On April 14, New York Attorney General Letitia James announced two separate lawsuits against earned wage access providers—one against a company that issues advances directly to consumers, and another targeting a provider that operates through employer partnerships. Both actions allege that the companies engaged in illegal payday lending schemes, charging fees and tips that resulted in annual percentage rates (APRs) far in excess of New York's civil and criminal usury caps.
The lawsuits assert violations of New York's civil and criminal usury laws, which cap interest at 16% and 25%, respectively. According to the AG, the companies' flat fees and "voluntary" tipping features amounted to de facto interest that routinely exceeded those thresholds. Both lawsuits also allege deceptive business practices and false advertising in violation of New York's General Business Law, as well as abusive and deceptive acts and practices under the federal Consumer Financial Protection Act. In both cases, the AG alleges that the companies trap workers in cycles of dependency through frequent, recurring advances.
The lawsuit against the employer-partnered provider alleges that the company:
- Imposed high fees on small-dollar, short-term advances. These fees allegedly resulted in effective APRs that often exceed 500%, despite claims that the advances are fee-free or interest-free.
- Diverted wages through employer-facilitated repayment. The company allegedly required workers to assign wages and routed employer-issued paychecks directly to itself, ensuring collection before workers received their remaining pay.
- Marketed the product as an employer-sponsored benefit. By leveraging exclusive partnerships, the company allegedly positioned its product as a no-cost financial wellness tool, downplaying costs and repayment risks.
The lawsuit against the direct-to-consumer provider alleges that the company:
- Extracted revenue through manipulative tipping practices. Consumers were allegedly nudged to pay pre-set tips through guilt-driven prompts and fear-based messaging, which the company treated as interest income.
- Automated repayment from linked bank accounts. The provider allegedly pulled funds as soon as wages were deposited, often before consumers could access them.
- Used per-transaction caps to drive repeat usage. Consumers were allegedly forced to take out multiple advances and pay multiple fees to access their full available balance, magnifying the cost of each lending cycle.
Putting It Into Practice: These lawsuits reinforce a growing trend among states to impose consumer protection requirements—particularly around fee disclosures and repayment practices—regarding earned wage access products (previously discussed here). State regulators continue to increase their scrutiny of EWA providers' business models and marketing tactics. In addition, this is perhaps the first case we have seen with a state attorney general bringing an action under the CFPA (see our related discussion here about this topic). Depending on how this case proceeds, we can expect to see more cases under the federal statute.
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