NY Attorney General Sues EWA Providers DailyPay, MoneyLion

Peter Foley/Bloomberg

New York Attorney General Letitia James has put two New York-based earned wage access providers in her office’s crosshairs as wider federal regulators slow their own supervisory and enforcement actions.

The AG’s office sued DailyPay and MoneyLion – which it calls payday lenders – Monday for “taking advantage of tens of thousands of New Yorkers with illegal high-interest loans” that it says are as high as 750% per year, according to a release from the Attorney General’s office. James is seeking to end “MoneyLion and DailyPay’s illegal payday lending practices in New York” and obtain restitution for consumers.

“Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful. These are payday loans by another name,” said Attorney General James in a statement. “While many New Yorkers are worried about making ends meet, DailyPay and MoneyLion are making tremendous profits by extracting workers’ hard-earned wages. I’m suing DailyPay and MoneyLion because New Yorkers deserve to keep the money they earn, not have it taken by predatory lenders.”

DailyPay filed a preemptive counter suit for declaratory relief against James’ office last week to prevent the AG from using usury laws to bar EWA from the state.

“We look forward to demonstrating in court that DailyPay’s on-demand pay product is not a loan – that there is no interest, no advance of future earnings, and no obligation for workers to repay DailyPay,” Loretta E. Lynch, partner at Paul, Weiss, which is representing DailyPay, told American Banker in an email.

New York state currently has pending EWA legislation in committee with the Assembly and Senate that would put a rate cap on EWA transactions. That usury cap would be separate from the state’s wider 16% usury cap and specified at a later date.

The lawsuit comes ahead of cybersecurity firm Gen Digital’s acquisition of MoneyLion, which is expected to close April 17. MoneyLion and Gen Digital did not respond to requests for comment.

The suit, if successful, will have wide-ranging implications for EWA providers in the state. Most national EWA providers, including all of the American Fintech Council’s EWA members, offer pay-in-advance services in the state.

The NY AG’s office is responding to a pullback in federal oversight of consumer protection laws, Eamonn Moran, partner at Holland & Knight, told American Banker.

The Consumer Financial Protection Bureau, for example, has said it will not enforce a Cordray-era payday lending rule first promulgated in 2017 that went into effect at the end of March. And Acting Consumer Financial Protection Bureau Director Russell Vought ordered an internal review of past guidance, saying it planned to rescind any orders that the Trump administration deemed unlawful.

“States are trying to fill in some of the void, so to speak, on the federal side,” Moran said.

James’ office last month took steps to strengthen consumer protection laws in the state with the introduction of the Fostering Affordability and Integrity through Reasonable Business Practices, or FAIR Business Practices Act.

“Forty-two other states and federal law already prohibit unfair practices, making New York’s current law both antiquated and inadequate,” according to an AG press release.

“New York is usually, along with California, the first in line with respect to significant consumer protection developments,” Moran said.

James, who has served as New York’s AG since 2019, established her office as a stalwart for consumer protection in the absence of federal consumer protections during Trump’s first administration, Casey Jennings, partner at Seward & Kissel, told American Banker.

“James has had no trouble asserting New York’s sovereignty in the past,” Jennings said.