Klover Lawsuit Alleges Cash Advance App Illegally Reaps APRs In Excess of 300 Percent

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Klover faces a proposed class action lawsuit that alleges the cash advance and budgeting app charges fees that yield triple-digit annual percentage rates (APRs) that regularly exceed 300 percent, far above the lawful rate allowed in Pennsylvania.

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The 17-page class action accuses venture capital-backed Klover of violating the Pennsylvania Loan Interest and Protection Law and Consumer Discount Company Act, two state statutes designed to protect residents from predatory payday lending and cash advance practices. 

“Klover created the cash advance product at issue in this case in hopes of evading state law and producing a massive return for its investors,” the complaint alleges.

Although Klover touts its cash-advance product as “zero interest,” this is patently untrue given that, for example, a $20 advance, with a two-week repayment schedule and $3.99 express fee, yields an APR of more than 520 percent, the filing shares. According to the suit, Klover does not disclose the high APRs of its cash advances before, during or after any transaction, allowing the company to mislead borrowers into believing its cash advances come without cost.

“The APRs associated [with] these cash advances are similar to the APRs associated with payday loans,” the case stresses.

Through the Klover app, a consumer can receive a cash advance of up to $200 and must connect a bank account and payment card in order to obtain the money, the case explains. After doing so, Klover will analyze the user’s bank account history via “proprietary underwriting criteria” to determine whether they are eligible for an advance and, if so, the amount of the advance, the filing says.

In practice, the suit contends, these criteria keep consumers from obtaining an advance unless they have a recurring source of income directly deposited into their bank account.

According to the case, a standard cash advance from Klover will be deposited into a bank account within a few days, while an expedited advance will be deposited within a few minutes and come saddled with a fee ranging from $1.49 to nearly $21. These fees are meant solely to compensate Klover and do not cover the cost of providing services, the complaint says.

In the course of obtaining a cash advance, a consumer must also proceed past a screen that has a default tip selected, though this screen does not disclose that the user may avoid tipping, the suit adds. Klover tips are, in essence, fees that the company pockets as profit, the lawsuit claims.

“Unlike Uber or DoorDash, Klover’s ‘tip’ does not go to delivery drivers trying to make ends meet,” the case reads. “Klover’s ‘tip’ provides a profit center for a company that is already is [sic] backed by venture capitalists and highly experienced investors.”

To ensure it gets paid, the lawsuit continues, Klover requires users to authorize the app to automatically deduct advances from their bank account or payment card “immediately after their employer deposits a paycheck into their bank account on payday.” The fees and “tips” associated with Klover cash advances are baked into a user’s repayment obligations, the case mentions.

Ultimately, Klover’s cash advance and repayment practices can cause consumers to incur overdraft fees or insufficient funds fees, and the fees linked to Klover’s cash advances could well “leave holes in the paychecks of borrowers,” forcing them to reborrow and take out new loans to fulfill old ones, the lawsuit says.

The Klover lawsuit looks to cover all persons who reside in Allegheny County, Pennsylvania and obtained an advance or loan from Klover within the statute of limitations period.

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