The National Consumer Law Center (NCLC) issued a press statement suggesting the SoLo Funds case could lead to similar suits against other providers of cash advance lending, such as earned wage access lenders. Earned wage lenders offer individuals a cash advance based on a future expected direct deposit from a job. The advance is against the "earned wages" and is paid back directly, all through an app.
While some earned wage access apps advertise that they do not charge interest, they do sometimes come with fees and they also tend to suggest "tips."
NCLC explains the potential problems with this model.
“The CFPB sued SoLo Funds for advertising deceptive ‘no interest’ and ‘0% APR’ loans that cost 300% APR or higher, which should send a warning signal to other fintech payday lenders that have similar tactics using ‘tips’ and other fees to disguise high interest,” said Lauren Saunders, associate director of the NationalConsumerLawCenter. The CFPB also noted that the description of the cost of credit provided to borrowers about specific loans was not accurate because it failed to include the tips and donations that people paid.
Saunders compares the SoLo Funds model to earned wage access products:
“So-called ‘earned wage’ advance providers and other providers of fintech payday loans also use dark patterns and multiple strategies to make tips almost as certain as required fees,” said Saunders. “A tip is something you pay to a human being for good service; a ‘tip’ paid to a payday lender is just a disguised form of interest that can violate federal and state laws.”
Examples of fintech lenders that use “tips” or “donations” to cover the cost of loans include Dave, EarnIn, MoneyLion, Albert and FloatMe.
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