims and work towards an early resolution of the matter in Federal Court."
The complaint was filed in the U.S. District Court for the Northern District of California, San Francisco Division.