Banks are cutting ties with LendingClub Corp. in the wake of the company's scandal. This move by banks could prove to be critical for LendingClub. The company recently stated that banking institutions accounted for 34% of the $2.75 billion in funding that took place on LendingClub in the first quarter of 2016.

Peer-to-peer lender LendingClub Corp. (LC) is under fire after its founder and CEO Renaud Laplanche abruptly announced his resignation. The resignation comes after the company launched an internal review into the improper sale of $22 million worth of loans to Jefferies. The loans were later bought back by LendingClub.

Laplanche’s unwillingness to comply with the internal investigation was the beginning of the end. The former CEO also failed to disclose to the board that he was also a stakeholder in Cirrix Capital, which purchases loans from LendingClub. Since his resignation the company’s stock price is down 47%.

Originally, Jefferies was planning to bundle roughly $150 million worth of LendingClub loans into bonds that they would sell. Before this could take place, Jefferies asked LendingClub to strengthen the disclosures that it provides to customers. They wanted to make sure customers receiving loans knew exactly what they were giving LendingClub access to.

During this process to modify disclosures it became apparent that there were issues with internal control within LendingClub. According to a person within Jefferies, the company has now decided to put their loan purchase on hold until they can properly assess the situation.

Goldman Sachs, which was also planning to purchase loans to be packaged into bonds, has also decided to pause its purchases until further notice.

Now in addition to the announcement that both Jefferies and Goldman Sachs would be pausing their loan purchasing, BancAlliance has decided to do the same. BancAlliance represents roughly 200 community banks, and they have purchased around $200 million worth of LendingClub loans.

Each month institutions like Jefferies, Goldman Sachs and BancAlliance determine how much they are going to invest in LendingClub loans. BancAlliance had already purchased their allotment for May when this news started breaking. They will be assessing the situation before making a decision on what they plan to do in June.