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CFPB files complaint against online lender alleging MLA violations

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On September 29, 2002, the Consumer Financial Protection Bureau (“CFPB”) filed a complaint against online lender MoneyLion Technologies, Inc, and several dozen of its subsidiaries (collectively, “MoneyLion”), alleging violations of the Military Lending Act (“MLA).  The complaint alleges that MoneyLion (i) overcharged servicemember and their dependents by imposing fees that, together with stated interest rates, exceeded the MLA’s 36% Military Annual Percentage Rate (“MAPR”), (ii) failed to provide required disclosures, and (iii) included arbitration clauses prohibited by the MLA.  The Bureau further alleges that servicemembers became “trapped” in MoneyLion’s membership program after taking out their loans, and were unable to cancel their membership – which required the payment of monthly fees – without first paying off their loans.

According to the CFPB, MoneyLion has offered loans since 2017 that consumers can access through its website and mobile app by enrolling in membership programs and paying monthly membership fees.  The CFPB alleges MoneyLion told consumers over the course of several years that they had the right to cancel their memberships for any reason even though they had a policy of prohibiting consumers with unpaid loan balances from canceling their memberships.  Beyond that, the complaint alleges that even after loan payoff, some consumers were unable to cancel their memberships until they had paid past, unpaid membership fees; that consumers were prohibited from paying off their loans using funds from MoneyLion investment accounts; and that MoneyLion sometimes refused to honor requests to stop ACH withdrawals of membership fees even after memberships were cancelled. 

The MLA and its implementing regulations contain protections for servicemembers and their dependents identified as “covered borrowers” at origination of certain credit transactions, including installment loans of the kind at issue in this case.  These protections include the maximum MAPR, a prohibition against requiring arbitration, and mandatory loan disclosures.  10 U.S.C. § 987(b), (c), (e)(3); 32 C.F.R. §§ 232.4(b), 232.6, 232.8(c).  The complaint alleges violations of these MLA limits and requirements.

As detailed in the complaint, the Bureau alleges that the monthly membership fees charged by MoneyLion– generally $19.99 but as high as $29.00 –pushed the MAPR of the installment loans, offered at APRs between 5.9% and 29.99%, above the MLA’s 36% MAPR threshold.  Under the MLA, participation fees are generally included in the calculation of the MAPR even if that charge would be excluded from the finance charge under Regulation Z.  32 C.F.R. § 232.4(c)(1)(iv). 

With regard to arbitration, the Bureau alleges that the loan contracts used by MoneyLion from the fall of 2017 until at least August 2019 required borrowers to submit to arbitration in the case of a dispute, without exception for covered borrowers, in violation of 10 U.S.C. § 987(e)(3) and 32 C.F.R. § 232.8(c).  The Bureau alleges that, during that same time period, MoneyLion failed to make certain disclosures before or at the time a covered borrower became obligated on a loan, including mandatory disclosure of the MAPR.  Under the MLA, creditors are required to disclose a “Statement of the MAPR,” advising that federal law provides protections to members of the Armed Forces and their dependents relating to extensions of consumer credit, and that the cost of that credit may not exceed an APR of 36%, including certain costs and fees.  This disclosure must be provided in writing in a form the borrower can keep and must also be provided orally (in person or through a toll-free number). 10 U.S.C. § 987(c), 32 C.F.R. § 232.6.

The complaint also alleges causes of action under the Consumer Financial Protection Act of 2010 (“CFPA”), including deceptive acts and practices relating to  loan balances and membership fees and restrictions on membership cancellation, unfair acts and practices relating to the charging of membership fees after consumer requests to cancel membership, and abusive acts and practices relating to membership-program loans.  12 U.S.C. §§ 5531, 5536(a).

In announcing the action against MoneyLion, CFPB Director Rohit Chopra said, “MoneyLion targeted military families by illegally extracting fees and making it difficult to cancel monthly subscriptions.  Companies are breaking the law when they require monthly membership fees to obtain loans and then create barriers to canceling those memberships.”

The CFPB is seeking monetary relief, disgorgement or compensation to covered borrowers for unjust enrichment, civil money penalties, and a permanent injunction barring the practices that allegedly violate the MLA and CFPA.  According to the CFPB, this is its fourth MLA enforcement action in the past two years.

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