On September 8, the U.S. District Court for the Western District of Washington denied an earned wage access provider’s motion to dismiss claims, ruling in favor of an individual alleging the fintech company of unlawful lending practices. The plaintiff, a servicemember, brought a putative class action asserting a fintech company’s earned wage access product violated the Military Lending Act and TILA. The company allegedly promoted its advances as an alternative to traditional loans, advertising “no interest” and no mandatory fees, and targeting users with limited or poor credit.
The plaintiff alleged the company’s practices were deceptive, likening them to “a wolf in sheep’s clothing” and claiming the advances carried triple-digit finance charges and APRs exceeding traditional payday loans. In its defense, the company sought to compel arbitration or dismiss the case, arguing that its lending agreement delegated to an arbitrator, that the arbitration agreement was valid, and that its advances did not constitute “credit” or “finance charges” under the Military Lending Act and TILA. The court found that the Military Lending Act overrides the Federal Arbitration Act, preventing enforcement of the company’s arbitration clause. The court also determined the advances plausibly constituted “consumer credit” under TILA, offered with a clear expectation of repayment.
Of note, the court determined that the cash advances at issue involve the precise type of deferred presentment scheme that Regulation Z characterizes as credit and found that the company’s express and subscription fees were finance charges — despite these fees as not mandatory — because the company’s practices made obtaining such advances without paying optional fees difficult and a subscription was required to access advances.
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