On June 10, the Minnesota AG announced a lawsuit against an earned wage access provider alleging that its "Instant Cash" product violated the Minnesota Consumer Small Loan Act and Consumer Short-Term Loan Act. The complaint alleges that the company operated as an unlicensed and unregistered lender, charged interest and fees exceeding Minnesota's statutory limits, and structured its earned wage advance product to evade the state's payday lending laws.
According to the complaint, the company marketed its product as a non-recourse, voluntary earned wage advance rather than a loan. The Attorney General alleges, however, that the advances functioned as loans because consumers were assigned repayment dates, required to preauthorize repayment from their bank accounts, and allegedly faced significant barriers to canceling or delaying repayment. The complaint further alleges that annual percentage rates regularly exceeded 300%, and in some instances exceeded 700%, far above Minnesota's 50% statutory cap.
Specifically, the complaint alleges that the company:
- Operated without required licensing. The Attorney General alleges the company made consumer small loans and consumer short-term loans in Minnesota without obtaining the required registration, license, or regulatory filings.
- Disguised loans as voluntary advances. According to the complaint, the company characterized its advances as voluntary while requiring consumers to preauthorize repayment, assigning repayment dates, limiting extensions, and providing no in-app mechanism to revoke repayment authorization.
- Charged unlawful rates and fees. The complaint alleges the company assessed express delivery and subscription fees that produced annual percentage rates well above Minnesota's statutory limits while failing to provide disclosures required under state law.
The Attorney General seeks injunctive relief, declarations that the allegedly unlawful loans are void, civil penalties, restitution, disgorgement, attorneys' fees, and other monetary and equitable relief.
Putting It Into Practice: The last year has seen significant earned wage access activity at both the federal and state levels (previously discussed here and here). Businesses offering these products should continue monitoring developments across the states, evaluate whether their products could be characterized as loans under applicable state law, and review their licensing, fee, disclosure, and repayment practices to ensure compliance with evolving state requirements.