MoneyLion is among the defendants in a proposed class action case in which a California resident alleges the consumer financial advisory and investment services company’s smartphone app is a “high-tech debt trap” that “raids consumers’ bank accounts” under the guise of collecting monthly membership fees.
The 37-page complaint states that MoneyLion represents its smartphone app as a one-stop financial services shop for the 70 percent of Americans who live paycheck to paycheck and cannot afford fees associated with regular bank accounts. MoneyLion offers through the app the ability for consumers to open a bank account or investment account, apply for loans, and receive cash advances, loyalty rewards and feedback on spending habits, the case says.
Whereas the defendants claim the MoneyLion app is a “revolutionary new way to get ahead” financially, the app, the lawsuit alleges, is a mechanism that allows the company to leverage technology in order to perpetrate its debt trap scheme “on a massive scale.” The alleged scheme itself is comprised of several steps, the case claims:
1. Entice customers to enroll in MoneyLion Plus by claiming membership will qualify them for cheap loans purportedly at 5.99-percent APR.
While MoneyLion offers a free “Core” version of its service, those who enroll in MoneyLion Plus, according to the lawsuit, are required to pay a $29 per month membership fee on top of depositing at least $50 into a MoneyLion Investment Account, which is managed by defendant ML Wealth LLC. The case says that MoneyLion Plus users are automatically debited the $29 membership fee and $50 investment account contribution every month from their primary bank account, which users are reportedly required to give MoneyLion access to when they sign up.
MoneyLion Core users, the suit alleges, are enticed by the company to upgrade to a Plus plan whose apparent differences from the free version are negligible at best and all related to either loans, membership fees or “daily cash back.” Plus users, the lawsuit says, are given access to “a special Facebook group” that costs the defendant nothing to provide and is “wholly immaterial to users’ enrollment decisions.”
Despite MoneyLion Plus users reportedly being promised a 5.99-percent APR on loans, this figure is misleading because it fails to account for membership fees, the lawsuit says, alleging the defendants’ treatment of membership fees is “foreign to any reasonable consumer’s understanding of the concept.”
Should a Plus borrower miss a membership fee payment, the case continues, MoneyLion will suspend benefits from its service for that month or, alternatively, allow benefits to continue but treat the unpaid fees as a debt owed to the company. Further, MoneyLion will allegedly not resume a member’s access to Plus benefits until all delinquent fees are paid in full.
“MoneyLion’s bizarre (and unconscionable) treatment of Membership Fees only makes sense when viewed in the context of their true purposes: to function as disguised interest, and to perpetuate the Membership Fee trap,” the plaintiff alleges, adding that MoneyLion’s membership fees supposedly act to offset the company’s risk of default by borrowers—who are not subject to credit checks before signing up with the company.
2. “Raid” customers’ accounts for membership fees.
MoneyLion users who take a $500, 5.99-percent APR “Credit Builder Loan” will soon notice the combination of monthly membership fees, loan payment and investment account contributions leaving their bank accounts each month, the lawsuit goes on. The case argues that given the financial profile of those who sign up with MoneyLion, a $122.06 monthly expense “presents a serious financial hardship,” or at least a substantial inconvenience.
3.Wield “undisclosed” cancellation criteria to prohibit users from canceling their MoneyLion Plus memberships (while continuing to charge their bank accounts).
When members look to end their MoneyLion membership, the company will not allow them to do so if they have an outstanding loan balance, the lawsuit says. According to the case, this stipulation is never disclosed to members during the enrollment process nor during loan application. Members are also allegedly prohibited from canceling if they have past-due membership fees, per the case.
“MoneyLion uses the existence of past due Membership Fees as grounds for denying consumers’ requests to cancel their MoneyLion Plus membership, thereby justifying (at least in Defendants’ view) MoneyLion’s continued extraction of Plus Membership Fees from consumers’ bank accounts, month after month, potentially into perpetuity,” the suit charges.
4. Impose “insurmountable” obstacles that prevent members from satisfying MoneyLion’s hidden cancellation criteria (while continuing to charge their bank accounts).
From the complaint:
“As explained above, customers without the financial means to make a lump-sum payment sufficient to eliminate their outstanding Loan balance have no prayer of successfully cancelling their MoneyLion Plus membership and escaping the Membership Fee trap. MoneyLion will summarily refuse their request to cancel the Plus Membership because if [sic] they have an ‘active loan.’
For customers who can pay in lump sum their entire outstanding Loan balance, MoneyLion erects numerous additional barriers cancelling their membership and escaping the Plus Membership Fee trap. These barriers, either individually or in combination, often prove insurmountable.”
The alleged scheme itself notwithstanding, the complaint says MoneyLion members’ investments, which are prohibited from being used to pay loan balances, will be liquidated by the company after they are eventually able to cancel their membership. What’s more, the experience of a MoneyLion user, the case says, is rife with technical obstacles and “wholly unresponsive” customer support, leaving proposed class members with no mechanism by which to cancel their memberships through the company’s app.
All the while, “MoneyLion’s monthly onslaught of Membership Fees continues—each month, every month, with no end in sight,” the lawsuit claims.