May 20, 2024 — Press Release

So-called “earned wage” advance providers also obscure interest in “tips”

WASHINGTON – Friday, the Consumer Financial Protection Bureau (CFPB) filed an enforcement action against SoLo Funds, a payday loan platform that disguises the cost of loans through purportedly voluntary “tips” and “donations.” The action sends a warning to so-called “earned wage” advance providers and other fintech payday lenders that use the “tips” model and similar manipulations, advocates said.

“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 National Consumer Law Center. 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.

The CFPB also stated that SoLo Funds used “digital dark patterns to trick borrowers” into paying “donations” by obscuring how borrowers could avoid paying them. 

“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.”

Other fintech payday lenders that use “tips” or “donations” to cover the cost of loans include Dave, EarnIn, MoneyLion, Albert and FloatMe. Some of these lenders claim that they are providing access to “earned wages” rather than making loans.

The CFPB also sued SoLo Funds for deceiving consumers by collecting on loans that were void under state law because the tips and donations exceeded state usury caps or because SoLo Funds lacked a state license.

“SoLo Funds is an extreme example, because nearly every borrower had to pay tips or donations to get a loan, but that does not mean that other lenders can escape scrutiny just because some consumers manage to dodge the obstacles pushing them into tipping,” Saunders warned. “In many states, usury can be violated by receiving excessive charges through tips, not just by requiring them.”

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