Cash Advance App Klover Hit With Class Action Lawsuit Over Predatory Lending

A new class action lawsuit, Pierce et al. v Klover Holdings, Inc., filed in the U.S. District Court for the Western District of Pennsylvania, accuses cash advance app Klover of deceptive lending practices. The lawsuit alleges Klover hides fees, charges illegal interest rates in Pennsylvania, and disguises payday loans as "zero-interest" advances.

According to the lawsuit, Klover prevents consumers from understanding the deals they’re entering, and takes “advantage of the public's lack of awareness of how fees can add up, which results in a detrimental cycle of debt and incentivizes poor money management habits.” 

It is also outright illegal to charge such high interest rates in Pennsylvania, the lawsuit argues, adding the cash advance product was created by Chicago-based Klover “in hopes of evading state law and producing a massive return for its investors.”

Borrowers challenge hidden fees

Plaintiffs Natalie Pierce and Michelle Ingrodi allege they were misled by Klover's advertising of "zero-interest" cash advances. They claim the app hides the true cost of borrowing through mandatory express fees and "tips" that are automatically added during checkout but not presented as optional.

The lawsuit argues that these fees, combined with the "tips," result in triple-digit annual percentage rates (APRs) exceeding 1,000% for a small cash advance. This effectively makes Klover's advances function identically to payday loans, which are notorious for trapping borrowers in a cycle of debt due to excessive fees and interest.

Unlocking “zero-interest" rates

Klover argues their cash advances are not loans and therefore don't fall under Pennsylvania's lending regulations. However, the lawsuit contends that by requiring repayment on the borrower's next payday and automatically deducting funds from their bank account, Klover is essentially extending credit.

Furthermore, the lawsuit argues that Klover's claims of "zero-interest" are misleading because they fail to disclose the significant fees that dramatically increase the cost of borrowing.

Klover's alleged attempt to evade regulations

The lawsuit alleges Klover, headquartered in Chicago, operates as a tech company to avoid state licensing requirements for lenders in Pennsylvania. This, they argue, allows Klover to charge excessive fees that would be illegal under state usury laws.

The lawsuit cites Klover's venture capital backing and fundraising efforts as evidence that the company prioritizes maximizing profits for investors over responsible lending practices.

“Klover investors have paid millions of dollars to Klover in hopes that Klover can evade state law compensation caps for lending money,” the lawsuit alleges, citing the millions in fundraising the app has racked up. 

Klover faces broader scrutiny as fintech lenders under fire

The lawsuit against Klover isn't an isolated incident. Other fintech lenders offering similar cash advance products are facing increased scrutiny from regulators and legal action.

Earlier in 2024, the Federal Trade Commission (FTC) charged online cash advance provider FloatMe and its co-founders with deceptive lending practices. The FTC alleged FloatMe failed to deliver the promised advance amounts, made it difficult for customers to cancel their services, and discriminated against consumers receiving public assistance. As a result of the FTC action, FloatMe was required to:

• Refund $3 million to customers
• Discontinue deceptive marketing practices
• Implement a user-friendly cancellation process
• Establish a fair lending program

In mid-2023, California, Connecticut, and the District of Columbia took action against the fintech payday loan website SoLo Funds. These state regulators issued consent orders effectively barring SoLo Funds from operating. The lawsuit against SoLo Funds alleged the company offered unlicensed payday loans with hidden fees, similar to Klover's practices. SoLo Funds used deceptive tactics like calling hidden fees "tips" and "donations" to mask annual percentage rates (APRs) exceeding 511%. These tactics aimed to circumvent state-imposed interest rate caps on lending.

Meanwhile, the Consumer Financial Protection Bureau has issued advice on how to stop payday lenders automatically taking electronic payments from your account, saying consumers have the right to stop them, even if you previously allowed them. 

The plaintiffs and proposed class are represented by Kevin Abramowicz, Kevin Tucker, Chandler Steiger, and Stephanie Moore of East End Trial Group LLC.

The Klover predatory lending proposed class action lawsuit is Pierce et al. v Klover Holdings, Inc., Case No. 2:24-cv-00665 in the U.S. District Court for the Western District of Pennsylvania.