Last November, a company called Loan Doctor Financial launched an online CD account called “CD Healthcare Funding Savings Account” that claimed to pay 6% interest rates. Along with the deposits, the company, which the CFPB said called itself a “commercial bank,” would be expected to provide loans to medical professionals, which it said was low credit risk. The company denies calling itself a “commercial bank”.
With the best rates from online banks (Marcus, Ally, Synchrony) paying around 2% APY, the numbers stood out as they were touted as an almost risk-free investment with returns rivaling those of the stock market.
Among the practices alleged by the CFPB: taking money from people who thought it was going to be insured on accounts equivalent to cash and instead using the funds to trade stocks.
Over 400 people have invested in the so-called high yield CDs, totaling over $ 15 million. The minimum deposit for the “best savings rate in the United StatesWas $ 1,000, with one month’s notice withdrawals allowed and free of charge.
“Loan Doctor and Radjabli falsely stated that Loan Doctor is a commercial bank and that consumers’ deposits are safe and comparable to a traditional savings account with a guaranteed return. ” wrote the Bureau in a press release. “In fact, Loan Doctor was not a commercial bank and consumers’ deposits were invested in volatile securities or securities backed investments.”
In a statement provided by Loan Doctor attorney Anthony Alexis, a former CFPB deputy director and head of the enforcement office now in the private sector, the company denied the claims and explained why it did not settle with the office as most businesses do.
“Even though we have fully cooperated with the CFPB, we have not been able to come to a final resolution providing a true account of the facts and circumstances surrounding the product and all that Loan Doctor has done to correct the regulatory requirements that the CFPB claims to need to be addressed, ”Alexis said.
Alexis added that the Bureau refused to acknowledge that the company returned all the money invested, including the interest it had promised.
“To our knowledge, there have been no complaints and the program has presented an excellent investment opportunity during a time of significant economic and financial stress,” said Alexis. “Convinced that the allegations have no basis, Loan Doctor looks forward to clearing its name and continuing to provide quality services to healthcare professionals soon.”
Targeted Facebook ads and a heavy dose of skepticism
Millions of people love high yield savings accounts because they pay some of the highest interest rates on accounts with FDIC security. If the bank goes bankrupt, the government will fix things up for balances of up to $ 250,000 per account.
The Loan Doctor, according to the CFPB, presented itself as making deposits to “an FDIC insured account, a Lloyd’s of London insured account, or a ‘cash alternative’ or ‘cash equivalent’, and , in addition, this Loan Doctor maintain a cash reserve of an amount “equivalent” to the amount deposited by consumers. “
At a glance – at least the 400 people who invested the money – it might seem like the money is completely safe, but the CFPB said it wasn’t.
According to the complaint against it, the company “falsely touted the stability of its HCF High Yield CD accounts by comparing these accounts to various types of savings accounts and falsely describing itself as a ‘commercial bank’.
Contemporary posts on Reddit show that at least some people were curious, but many thought it was a “swindle“and did not”look legitimate. ” A Skeptical redditor noted that despite removing the FDIC name, Loan Doctor did not say he was insured anywhere. “Your deposits are not protected,” they wrote.
However, this loophole was not even true for the Loan Doctor. In its fine print, according to the CFPB, he said, “The principal is guaranteed and insured. Interest isn’t, but we’ve paid 6% throughout 2019 and 5% to 6.25% in previous years. “
“Those who participated in this product were sophisticated investors – many invested hundreds of thousands of dollars,” Alexis said. “The product included a clear customer agreement, with all required disclosures and information, none of which was challenged by the CFPB in its investigation or complaint.”
The complaint also alleges that the company falsely represented past returns.
To explode those claims, the company turned to Facebook and Google’s proven method of ad targeting, hoping to trick digital but naive geeks into thinking they’ve found the only high-yielding secret. without risk.
A Facebook post read, “Hey Mum and Dad, are you getting 6% APY Guaranteed on my college fund?”
Most of the claims were false, according to the CFPB. The Loan Doctor claimed to have buyers for the loans he had previously taken out, which he did not. He also claimed to have obtained $ 500 million in loans.
“In fact, Loan Doctor has never granted a loan to a health professional,” the CFPB wrote in the complaint.
CFPB asks the Loan Doctor to stop, but it continues to run
In March, the CFPB asked the Loan Doctor to stop offering and marketing CD accounts.
According to the Bureau, it only “partially” ceased operations but continued to sell the products under a different name “while hiding its risks from consumers”, after seeking advice from financial advisers on how to find a solution. new name which was not a CD that “conveys the security, predictable income, impermeability to stock market volatility, etc., of the product but without looking like a banking product”.
The Loan Doctor story is probably over – although it will fight in court – but it is relevant given the current economic and stock market climate. The story comes as interest rates on high yield savings accounts and CDs continue to fall, with some of the highest paying accounts coming from places like Ally (ALLY) and Marcus (SG) recently lowered their rates to 1.00% APY. In early 2019, Marcus paid 2.25% APY.
These may be historically good, well above the current national APY average of around 0.10%, but they are well below the 2.25% of two years ago. The promises of higher rates are certainly attractive, especially with the most volatile market since the financial crisis.
While it probably sounded too good to be true for most people – including Redditors – like almost everyone in the media who hasn’t written about it, 400 people coughed up at least $ 1,000 each. .
There is essentially nothing about the Loan Doctor in the financial media except for an interview with Nasdaq TV which was uploaded by the company itself on YouTube and displayed on the company’s home page. The company’s press page hosts many links to “media” articles – including Yahoo Finance – but they are only Press Releases from Cison PR Newswire, not actual reporting.
If there’s one takeaway from all of this, it’s another reminder that free breakfasts don’t exist and that putting your money on the line to get one can be a very risky thing.
Update 5/21: Added the company’s statement that it denies calling itself a “commercial bank” as claimed by the CFPB.