New data shows low-wage workers could pay $700/year or more under pending bills in Connecticut, Maryland, Massachusetts, New York, and other states
NEW YORK – The New York Attorney General yesterday filed lawsuits against fintech payday lenders DailyPay and MoneyLion for violating the state’s usury rate laws and engaging in deceptive practices. The lawsuits reveal details of the lenders’ operations that show the danger of pending state legislation carving so-called “earned wage” advances out of state lending laws and interest rate caps.
The NY Attorney General’s investigation found that both companies “employed deceptive advertising to entice workers into taking out their exploitative loans” and pushed repeat loans with multiplying fees:
“One worker in Washington Heights, for example, took out more than 450 loans from DailyPay in less than two years, averaging more than 4.5 loans per week and paying nearly $1,400 in fees. Another worker in Syracuse paid fees on all but two of the nearly 500 loans he took out with DailyPay, paying an average of $2 to DailyPay every single day for nearly two years.” (emphasis added)
The investigation also found that DailyPay’s “most common loan” is a seven-day $20 advance offered for $2.99 with a 750% annual percentage rate (APR) – showing how providers can push a series of tiny loans to multiply fees. MoneyLion “sets an artificial limit of $100 per transaction that forces workers to take out repeat loans and pay repeat fees merely to receive the $500 they are prominently promised in MoneyLion’s’ advertisements.”
These and other facts from the NY Attorney General’s investigation are a warning sign for states considering industry legislation that so far has only passed in deeply conservative states and those that allow abusive, high-cost payday loans.
“The current earned wage advance bills pending in Connecticut, Massachusetts, New York, and other states, and awaiting the Governor’s signature in Maryland, impose no limits on the number of fees workers could pay for new forms of payday loans and could permit abuses like New York found, resulting in people paying nearly $1,400 in fees over two years,” said Lauren Saunders, associate director of the National Consumer Law Center. “States that have a strong record of protecting consumers must resist slick industry efforts to create gaping loopholes in their interest rate limits that keep out predatory payday loans and new forms of predatory lending.”
Saunders warned that it is essential for states to maintain their strong consumer protection laws in light of the moves by the federal Consumer Financial Protection Bureau (CFPB) to roll back protections. Last year the CFPB highlighted concerns about heavy repeat use and high APRs on payday advance apps and proposed to clarify that evasive ‘tips’ and instant access fees are finance charges, but that guidance and other protections are under threat of being rolled back. “While the CFPB is under attack, states must stand firm in protecting consumers and enforcing interest rate caps against all types of predatory loans,” Saunders said.
Related Resources
- Issue Brief: Comparing APRs on Small Loan Alternatives
- Press Release: DC Attorney General’s Office Takes Action Against EarnIn Over 300% APR Loans
- State Recommendations for Earned Wage Advances and Other Fintech Cash Advances
- Issue Brief: Data on Earned Wage Advances and Fintech Payday Loan “Tips” Show High Costs for Low-Wage Workers
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