MoneyLion accused of disguising loan interest as fees in proposed class action

LOS ANGELES (CN) — Three California consumers filed a proposed class action against MoneyLion, accusing the financial technology company of concealing the true cost of its loans by labeling interest charges as turbo fees, tips and membership fees while advertising some products as carrying “0% APR.”

In the lawsuit filed Monday in federal court in the U.S. District Court for the Central District of California, the consumers claim MoneyLion’s lending platform systematically charges borrowers fees that function as interest but are excluded from the annual percentage rates and finance charges disclosed to consumers.

“MoneyLion markets itself as a consumer-friendly financial platform offering small-dollar loans and cash advances to financially vulnerable consumers,” the consumers state. “In reality, MoneyLion systematically imposes charges that function as interest while misrepresenting them as non-finance charges to obscure the true price of borrowing.”

Plaintiffs Elena Bisquera of Atascadero, Jason Jones of Corona and Chris Valencia of Sugarloaf seek to represent a class of California borrowers who paid fees in connection with MoneyLion loans and cash advances.

According to the consumers, filed by attorney Noah Heinz of Pak Heinz, MoneyLion’s business model depends on these fraudulent fees. The suit targets two of the company’s products: InstaCash and Credit Builder loans.

The plaintiffs say MoneyLion promotes InstaCash as a source of emergency cash for expenses such as “unexpected vet bills or a last-minute date night.” The app advertises the product as “0% APR cash advances up to $500, deposited in seconds,” with repayment generally due within two weeks.

But consumers say they were charged a “turbo fee” ranging from 49 cents to $8.99, depending on the amount borrowed.

According to the plaintiffs, the fee is effectively unavoidable because it is presented as the default option during the borrowing process. Consumers who decline the fee learn their funds will not arrive instantly but instead may take five days to reach their accounts.

“Given the advertising, naming, purpose and fourteen-day repayment period of InstaCash, few consumers are seeking it out for an expense five days in the future,” the plaintiffs wrote. “Getting cash five days later is simply a different and inferior product that fails to live up to MoneyLion’s claims and advertising for InstaCash.”

The plaintiffs also challenge MoneyLion’s practice of requesting tips from borrowers. According to them, the app automatically suggests tip amounts tied to the size of the advance and repeatedly encourages users to contribute even after they decline.

The plaintiffs say MoneyLion uses messages such as “We’re all in this together,” “Looks like we didn’t get a tip last time!” and “We could really use a tip for last time” to encourage payments.

The plaintiffs argue the tips are not gratuities in any ordinary sense because they are paid directly to MoneyLion rather than to individual workers.

“The ’tip’ does not go to a service worker or deliveryman, but simply pays MoneyLion to lend money,” they say in the complaint.

When turbo fees and tips are included in the cost of borrowing, the consumers claim the actual interest rates skyrocket. They offer in the complaint an example of a consumer who borrows $100, pays an $8.99 turbo fee and a $10 tip, then repays the loan within 14 days. According to the plaintiffs, that transaction would carry an effective APR of 495%.

The plaintiffs also target MoneyLion’s Credit Builder loans, which are marketed as products designed to help consumers improve their credit histories.

Under that program, borrowers can obtain loans ranging from $300 to $1,000 with stated APRs between 5.99% and 29.99%. But the plaintiffs say borrowers do not actually receive the full loan proceeds. Instead, much of the money is placed into a reserve account that remains inaccessible until the loan is paid off.

Bisquera claims she took out an $899 Credit Builder loan but received only $100 immediately. The remaining $799 was deposited into a reserve account controlled by MoneyLion.

The plaintiffs say borrowers must also pay monthly membership fees ranging from approximately $20 to $29 throughout the life of the loan. While MoneyLion characterizes those charges as membership fees associated with additional services, the plaintiffs contend the fees are really finance charges because consumers cannot obtain Credit Builder loans without them.

According to the plaintiffs, including those monthly fees dramatically alters the loans. Bisquera claims she ultimately would have paid more than $1,260 on her $899 loan, including at least $240 in membership fees.

Beyond the Truth in Lending Act claims, the plaintiffs accuse MoneyLion of violating the Electronic Fund Transfer Act by requiring borrowers to authorize automatic withdrawals from their bank accounts as a condition of receiving loans. They also say MoneyLion’s practices violate California usury laws because the fees, tips and membership charges should be treated as interest.

“Whatever usury limit applies, MoneyLion exceeded it routinely, once ’tips,’ ‘monthly membership fees’ and ’turbo fees’ are properly categorized as ‘charges,’” the plaintiffs wrote.

The plaintiffs also assert claims under California’s False Advertising Law, Consumer Legal Remedies Act and Unfair Competition Law, arguing borrowers were misled into believing they were receiving low-cost or interest-free credit products.

The proposed class would include California residents who obtained loans, cash advances or other extensions of credit from MoneyLion and paid fees including turbo fees, tips or membership charges.