New York AG Sues Payday Lenders MoneyLion And DailyPay

New York Attorney General Letitia James has sued payday lenders MoneyLion Inc. and DailyPay Inc. in New York state court, alleging that the two companies took advantage of tens of thousands of New Yorkers.

Both companies make paycheck advance loans to hourly workers in exchange for tips and fees.

The short-term nature of the loans results in “outrageous” interest rates, frequently reaching 750%, according to James, who added that both companies allegedly push workers to take out frequent loans to cover gaps created by their prior loans.

James contends that the practices of the two companies constitute illegal and deceptive conduct and abusive lending practices that violate New York’s longstanding usury prohibitions. The lawsuit against DailyPay also alleges the company has violated New York’s wage assignment laws.

While most of the claims in the lawsuits are brought under New York law, the claims of deceptive and abusive conduct are brought under federal law, in particular, Section 1042 of the Consumer Financial Protection Act.  The violations of federal law are then alleged to permit the Attorney General to seek injunctive and other equitable relief under New York law, due to the repeated and persistent illegal conduct.

In the lawsuits, James is seeking to end the companies’ payday lending practices that she said are illegal, obtain restitution for tens of thousands of impacted workers and impose civil penalties.

“Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful,” James said. These are payday loans by another name. While many New Yorkers are worried about making ends meet, DailyPay and MoneyLion are making tremendous profits by extracting workers’ hard-earned wages.”

For instance, James said that DailyPay’s most common loan—a seven-day paycheck advance offered for $2.99 — actually reflects an annual interest rate of more than 750%. More than half of all MoneyLion’s loans impose an annual interest rate of more than $500%, she added.

James also alleged that both companies employ deceptive advertising to convince workers to take out loans. For example, MoneyLion promises instant access to funds, a zero percent interest rate, and a fee-free product. However, James contends that the company actually charges mandatory fees for all loans where funds are immediately available. MoneyLion also asks for tips on top of the company’s fees and 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.

DailyPay engages in similar practices, James said. “It contracts with employees’ companies, requiring employers to send their workers’ paychecks directly to the lenders first on payday, which allows it to deduct all amounts it is owed before passing on any remaining balance to employees,” according to the AG’s office.

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