If the past few months have shown us anything it’s that the frictions between the regulators and the regulated — in this case, FinTechs — frequently are being played out in the courts.
And in just the latest example, the Federal Trade Commission’s lawsuit against digital banking platform Dave spotlights some of the key areas where regulators are focusing their efforts and tightening their scrutiny, signaling issues with some of the core tenets of their business models.
As alleged in the suit filed Tuesday (Nov. 5), the FinTech firm’s advertising has been “misleading” to consumers accessing its ExtraCash cash advance offerings.
The complaint states that Dave’s advertising notes that users can get “up to $500 instantly,” when they seek those cash advances. But as PYMNTS reported, the FTC alleges that Dave rarely offers that advertised maximum amount, and many consumers instead get lower advances.
Elsewhere, the FTC states that the FinTech had not disclosed its fee structure to consumers — at a $3 to $25 range on those aforementioned advances — and documented several consumer complaints.
The business model is one, according to the suit, where the fee is not disclosed until after a consumer signs up for the advance and has given the FinTech access to their bank account. If consumers want to skirt the fees, they can do so but must wait for two to three business days to receive their funds. In addition, the FTC alleges Dave’s “tip” system is akin to a 15% “surprise” fee though it is presented as an optional gratuity (tied to providing meals to the needy).
“Many consumers are either unaware that Dave is charging them or unaware that there is any way to avoid being charged,” said the FTC in the filing. As for the tips, “Dave does not provide the meals as claimed, and instead makes only a token charitable donation — usually $1.50 or less — while keeping the bulk of the charge for itself,” the suit alleged.
“Neither Dave’s ads nor its app store content inform consumers that Dave offers cash advances at or near the amount advertised to very few consumers. Other than prominent representations such as ‘Get up to $500,’ the only references to the amount of consumers’ advances in Dave’s advertising or app store listings typically are in small print, are buried in block text, use vague or confusing language, and/or are found in obscure location,” the FTC added.
The Commission contended later in the filing that “many consumers make clear that they would not have signed up for Dave if they had known Dave would offer far less than promised” and states additionally that “Dave fails to provide simple mechanisms for consumers to stop the recurring $1 ‘membership’ charge.”
The FTC’s suit charges that Dave has violated the 2010 “Restore Online Shoppers’ Confidence Act” which mandates “clear, accurate information.” The Act generally prohibits “negative options features,” which are defined as features “under which the consumers’ silence or failure to take an affirmative action to reject goods or services or cancel an agreement” are taken as an acceptance of the offer.
Reached for comment by PYMNTS, Dave pointed us to a statement that accompanied preliminary earnings by the company on Tuesday (Nov. 5). In that announcement, Dave posted revenues of $92.5 million for the most recent quarter, up 41%, and a roughly $500,000 net profit. Dave said: “It is worth emphasizing that the FTC’s action, for which we believe we have strong defenses, is related to consumer disclosures and consent, not our ability to charge subscription fees and optional tips and express fees moving forward. Accordingly, we have not contemplated any changes to our forecast as a result of the FTC’s action.”
Dave’s response to PYMNTS also details that the firm had been in the midst of “good faith” negotiations with the FTC (the civil investigation had been disclosed in Dave’s June SEC filing), and called the suit “another example of regulatory overreach by the FTC … we take compliance and customer transparency very seriously and believe that we have always acted within the law.”
The company’s stock was soaring 15% in intraday trading on Wednesday in the wake of the preliminary results and against the backdrop where a looming Trump presidency may signal a rollback of regulatory efforts. That rollback could conceivably extend to the FTC.
For FinTechs, tied as they are to digital engagement and platforms that offer up cross-selling opportunities, the rollbacks would be welcome — but what happens in the courts remains to be seen.
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