PITTSBURGH – An Illinois technology company has settled a class action lawsuit brought against it, one which alleged 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.
Counsel for all parties filed a joint status report on May 30, explaining they had arrived at a tentative resolution to the case and requested a 45-day extension to finalize the terms.
UPDATE
On July 1, counsel for all parties filed a stipulation of dismissal with prejudice for the case, as the settlement terms were finalized. Those terms were not disclosed.
“Pursuant to Federal Rules of Civil Procedure 41(a), plaintiffs Natalie Pierce and Michelle Ingrodi and defendant Klover Holdings, Inc. hereby stipulate that all of the claims asserted in the above-captioned action against Klover are hereby dismissed with prejudice, with each party to bear its own costs, expenses, and attorneys’ fees,” the stipulation stated.
Hornak authorized the closure of the case on the same day.
The plaintiffs were represented by Kevin Abramowicz, Kevin Tucker and Stephanie Moore of East End Trial Group, in Pittsburgh.
The defendant was 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