Class Action Lawsuit Claims True Finance Offers ‘Predatory’ Payday Loans to Active-Duty Military Personnel

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A proposed class action lawsuit claims that True Finance’s earned-wage access payday loan product saddles active-duty servicemembers and their dependents with triple- or quadruple-digit finance charges that, on average, yield annual percentage rates well in excess of the legal limit set by the federal Military Lending Act.

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The 32-page lawsuit accuses True Finance of making no effort to fulfill its obligation to determine whether it is extending a payday loan to covered active-duty military servicemembers, or to provide mandatory protections for such borrowers. According to the case, the defendant’s business model relies on “high-frequency, short-term, and high-cost loans” to individuals living paycheck to paycheck, and borrowers often incur “exorbitant finance charges” that ultimately worsen their financial position.

The filing explains that earned-wage access (EWA) loans, such as those offered by True Finance, like traditional payday loans, can trap a borrower into a cycle of reborrowing and debt, all in serve of generating revenue for predatory lenders. The suit contends that the “substance of the transactions” between the defendant and borrowers means the company’s cash advances amount to consumer credit.

The case alleges that True Finance’s consumer credit agreements run afoul of the Military Lending Act because the company charges interest above the statutory 36 percent military annual percentage rate cap, fails to provide certain requisite disclosures, and requires access to borrowers’ deposit accounts as security for the loans.

Related Reading: Online Payday Loan Class Action Lawsuits

According to the complaint, True Finance advertises its cash advance products as “help[ing] millions of Americans who need a few dollars in between paydays.” Like most EWA providers, the case says, True Finance promotes its products as “free” or with “no interest.”

However, the filing alleges that, while True Finance doesn’t expressly charge interest on its loans, the fintech company’s expedite fees and subscription costs are functionally the same as a traditional payday loan’s high interest rate, as they enable the defendant to extract similar sums of money from already economically vulnerable users, often trapping them in cycles of debt.

The filing says that the fees associated with True Finance’s cash advance products, when viewed as costs of credit, reach an annual percentage rate (APR) of 334 percent, comparable to that of the extremely high interest rates associated with payday loans.

The expedite fees, the complaint explains, are charged on instant-access loan funds, which True Finance calls Rapid Advances. The fees are generally between $2.99 and $5.99, with larger fees associated with larger loans, the suit says. While these fees are technically optional, as customers are not required to request a Rapid Advance to receive EWA services from True Finance, the lawsuit argues that they are still incredibly common among True Finance consumers, who are often living paycheck to paycheck and cannot afford to wait the one to two business days the other Cash Advance products would take to deliver the loaned money.

On the other hand, the subscription fees, the complaint states, are required to use any of True Finance’s services, and are charged regardless of whether a borrower’s Cash Advance requests are approved. True Finance expressly states that it does not guarantee the approval of any cash advance requests, the filing notes.

To determine a borrower’s eligibility for a loan, True Finance uses a third-party service called Plaid, which allows users’ bank accounts to be directly linked to True Finance and provides the fintech company with, per the filing, “real time insights into a borrower’s income and employment… with a breakdown of earnings from salaries, gig work and more.”

The lawsuit contends that True Finance’s eligibility assessment is nearly identical to that of traditional payday loans, ensures that True Finance is able to collect on cash advance repayment and fees at least 97 percent of the time, and, due to the subscription-based nature of the service, allows the fintech company to profit off of both eligible and ineligible users.

Even with this eligibility screening process, the complaint alleges that True Finance’s EWA loan service still “traps consumers in cycles of debt, worsens their financial circumstances, leads to more overdraft fees and [brings them to] an ever-increasing reliance on emergency funds from—and the fees that come with—EWA loans.”

The lawsuit cites an analysis from the Center for Responsible Lending (CRL), which found that 33 percent of EWA product users reborrow within two weeks of a loan the vast majority of the time, suggesting that the reduction in their paycheck caused by loan repayments and fees caused them to need yet another advance, or loan, within the following pay period.

Even outside this subset, analysis determined that in general, EWA product users, such as True Finance subscribers, repeatedly take out advances, often on the same day as or the day after they’ve repaid their previous advance, which puts them at much higher risk of overdrafting their accounts and having to pay the subsequent fees, the complaint relays. Specifically, the filing says, another CRL study found that, on average, consumers who used an EWA product saw a 56 percent increase in overdrafts of their checking accounts.

Finally, the lawsuit alleges that, due to the near-identical similarities between True Finance’s services and traditional payday loans, the rendering of its services to active-duty members of the U.S. military is illegal under the Military Lending Act and the Truth in Lending Act, and predatory in nature, preying on the financial vulnerability of military servicemembers.

The True Finance class action lawsuit seeks to represent any active-duty United States servicemembers and their dependents who used a True Finance cash advance (or similar) product in which the borrower incurred a finance charge, including a subscription charge or a Rapid Advance fee.

Learn all about the legal process: What is a class action lawsuit?