How much does the phrase "up to" matter?
That's one of the sticking points in an $18 million penalty the Federal Trade Commission levied against the consumer finance app Brigit. The agency alleges the company misled customers about the amount of money they could access via cash advances — "up to $250" — and locked them into paid subscription plans that were burdensome to cancel.
The proposed court order would require the company to pay $18 million in consumer refunds and change the way it markets to customers and handles cancellation requests, the FTC said Nov. 2.
"Brigit trapped those consumers least able to afford it into monthly membership plans they struggled to escape from," Sam Levine, director of the FTC's Bureau of Consumer Protection, said in a press release announcing the settlement.
In response, Brigit told American Banker that it "strongly disagree[s]" with the allegations.
"The FTC's claims are factually inaccurate, misunderstand our business and go against everything we have worked so hard to build on behalf of our customers," a spokesperson said via email. "We are confident that we would have prevailed had this case gone to trial, under the facts and the law. Nevertheless, we have decided to settle this case with the FTC because it is in the best interest of our customers and employees to put this matter behind us. We remain focused on our mission to promote sustainable financial health for the people who need it most."
When asked by American Banker about the value of customers paying $9.99 per month to access cash advances in January 2022, Brigit
Challenger banks like Chime and Dave have been helping customers avoid overdraft fees for years. As traditional banks start to do the same, the fintechs say they still offer consumers a better deal.
A number of fintechs tout cash advances, including
The FTC's action against Brigit is one of several it has initiated in recent years against companies extending some form of credit, suggesting that it is an enforcement priority and an area where fintechs specializing in nontraditional credit need to tread carefully — including when they hedge their bets by advertising payouts "up to" a certain ceiling.
"For those operating in this space it's a good reminder that you have to be exercising caution" on matters ranging from how services are marketed to how fees are disclosed, said Donnelly McDowell, a Washington-based partner at the law firm Kelley, Drye & Warren. "There are likely to be more enforcement actions if there are not already ones coming down the pipeline."
He pointed to legal action from the FTC that touched on the hot-button issues of hidden fees and false claims, including an $18 million settlement with LendingClub
In this case, the Brigit app charged customers $9.99 per month to be eligible for short-term cash advances along with other perks as part of its Brigit Plus plan. It debited this fee directly from customer accounts and renewed it automatically. Brigit made several false or misleading claims, according to the FTC's complaint, including a top payout of $250, a number it advertised prominently; the promise of instant payments; an absence of late fees or interest; and the ability to cancel the subscription anytime.
In reality, the FTC found that few customers were eligible for cash advances of up to $250 — with many ineligible for cash advances at all — and that instant delivery incurred a $0.99 fee, which was only disclosed once users had requested the advance. Moreover, Brigit users had to navigate numerous confusing screens in a bid to cancel their subscriptions, which tried to trick members into accepting a brief pause instead of downgrading to the free version of Brigit, according to the complaint. Those with outstanding cash advances couldn't cancel their monthly plan before they repaid them.
There is no fixed number that draws a line between when it is or is not acceptable to claim that people can get "up to" a certain amount.
"The legal standard is 'an appreciable number,'" said McDowell. "There is not a ton of precedent on it, but the FTC has tried to push that number higher over the years," in his eyes at about 50%.
Making the issue even murkier is the question of how much the bell curve matters.
"If Brigit had 50% of people not getting $250 but getting $200, that's a lot more defensible than if they had 50% of the people getting $20 or no money," said McDowell.
In this case, the FTC found that approximately 1% of Brigit Plus customers received the full amount advertised, while approximately 20% were denied cash advances entirely.
"Brigit acknowledged in an email communication that the difficult cancellation process was part of the company's business strategy," reads the FTC complaint. "In July 2022, after becoming aware of the FTC's investigation, Brigit stopped requiring consumers to decline a free month before they could proceed with canceling."
Cash-advance products from fintechs are often pitched as a more consumer-friendly alternative to bank overdraft programs.
"Fintech, at its worst, leverages consumers' natural distrust of banks to drive them into even more predatory and dishonest products," said Alex Johnson, author of the Fintech Takes newsletter. "Paying $9.99 per month for access to instant $250 cash advances that aren't instant and that aren't $250 is substantially worse than any bank overdraft program. Making it difficult or impossible for consumers to cancel that $9.99 per month subscription is just bad icing on a very bad cake."
He points out that it is difficult for companies to profitably serve low-income consumers with low credit scores and to secure funding from venture capital firms.
"When you layer the pressure of VC expectations on top of a startup focused on serving this segment, it's extremely difficult to resist the temptation to do bad stuff," Johnson said. "Long-term, the best answer is probably for this segment to be a less profitable line of business for financial services providers that have other, more profitable lines of business to balance it out," including banks, credit unions and large, multiline fintech companies like Block.
