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On December 30, Baltimore Mayor Brandon M. Scott announced that the City of Baltimore filed a civil action against a fintech provider offering small-dollar cash advance products, alleging violations of the Baltimore Consumer Protection Ordinance. According to the City, the fintech's cash-advance product that was promoted as an earned wage access or overdraft-style service but allegedly imposed costs that far exceeded Maryland's 33 percent interest-rate cap for consumer loans.
Baltimore officials allege that the challenged product consists of high-frequency, small-amount, short-term advances marketed as low-cost liquidity for financially vulnerable consumers. The City asserts that the product's structure and fee model obscured its true cost and resulted in an exploitative cycle of debt for users.
According to the City's allegations, the fintech:
- Misrepresented its cash-advance product as earned wage access or overdraft services. The City alleges that the company marketed the product as an alternative to payday lending and traditional overdrafts, despite claims that it did not provide overdraft protection and operated as a high-cost lending product.
- Imposed mandatory fees that resulted in usurious interest charges. According to the City, overdraft fees, membership fees, and other charges, when aggregated, routinely exceeded Maryland's maximum allowable interest rate for consumer loans.
- Advertised access to larger advance amounts that consumers rarely received. The City alleges that while the product was marketed as providing advances of several hundred dollars, most consumers borrowed in much smaller increments, increasing the relative cost of associated fees.
- Structured its product to encourage frequent, short-term repeat borrowing. The City claims that the product design promoted repeated advances within short timeframes, compounding costs and contributing to cycles of debt.
- Framed certain charges as optional or charitable despite their alleged role in pricing. The City alleges that consumers were induced to provide "tips," sometimes framed as supporting charitable causes, while only a minimal portion of those funds allegedly went to charity.
Putting It Into Practice: Earned wage access products continue to draw sustained attention from both federal and state authorities (previously discussed here). In addition, the City of Baltimore has typically been quite aggressive in the area of consumer protection. Companies offering earned-wage access type products, along with their bank partners, should reassess product disclosures, fee aggregation, and usage patterns to evaluate compliance with local consumer protection laws and monitor how federal, state, and local approaches to EWA regulation continue to evolve.
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