Claims Customers Were Charged up to 750% Interest
By Lindsay Press
A lawsuit has been brought up against paylenders MoneyLion, Inc. and DailyPay, Inc. as New York Attorney General Letitia James has sued the two companies for taking advantage of thousands of New York residents. James claims that both companies have used illegal high-interest loans to scam New Yorkers by making paycheck advance loans to hourly workers in exchange for fees and tips, acting as if they would simply be advancing “earned” wages.
As the loans are short-term, MoneyLion and DailyPay charge large amounts of annual interest rates, frequently as high as 750 percent. James also claims that both companies participate in abusive strategies that encourage workers to constantly take out new loans to cover up gaps made by previous loans.
“Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful. These are payday loans by another name,” said James. “While many New Yorkers are worried about making ends meet, DailyPay and MoneyLion are making tremendous profits by extracting workers’ hard-earned wages. I’m suing DailyPay and MoneyLion because New Yorkers deserve to keep the money they earn, not have it taken by predatory lenders.”
In a typical exchange with DailyPay or MoneyLion, a worker gets a small amount ahead of their paycheck – normally less than $100 – and repays the amount, in addition to fees and tips, in seven to ten days. The result is a massively large annualized interest rate average ranging between 200 percent and 350 percent, but rates for short-term loans can be much larger.
For example, DailyPay’s most popular loan, a seven-day $20 paycheck advance offered for $2.99, shows an annual interest rate of over 750 percent. Over half of all MoneyLion loans impose annual interest rates above 500 percent.
James is aiming to end MoneyLion and DailyPay’s illegal payday lending operations in New York, get reimbursement for thousands of impacted employees, and impose civil penalties.
James alleges that MoneyLion and DailyPay use misleading advertising to encourage workers to take out their exploitative loans. MoneyLion promises immediate access to funds, a zero percent interest rate, and a fee-free product. However, it actually charges mandatory fees for all loans where funds are instantly available, which can be as high as $8.99 for a $100 advance scheduled to be repaid in two weeks from the time the loan is given. This suggests an annual interest rate of 234 percent.
To take even more money from its customers, MoneyLion allegedly asks for tips in addition to its fees and sets an artificial limit of $100 for each transaction that forces workers to take out repeat loans and pay repeat fees to receive the $500 they are promised in MoneyLion’s advertisements.
DailyPay allegedly uses similar deceptive strategies. It supposedly contracts with employees’ companies, mandating employers to send their workers’ paychecks directly to the lenders first on payday, which allows it to remove all amounts it is owed before passing on any remaining money to employees. While it promises workers interest-free advances and fiscal benefits, DailyPay collects fees on approximately 90 percent of its loans.
“It’s disappointing that the Attorney General’s office decided to preempt the bill pending in the state legislature and attempt to take this valuable service away from New York residents,” said Jared DeMatteis, DailyPay’s Chief Legal & Strategy Officer, in a press release from DailyPay. “Many other states have adopted thoughtful legislation with consumer safeguards, and we support this approach, especially in our home state.”
“The actions taken by the Attorney General’s office suggest that it prefers consumers to rely on loan sharks or pay higher overdraft and late fees over on-demand pay, a proven safer and cheaper financial alternative.” DeMatteis continued. “The approach of the Attorney General’s office is misguided and will significantly affect everyday families working to make ends meet.”
“We look forward to demonstrating in court that DailyPay’s on-demand pay product is not a loan – that there is no interest, no advance of future earnings, and no obligation for workers to repay DailyPay,” said Loretta E. Lynch, partner at Paul, Weiss, which is representing DailyPay.
Marcus A. Asner, partner at Arnold & Porter, which also is representing DailyPay, claimed these products are not considered loans under state law because the worker is not obligated to pay back the company. Further, if the worker does not pay back the amount, they do not face any legal liabilities.
“The New York Attorney General’s misguided attempt to curtail DailyPay’s on-demand pay service would hurt New Yorkers who use DailyPay’s service to access their hard-earned pay when they need it,” Asner said.
LILP has attempted to reach out to MoneyLion, but the phone call directed this reporter to the automated customer service department.