LOS ANGELES (CN) – Three California consumers have filed a class-action lawsuit against MoneyLion, accusing the financial technology company of hiding the true cost of its loans by labeling interest charges as turbo fees, tips and membership fees while advertising some products as “0% APR.”
In the lawsuit filed Monday in federal court in the U.S. District Court for the Central District of California, consumers allege that MoneyLion’s lending platform systematically charges borrowers fees that function like interest but are excluded from 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 say. “In reality, MoneyLion systematically charges fees that function as interest while misrepresenting them as non-financial fees to obscure the true cost 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 related to MoneyLion loans and cash advances.
According to consumers, filed by attorney Noah Heinz of Pak Heinz, MoneyLion’s business model depends on these fraudulent fees. The lawsuit targets two of the company’s products: InstaCash loans and Credit Builder.
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 payback usually within two weeks.
But consumers say they were charged a “turbo fee” that ranged 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 a default option during the borrowing process. Customers who reject the fee learn that their funds won’t arrive immediately, but can take up to five days to reach their accounts.
“Given InstaCash’s advertising, branding, purpose, and fourteen-day payback period, few consumers are looking to it for an expense five days into the future,” the plaintiffs wrote. “Five Day Cashback 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 soliciting tips from borrowers. According to them, the app automatically suggests tip amounts related to the size of the advance and continuously encourages users to contribute even after they decline.
Plaintiffs say MoneyLion uses messages such as “We’re all in this together,” “Apparently we didn’t get a tip last time!” and “We could really use a tip one last time” to encourage payments.
Plaintiffs argue that tips are not tips in any ordinary sense because they are paid directly to MoneyLion and not to individual workers.
“The ‘tip’ does not go to a service worker or delivery person, but simply pays MoneyLion to lend money,” they say in the complaint.
When fees and turbo tips are factored into the cost of borrowing, consumers claim that actual interest rates skyrocket. They provide in the complaint an example of a consumer borrowing $100, paying an $8.99 turbo fee and a $10 tip, and then repaying the loan within 14 days. According to plaintiffs, that transaction would have 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 get loans ranging from $300 to $1,000 with stated APRs between 5.99% and 29.99%. But the plaintiffs say borrowers don’t actually receive the full proceeds of the loan. Instead, most of the money is placed in a reserve account that remains inaccessible until the loan is paid off.
Bisquera claims she received an $899 Credit Builder loan but only received $100 immediately. The remaining $799 was deposited into an escrow account controlled by MoneyLion.
The plaintiffs say borrowers must also pay monthly membership fees that range from roughly $20 to $29 over the life of the loan. While MoneyLion characterizes those fees as membership fees associated with additional services, the plaintiffs contend that the fees are really finance charges because consumers cannot obtain Credit Builder loans without them.
According to the plaintiffs, including those monthly fees dramatically changes the loans. Bisquera claims she would have ultimately paid more than $1,260 for 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 Funds 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 fees, tips and membership fees must be treated as interest.
“Whatever applicable interest limit, MoneyLion has routinely exceeded it, as ‘tips,’ ‘monthly membership fees,’ and ‘turbo fees’ are properly categorized as ‘payments,'” the plaintiffs wrote.
The plaintiffs also assert claims under the California False Advertising Law, the Consumer Remedies Act and the Unfair Competition Law, arguing that borrowers were misled into believing they were receiving low-cost or no-interest credit products.
The proposed class would include California residents who received loans, cash advances or other extensions of credit from MoneyLion and paid fees including turbo fees, tips or membership fees.
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