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Nefarious Neobank: The MoneyLion Story
Triple digit interest rates and lending club memberships you can't cancel
Neobank MoneyLion continues to face scrutiny for its unscrupulous tactics. From charging outrageous interest rates to luring customers into a “membership club” that offers no real benefits and can’t be cancelled, MoneyLion is pulling out all the stops. They even have a gambling game that encourages users to login more frequently.
Our story begins in Minnesota, where MoneyLion was charging 645% interest rates on loans.
The Minnesota Department of Commerce has announced a settlement with online lending platform MoneyLion that will result in refunds to some borrowers as well as a fine paid by MoneyLion.
MoneyLion violated Minnesota state law by failing to be licensed by the state when it provided Minnesota-based consumers with certain loans with excessive annual interest rates of up to 645%. The settlement includes more than 700 loans issued to Minnesota consumers between November 7, 2016 and September 15, 2017. These loans ranged from $300 to $2,000 and MoneyLion charged interest rates from 9.79% to 645%.
The settlement requires MoneyLion to cancel or forgive certain loans and to refund $250 to certain Minnesota consumers. The settlement also imposes a $100,000 fine to the State of Minnesota.
“As this case shows, Minnesota consumers who borrow from online lenders have protections under state law,” said Minnesota Department of Commerce Commissioner Grace Arnold. “The Commerce Department works to ensure a fair marketplace for Minnesota consumers to do business.”
Charging usurious interest rates is not the only way MoneyLion seeks to pad its profits. The lender also has a “membership club” that has apparently run afoul of the Consumer Financial Protection Bureau (CFPB).
Here’s more on that:
Jason Mikula of Fintech Business Weekly compares the predatory lender to Columbia House — the company that would send you 8 CDs for one penny as long as you signed up for a “club membership” and kept getting some pretty expensive CDs you didn’t actually want.
Here’s more on the membership MoneyLion offered — and the lack of benefits provided to “members.”
An early version of of MoneyLion’s membership program, the “ML Plus Membership Program,” offered consumers the chance to take out a 12-month, $500 installment loan at a 5.99% APR — if they paid a $29 per month “membership fee.”
In addition to their monthly loan payment (approximately $43) and $29 membership fee, users were required to pay an additional $50 into an “investment account,” which was used to partially secure the loan (eg, MoneyLion would tap this for repayment if users defaulted.)
Altogether, a user of this $500 loan product would be paying about $122 per month for 12 months — a total of $1,464 over a year, though they would get $600 of that back upon successful repayment of the loan.
Around 2019, MoneyLion redesigned and rebranded the product as its “Credit Builder Loan.” For $19.99 per month, users could access a 12-month installment loan from $500 — $1,000 at APRs from 5.99% to 29.99%. Borrowers would receive half the loan proceeds upfront and half would be held in escrow, which borrowers would receive upon fully paying off the loan.
So, one, these “memberships” are a pretty expensive way to access credit.
Two, according to the CFPB, the memberships and fees provided no real benefits AND were nearly impossible to cancel.
More on that from the CFPB’s complaint:
“Other than the loans themselves, the only actual products or services provided to consumers as part of the fee-based memberships — that is, not available under the free memberships — have been:
(1) a “members-only Facebook Group” (later discontinued); and
(2) credit-monitoring tools, which were initially included in free memberships but then limited to fee-based memberships after mid-2019.”
And here’s the Columbia House effect, as Mikula explains:
In reality, however, MoneyLion disallowed users with outstanding loan balances from canceling their membership, forcing them to continue paying $19.99 per month until they were able to pay back their loan in full — something many borrowers struggled to do.
According to the CFPB’s suit, in many cases, even when users had paid off their loan, they were unable to cancel their membership if they owed outstanding membership fees — meaning users would continue wracking up new monthly fees for a membership they did not want and were unable to cancel.