MD residents sue fintech firm over payday loan practices

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Three Baltimore County residents are suing the financial technology company Dave, saying its cash-advance offering violated Maryland law.

The plaintiffs each received small loans — $75, $25 and $10, respectively — through the Dave app, and argue they were required to pay excessive interest and fees.

They say that Dave, which is also facing a consumer-protection lawsuit by the federal government, violated Maryland law that effectively bans short-term lending by capping the interest rates companies may charge.

“Defendant’s cash advance product is indistinguishable from a payday loan,” states the complaint, which was filed Thursday in U.S. District Court in Maryland.

The complaint states that between interest, a $1 monthly fee, an “express fee” to get loans immediately rather than days later, and an optional “tip” that many customers perceive to be mandatory, Dave’s cash advances cost the equivalent of a loan with an average APR of 329%. State law caps interest on short-term loans at 33%.

Dave ceased offering the cash-advance product to Marylanders “sometime in 2023 or 2024,” according to the complaint.

The plaintiffs — Martin Harris, Danielle Johnson and Kasmyria LeeRoyster — are represented by Pittsburgh-based East End Trial Group and Washington, D.C.-based Migliaccio & Rathod.

They bring claims under Maryland’s Consumer Loan Law, Consumer Protection Act and Consumer Debt Collection Act, and are seeking class certification for Maryland residents who obtained an advance or loan from the company.

When setting up an account and applying for a short-term loan, customers are encouraged to pay an optional “tip,” with a default amount of 15%. The app says the tip “helps us stay in business,” and that the company donates a portion of the tip to Feeding America, the nationwide network of food banks. The app shows an empty plate when the user declines to leave a tip.

The complaint says it is difficult to refuse a tip, that the amount the company donates is negligible and the system is intended to make customers feel guilty.

“Indeed, the use of the word ‘tip’ to describe this charge is deceptive in its own right because this charge did not go to delivery drivers, hourly workers, or employees trying to make ends meet; rather, this charge, like the ‘express fee,’ was solely intended to compensate Defendant for lending money,” the complaint states.

The Federal Trade Commission sued Dave in November in federal court in Los Angeles, toward the end of Joe Biden’s presidency and Lina Khan’s term as chair of the commission. (In a December amended complaint, the Department of Justice replaced the FTC as the plaintiff.)

The government’s lawsuit cites internal deliberations between company officials, who described the practice as “very questionable,” but kept it because it was profitable.

“A Dave internal analysis found that, although Dave allowed only a small minority of its users to encounter versions of the interface that did not involve the ‘Healthy Meals’ content, the experiment nonetheless caused a substantial fall in Dave’s monthly revenue,” the government’s amended complaint stated. “The analysis recommended that Dave immediately resume showing all users the ‘Healthy Meals’ content.”

A spokesperson for Dave did not immediately respond to a request for comment, but the company addressed some of the same allegations in a motion to dismiss the lawsuit filed on behalf of the FTC.

“Despite what the Government alleges, customers like Dave and the services Dave offers,” the motion to dismiss states, citing average reviews on two app stores.

“The Company was launched to provide a faster, more transparent, and lower-cost alternative to traditional financial institutions, particularly for those living paycheck to paycheck.”

Dave also rejected the government’s allegation that it misrepresented its tipping system and other charges.

“The Government ignores Dave’s clear disclosures on the very screenshots the Government includes in the Amended Complaint,” the motion to dismiss states. “The Government’s allegations assume that consumers cannot understand short and plain text.”

A hearing on the motion to dismiss that case is scheduled for June 9.