The New York attorney general has sued DailyPay and MoneyLion, accusing the earned wage access providers of charging workers fees that amount to interest rates of up to 750%.
Attorney general Letitia James says that the two firms are "pretending" to simply advance earned wages but are in fact taking advantage of tens of thousands of New Yorkers with "illegal high-interest loans".
Typically, says the AG, a worker uses these services for a small paycheck advance of under $100 and then repays it, plus fees and tips, in seven to 10 days, resulting in extremely high annualised interest rates.
For example, DailyPay’s most common loan, a seven-day $20 paycheck advance offered for $2.99, actually reflects an annual interest rate of over 750%.
“Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful. These are payday loans by another name,” says James.
Earlier this month, DailyPay sued James to try to stop the case, with chief legal and strategy officer Jared DeMatteis saying: "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."
James is also accusing the companies of deceptive advertising. MoneyLion promises instant access to funds, a zero per cent interest rate, and a fee-free product. In reality, it charges mandatory fees for all loans where funds are immediately available.
MoneyLion also asks for "tips" and sets a $100 per transaction that forces workers to take out repeat loans and pay repeat fees to receive the $500 they are prominently promised in ads.
James claims that one worker in New York 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.
The lawsuit alleges 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.
MoneyLion is in the process of being acquired by tech group Gen Digital in a $1 billion cash deal.