[Editor’s note: This story has been updated to include MoneyLion’s response to the federal lawsuit.]
Federal authorities are suing an online lender for allegedly overcharging and deceiving service members and their families.
The Consumer Financial Protection Bureau filed the lawsuit Thursday in federal court in the Southern District of New York, against MoneyLion Technologies, and 38 of its subsidiaries, including MoneyLion operations in 37 states.
CFPB alleges MoneyLion imposed “illegal and excessive charges” on troops and their families, in violation of the Military Lending Act. Among other things, that law limits the amount of interest that can be charged to service members to 36% annual percentage rate, to include fees charged on the loans.
But MoneyLion calls the CFPB claims “without merit,” and stated they will “vigorously defend against these false allegations to set the record straight,” in a response to Military Times. Despite their cooperation with CFPB for over three years, they stated, “the Bureau has chosen the sensationalist route of prioritizing headlines instead of engaging in constructive dialogue to address their questions and to achieve better consumer outcomes.”
Officials at CFPB said this is the fourth enforcement action related to the Military Lending Act in the past two years.
According to CFPB, since 2017, MoneyLion has offered loans that consumers can’t get unless they enroll in a “membership program,” and pay monthly membership fees. They offered 12-month installment loans of $500, with an annual percentage rate of 5.99%. However, they also required customers to pay a $29 monthly membership fee — which adds up to $348 over a year’s time for a $500 loan.
“MoneyLion targeted military families by illegally extracting fees and making it difficult to cancel monthly subscriptions,” said CFPB Director Rohit Chopra, in an announcement of the legal action. “Companies are breaking the law when they require monthly membership fees to obtain loans and then create barriers to canceling those memberships.”
The claims made by the CFPB about the membership offering “are without merit,” said MoneyLion officials in their statement to Military Times, noting that the claim “is isolated to one of the company’s many product offerings.”
“We will vigorously defend against these false allegations to set the record straight as we continue to deliver innovative financial products that help our customers,” they stated.
“MoneyLion has cooperated in good faith with the CFPB for over three years regarding our membership offering. Our innovative membership program helps service members and other customers save, invest, build credit and improve their overall financial lives.
“MoneyLion has the highest regard for its military and veteran customers and are committed to working with this important community to help them achieve better financial health,” according to the satatement. “MoneyLion is honored to serve this important segment of its customer base.”
MoneyLion’s customer service line includes an option for hearing a recorded disclosure regarding the Military Lending Act. It informs customers that the law provides certain protections to service members and their families, with a 36% cap on the annual percentage rate, to include costs associated with the origination or application fees, annual interest, and other costs.
“Your current loan will consist of bi-weekly payments in equal amounts until the loan is paid in full,” the recording states. Further information was not available about whether a membership fee is still required.
Officials at CFPB declined to provide more information about the number of service members and family members they believe were affected by this, or the amounts the troops paid that exceeded the 36% APR.
“The Bureau filed a lawsuit in federal court seeking an injunction to stop the alleged unlawful conduct; redress for affected consumers; the imposition of a civil money penalty; and other relief,” officials said in a statement provided to Military Times.
“The filing of a lawsuit is not a finding or ruling that the defendants have violated the law, and no injunction, redress, civil money penalty or other relief has been ordered.
“If the defendants are found liable, the amount of any restitution will be determined in the litigation in federal court.”
According to the lawsuit, MoneyLion customers were required each month to make a loan payment of about $43; pay the $29 membership fee; and make a separate $50 monthly deposit into an investment account controlled by MoneyLion. CFPB alleges that MoneyLion has shown in contracts that although the customers’ memberships renew automatically each month, consumers had the right to cancel their memberships for any reason. However, customers weren’t informed that they couldn’t cancel their membership if they had an unpaid loan balance.
In some cases, MoneyLion refused to cancel memberships even after the loan was paid off, because the consumer had unpaid membership fees, CFPB alleges.
After MoneyLion started allowing some consumers to use their investment account funds to pay off loans, they had to be in “good standing,” according to the lawsuit They would have to pay any past-due membership fees before the company would allow them to use their own investment account funds to pay off the loan.
In 2019, MoneyLion changed the 12-month installment loan offered under the membership program, to an amount between $500 and $1,000, with an APR between 5.99% and 29.99%, according to the lawsuit. To get the loan, customers have been required to join the membership program and pay a monthly fee of $19.99.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.