PITTSBURGH – An Illinois technology company may have taken a step towards settling a class action lawsuit brought against it – alleging an app it created which provides its users with cash advances, also levies illegally high interest rates for the convenience.
Natalie Pierce and Michelle Ingrodi (individually and on behalf of all others similarly-situated) of Allegheny County initially filed suit in the Allegheny County Court of Common Pleas on April 3 versus Klover Holdings, Inc., of Chicago, Ill.
“Klover operates a lending app called ‘Klover.’ The app provides consumers with cash advances. Consumers can obtain advances of up to $200. Users must connect a bank account and payment card to obtain an advance. After doing so, Klover analyzes its users’ bank account history using proprietary underwriting criteria to determine whether a user is eligible for an advance and the amount of an advance that a user is eligible to obtain. In practice, these criteria prevent consumers from obtaining an advance unless they have a recurring source of income directly deposited into their linked bank account,” the suit said.
“Klover currently offers a standard advance and an expedited advance. The former is deposited into a bank account a few days after it is requested. The latter is deposited into a bank account a few minutes after it is requested. Users must pay an express fee to obtain an expedited advance. That fee ranges from $1.49 to $20.78. These ‘fees’ are intended to compensate Klover for lending money; they do not cover the cost of providing other services. On top of this fee, before uses can obtain a cash advance, they must proceed past a screen that has selected a default tip. The screen does not disclose that users may avoid tips.”
The suit added that, instead, “users must figure out how to do so on their own to avoid paying a tip when obtaining a cash advance” and “unlike Uber or DoorDash, Klover's ‘tip’ does not go to delivery drivers trying to make ends meet; Klover’s ‘tip’ provides a profit center for a company that is already is backed by venture capitalists and highly experienced investors.”
Rather, “Klover’s ‘tips,’ just like Klover’s ‘fees’ are intended to compensate Klover for loaning money,” according to the suit, and “Klover will not issue cash advances unless [it] believes that it will be able to automatically deduct its advances, and any ‘fees’ and ‘tips,’ from a bank account immediately after a user’s employer deposits a paycheck on payday.”
“Klover’s underwriting criteria, the requirement that borrowers link their accounts and payment cards to Klover’s app, and Klover's requirement that users authorize Klover to deduct its cash advances and any ‘fees’ and ‘tips’ from bank accounts on payday, has resulted in Klover obtaining repayment on the vast majority of the advances Klover issues. On the off chance Klover fails to obtain repayment, it will not issue another cash advance until it is able to debit the prior advance and any fees. By requiring users to repay its advances, and by requiring users to allow Klover to automatically debit accounts for repayment, Klover can cause consumers to incur overdraft fees, or insufficient fund fees if a user’s bank account does not have sufficient funds to repay Klover’s automatic account debits,” the suit stated.
“Klover advertises its cash advance product as ‘zero interest’ product. This claim is untrue – Klover’s cash advances have significant costs. For example, a $20 advance, with a two-week repayment schedule, and a $3.99 express fee, yields a 520.13% APR. The same advance with a 20% tip yields a 1,041.55% APR. Klover does not disclose the APRs of its cash advances before, during, or after any transaction, which allows Klover to mislead borrowers to believe its advances have no cost.”
The suit continued that “unlike payday lenders, Klover deceptively brands its cash advances as ‘zero interest,’ and fails to inform consumers about the cost of its cash advances in terms of APR, which prevents consumers from understanding what they are paying” – which “also 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.”
“Plaintiffs obtained cash advances from Klover, and used those cash advances for personal, family and/or household purposes. Plaintiffs paid Klover’s express fees and tips. Plaintiffs did not know they were paying interest by paying fees and tips. Klover’s fees and tips yielded triple- and quadruple-digit APRs. Plaintiffs were unaware that the amounts they paid yielded triple- and quadruple-digit APRs, and Klover failed to disclose this fact,” the suit said.
On May 3, the defendant removed the case to the U.S. District Court for the Western District of Pennsylvania under the auspices of the Class Action Fairness Act (CAFA), or in the alternative, due to diversity of citizenship between the parties.
UPDATE
On May 30, counsel for all parties filed a joint status report, explaining they had arrived at a tentative resolution to the case.
“Plaintiffs Natalie Pierce and Michelle Ingrodi, and defendant Klover Holdings, Inc. submit this joint status report in accordance with the Court’s May 23, 2024 status report order. The parties have reached an agreement in principle to resolve the above-captioned matter. To that end, the parties jointly request additional time to finalize the terms of their agreement, and respectfully request a 45-day extension of time for defendant to respond to the complaint and for plaintiffs to move to remand, if applicable. A proposed order reflecting the extension request is attached to this joint status report,” the report stated.
U.S. District Court for the Western District of Pennsylvania Judge Mark R. Hornak granted the request the following day, May 31, through a judicial order.
“It is hereby ordered that: 1) Plaintiffs’ deadline to move to remand is extended to July 18, 2024. 2) Defendant’s deadline to answer or otherwise respond to the complaint is extended to July 18, 2024. 3) Plaintiffs’ deadline to respond to the defendant’s responsive pleading, if any, is extended to Aug. 22, 2024. 4) Defendant’s deadline to file a reply in support of its responsive pleading, if any, is extended to Sept. 12, 2024,” Hornak ruled.
For counts of violating Pennsylvania’s Loan Interest and Protection Law and Consumer Discount Company Act, the plaintiffs are seeking an order:
• Certifying the proposed class, appointing plaintiffs as representatives of the proposed class, and appointing undersigned counsel as counsel for the proposed class;
• Awarding actual, statutory, treble and all other damages available by law, along with pre- and post-judgment interest;
• Providing plaintiffs and the class members restitution for any interest, fees or other charges that were paid to defendant and that aggregated in excess of 6%;
• Awarding attorneys’ fees and costs;
• Declaring defendant’s conduct unlawful; and
• Awarding all other relief that is just, equitable and appropriate.
The plaintiffs are represented by Kevin Abramowicz, Kevin Tucker, Chandler Steiger and Stephanie Moore of East End Trial Group, in Pittsburgh.
The defendant is represented by Marco S. Attisano and Colin J. Callahan of Flannery Georgalis, also in Pittsburgh, plus Matthew Riffee and Melissa Brumer of Goodwin Procter, in Washington, D.C. and New York, N.Y.
U.S. District Court for the Western District of Pennsylvania case 2:24-cv-00665
Allegheny County Court of Common Pleas case GD-24-003757
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com