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Usurious Interest Rates Approaching 500%, Deceptive Practices Land Payday Lenders MoneyLion and DailyPay In Court
THE LEGAL BEAT
Two lawsuits filed in by Letitia James’ Office in New York Supreme Court in Manhattan allege payday lenders MoneyLion and DailyPay are engaging in usurious and/or fraudulent transactions, illegally costing New York employees millions of dollars.
The two payday lenders function differently, but the result is the same, according to the lawsuits: usurious interest rates between 250% and 500% on short-term payday loans. Each lender, rather than charging interest, charges fees up front, reducing the amount the employee receives from each loan. Employees often take out multiple, sometimes daily, payday loans, incurring additional fees with each advance.
MoneyLion makes small-dollar, short-term, high-cost loans (each, a “Paycheck Advance”) under the brand name “Instacash” to tens of thousands of New Yorkers. In a typical transaction, an Instacash user will request a $50 Paycheck Advance. If employees want the money right away (and users nearly always do) they pay a $4.99 fee upfront fee. On top of the fee, according to the lawsuit, MoneyLion pressures the employee to pay an additional $2 “tip” increasing the fee to $6.99.
The user must authorize MoneyLion to access a linked bank account from which MoneyLion collects on the debt when the employee is next paid. At the end of this typical Instacash transaction, the user will have paid MoneyLion $56.99 to obtain a ten-day, $50 Paycheck Advance—an illegal, usurious annualized percentage rate, or APR, of more than 350%.
The suit charges that MoneyLion advertises and promises instant access to funds, a zero percent interest rate, and a fee-free product. In reality, it charges mandatory fees for all loans where funds are immediately 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 issued. The $100 payday loan carries an effective interest rate of 234 percent, according to calculations by the AG’s office.
MoneyLion also uses sophisticated algorithms to determine when funds will be available in the employees’ accounts to make sure it has first dibs on the borrower’s paycheck and promptly extracts those funds without notice.
DailyPay works differently. It contracts directly with employers to be the exclusive payday lender for company employees. Participating employees can get daily advances (with fees). On payday, the employer pays DailyPay directly, which deducts the money it is owed and then forwards the balance of the paycheck directly to the employee’s account.
DailyPay’s single most common loan, according to the lawsuit, is a seven day, $20 Paycheck Advance for $2.99, carrying an APR above 750%. DailyPay’s risk is minimal as the employer guarantees repayment from the employee’s wages.
According to the complaint, companies that have contracted with DailyPay to provide its Paycheck Advance program to employees include fast food chains such as Burger King and McDonald’s, retailers such as Kroger and Target, and healthcare providers such as HCA and United Healthcare, many of whom pay wages at or near minimum wage.
The loss to employees is enormous. According to examples provided by the AG’s office, one worker in Washington Heights 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.
Both MoneyLion and DailyPay provide an easy-to-use phone app to facilitate loans. MoneyLion lends money to consumers under the brand name InstaCash.
“Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful. These are payday loans by another name,” said Attorney General James. “While many New Yorkers are worried about making ends meet, DailyPay and MoneyLion are making tremendous profits by extracting workers’ hard-earned wages.”
The Attorney General alleges that these two companies’ practices 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. The lawsuits seek to end both companies’ technology-assisted payday lending practices in New York, obtain restitution for tens of thousands of workers, and impose civil penalties and costs.
The suit also seeks an accounting of consumers who paid usurious rates, disgorgement of profits, and imposition of a civil penalty of $5,000 for each payday loan issued in excess of New York’s legal interest rate.
The AG’s office is no stranger to combatting abusive lending practices.
Attorney General Letitia James filed a lawsuit in March 2024 after an Office of the Attorney General (OAG) investigation found that the lenders exploited small businesses through fraudulent loans with astronomic interest rates. These loans were disguised as Merchant Cash Advances (MCAs), an increasingly prevalent form of short-term, high-interest funding for small businesses, particularly those that cannot get loans from traditional banks.
A settlement with about two dozen companies, reached in January, required the lenders cancel outstanding judgments totaling over $500 million nationwide that were secured through MCAs, cancel outstanding MCAs and cease all efforts to collect on any outstanding judgment or debt. The settlement also precluded the lenders from transferring any debt to a third-party for collection.
The settling defendants were permanently banned from conducting any future Merchant Cash Advance transactions or transactions under the guise of merchant cash advances.
“Targeting small businesses with predatory loans and outrageous interest rates threatens the livelihoods of hardworking business owners and their employees,” said Attorney General Letitia James. “Yellowstone (the primary defendant) and its executives lined their pockets at the expense of vulnerable small businesses who turned to them for help. Their predatory loans forced successful companies to close and put New Yorkers out of work. My office has put an end to these predatory loans and secured over $534 million in debt relief for businesses that were harmed.”
