New York Attorney General Letitia James announced this week the filing of two lawsuits against payday lenders MoneyLion Inc. and DailyPay Inc., alleging that the companies exploited tens of thousands of New Yorkers with high-interest loans that were illegally disguised as early access to paychecks. The lawsuit claims that both companies charge exorbitant fees and interest rates, as high as 750 percent per year, and employ deceptive advertising practices to trap workers in a cycle of debt.

MoneyLion and DailyPay offer short-term loans to hourly workers, typically less than $100, that are repaid with fees and tips over the course of a week or so. These transactions, according to the lawsuit, result in extremely high annualized interest rates, on average between 200 percent and 350 percent, but can go much higher. For example, DailyPay's most common loan, a $20 advance for seven days at a cost of $2.99, works out to an annual interest rate of over 750 percent. Over half of MoneyLion loans have annual interest rates over 500 percent.

The litigation alleges that both companies mislead borrowers about the cost of their loans. MoneyLion, despite advertising a zero percent interest rate, charges mandatory fees that can bring the cost of a $100 loan to $8.99, resulting in a 234 percent annual interest rate. DailyPay, despite claiming to offer interest-free advances, charges fees on 90 percent of its loans and can prioritize its own repayment over workers' financial security. DailyPay contracts with employers, who then send workers' paychecks to DailyPay on payday, which allows DailyPay to deduct all amounts owed before passing on any remaining balance to employees.

The lawsuit includes examples of borrowers taking out multiple loans, paying exorbitant fees, and becoming trapped in a cycle of debt. A Washington Heights man took out over 450 DailyPay loans in under two years, paying $1,400 in fees. Another worker in Syracuse paid DailyPay fees on all but two of approximately 500 loans, averaging $2 per day for nearly two years.

Attorney General James is seeking to stop MoneyLion and DailyPay from engaging in payday lending in New York, secure refunds for affected workers, and impose civil penalties. The lawsuit against DailyPay also alleges a violation of New York's wage assignment laws.

“Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful," James said. "These are payday loans by another name.”