FILE PHOTO: New York Attorney General Letitia James holds a press conference following a ruling against former U.S. President Donald Trump ordering him to pay $354.9 million and barring him from doing business in New York State for three years, in the Manhattan borough of New York City, U.S., February 16, 2024. REUTERS/David Dee Delgado/File Photo
NEW YORK (Reuters) - New York's attorney general sued DailyPay and MoneyLion on Monday, accusing the app-based financial technology companies of exploiting workers by charging excessive fees to collect paychecks more quickly, with effective interest rates above 200% and sometimes topping 750%.
Attorney General Letitia James called the companies predatory payday lenders that obscure the "exorbitant and plainly usurious" fees they charge workers, who hope to bridge gaps between payroll schedules and when bills come due.
James said MoneyLion's $8.99 fee on a $100 two-week advance under the "Instacash" brand name carries an effective annual interest rate of 234%, while DailyPay's $2.99 fee on a $20 seven-day advance carries an effective rate above 750%.
The attorney general said DailyPay reaches workers by contracting with employers such as Burger King, McDonald's, Target, grocer Kroger and healthcare providers HCA and UnitedHealth.
"Promising New Yorkers financial freedom while pushing them into outrageously expensive loans is downright shameful," James said. "These are payday loans by another name."
Both lawsuits were filed in a New York state court in Manhattan, where DailyCheck and MoneyLion are based.
The lawsuits seek restitution, civil fines and an end to the alleged exploitative practices.
DailyPay had sued James on April 7 to try to stop her from bringing the case, saying its product was not a loan because workers need not repay anything if employers fail to make payrolls.
On Monday, it repeated its disappointment that James chose to sue, saying it signals that she "prefers consumers to rely on loan sharks or pay higher overdraft and late fees."
MoneyLion did not immediately respond to requests for comment.
Many U.S. states are expected to maintain close monitoring of the financial services industry as President Donald Trump's administration curbs oversight at the federal level.
MoneyLion is being acquired by Gen Digital in a transaction expected to close on Thursday. Gen is a software company whose cybersecurity brands include Norton and LifeLock.
(Reporting by Jonathan Stempel in New York; Editing by Will Dunham)
