"Lending Club is a company that we have disliked," Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio said in an interview at the New York Stock Exchange.
Shares of the online lender slumped more than 10% Tuesday as the company struggles to deal with the backlash from the resignation of its CEO Renaud Laplanche and disclosure of a U.S. Department of Justice investigation.
Laplanche was removed from his post following questionable related-party transactions. An internal investigation at the San Francisco-based company found that $22 million in subprime loan sales were invested in an outside fund against the investor's requirements and Laplanche was found to have ties to the firm. The company said that $3 million of the loans under scrutiny had false application dates in order to meet investor's stipulations.
"Our business depends on trust," the company said in its SEC filing. "The problems identified this quarter run counter to our values and will never be tolerated."
Cramer says the company has "accounting irregularities," that concern him, which would prompt him to sell the stock.
But it's not just because of LendingClub's recent problems. Cramer says he doesn't like alternative lending because he thinks "lending is harder than people realize."
Peer-to-peer lenders like LendingClub and Prosper, who base their businesses on being able to offer an online marketplace where borrowers and investors connect to make personal and business loans, are coming under scrutiny.
The ease of obtaining these loans draws borrowers, while investors are lured with stable returns.
But Cramer says he likes traditional lending through banks where earnings come from consumer deposits and aren't as dependent on the economy.
"I think that there's a sense that if the economy is not doing great, you don't want to be in lending," he said.
LendingClub's stock price is $3.53, down 45% from its price before the CEO resigned.