City of Baltimore Sues Payday Lender Under City Ordinance Prohibiting Unfair, Deceptive, or Abusive Trade Practices

The City of Baltimore, Maryland recently sued a payday lender in Maryland state court over alleged violations of a consumer protection city ordinance which prohibits, among other things, unfair, deceptive, or abusive trade practices in connection with extensions of consumer credit and collection of consumer debt.

The Complaint claims that the lender offered cash advances under what the lender called an “earned wage access product,” but which the City characterized as high-frequency, small-amount, high-cost, short-term loans.  Specifically, the Complaint alleges that the lender deceptively markets its services as allowing borrowers to access $500 cash instantly from their smartphones with no interest, but that neither of these things are true.  According to the Complaint, only $100 in cash can be accessed at a single time and users must pay an additional “Turbo Fee” in order to get the money transferred instantly.  Each transaction also includes an allegedly hidden $4 “processing fee,” and consumers are also repeatedly and deceptively pressured to leave a $5 default “tip.”  The Complaint claims that these fees are finance charges which should effectively be treated as interest under Maryland law because the cash cannot be accessed without them.  In turn, the City alleges that the majority of these loans exceed Maryland’s 33% maximum interest rate.  For example, the City claims that in some cases a $25 advance ends up costing a consumer a 900% annual percentage rate.  The complaint also notes that consumers usually must link the app to their debit account, which will attempt to automatically collect repayment as soon as the consumer’s paycheck is deposited.  However, these collection attempts may end up occurring before the paycheck is deposited, resulting in bank overdraft fees.

The Complaint asserts two counts, for deceptive and unfair trade practices, under the city ordinance.  The City seeks the maximum civil penalties for each violation and injunctive relief requiring the lender to cease its activities, void existing enforcement, return all borrowers’ principal, interest, fees, and tips, disclose the scope of its operations, and reform its practices and marketing.