Class Action Lawsuit Filed Against Lendistry for Data Privacy Violations Affecting Thousands of Small Businesses

LOS ANGELES, Nov. 4, 2024 /PRNewswire/ -- On October 29, 2024, a class action lawsuit was filed against financial technology company Lendistry, accusing it of severe privacy and data protection violations. The suit alleges that Lendistry mishandled sensitive information from over 17,000 small businesses and nonprofits, contracted by California's government to distribute millions in COVID-19 relief funds. However, the plaintiffs claim Lendistry not only mismanaged the grants but also employed undisclosed third-party artificial intelligence (AI) technology that extracted and transmitted confidential data to other businesses without consent.

Attorney J.R. Howell, representing the plaintiffs, stated, "Lendistry has exploited thousands of Californians in its mishandling of hundreds of millions of dollars in taxpayer funds, as the lawsuit alleges. We hope to shine a light on this extraordinary breach of privacy and public trust and to bring scrutiny on Governor Newsom and the private contractors his office has paid millions of dollars even as they violate state privacy law and deliver shoddy services to the public."

Central to the allegations is Lendistry's relationship with a third-party entity responsible for a supposedly limited bank account verification process. According to the lawsuit, this company instead gained unauthorized, continuous access to applicants' financial data. By creating secret logins, it reportedly harvested transactional records and could automatically revisit accounts daily to collect data.

Howell's experience with similar cases—including a recent settlement in a class action lawsuit against fitness tech company Peloton—prompted him to investigate further when small businesses began reporting issues with Lendistry's grant administration, such as glitches, poor communication, and unfair application rejections. His findings allegedly revealed systemic privacy and data security problems beyond mere administrative errors.

Howell emphasized that the case raises concerns about the unchecked use of AI technology, which he asserts has outpaced state and federal regulations. "In this case, Lendistry has gone too far, using sophisticated, unsupervised generative AI to process sensitive business and personal information, providing that information to third parties who then use, share, and monetize it—all without public consent or awareness," he stated.

The lawsuit seeks compensatory damages, restitution, and an injunction to prevent Lendistry from continuing its practices.

SOURCE The Law Office of J.R. Howell