Challenger bank MoneyLion reported on Tuesday that it turned a profit during the month of December and is on track to have its first profitable year as a public company in 2023. In an interview, CEO Dee Choubey also defended his company against the Consumer Financial Protection Bureau's charges that its lending is predatory.
For the year as a whole, MoneyLion had negative earnings before interest, taxes, depreciation and amortization (EBITDA), but the total loss of $63.3 million beat its guidance of losses between $70 million and $65 million.
The company also hit on its projected revenue for the year ($328.25 million compared to $320 million to $330 million guidance) and gross margin (59.43% compared to 55% to 60% guidance).
All told, the company said it expects to cut losses in the first quarter of 2023 to between $4 million and $0, and it expects positive EBITDA on the year as a whole.
The performance pleased analyst Hal Goetsch, senior vice president in Loop Capital Markets' equity division. Goetsch said MoneyLion surprised investors by being "ahead of the plan" to reach profitability. He expressed optimism that it would perform even better if the Federal Reserve starts to slow or reverse interest rate hikes.
One of MoneyLion's main lines of business — Choubey described it as its enterprise line — is matchmaking between lenders and consumers. The company runs an advertising network to serve prospective borrowers with advertisements for various credit and loan products.
MoneyLion also has a consumer line of business, offering a mobile app that comes with multiple offerings including financial literacy content served by a network of media influencers that the company has fostered. Also in that app is a way to apply for lines of credit through a premium membership MoneyLion calls Credit Builder Plus.
This particular product has gotten MoneyLion in trouble with the CFPB, which last year filed a complaint that alleged the company exceeded the Military Lending Act's interest rate cap of 36%. The CFPB reached this conclusion by including the $19.99 monthly fee that MoneyLion charges for Credit Builder Plus as part of its calculation for the military annual percentage rate.
The Consumer Financial Protection Bureau has accused the challenger bank, which charges customers a monthly membership fee, of violating the Military Lending Act and other consumer protection laws. MoneyLion says the allegations are baseless, but some analysts said the consumer bureau appears to have strong claims.
Among the arguments MoneyLion has made in the lawsuit this year, it said that including the fee in calculation does not make sense because the membership comes with other benefits.
"Under the CFPB's theory, if MoneyLion were to offer a membership that included 1,000 benefits, with a loan being only one, the CFPB would still allocate every cent of the membership fee to the MAPR, despite the fee paying for 999 other benefits," the company argued in a motion before the U.S. District Court for the Southern District of New York. "This reading makes no sense."
MoneyLion does not
Goetsch said that it was "sinister" for the CFPB to impute the membership fee to the interest rate, which he said implies that the other features "just don't count" and that the fee is purely financial. He also said the number of complaints the CFPB collected against MoneyLion is few compared to the number of customers the company serves.
According to a note Loop Capital sent to clients in October, the CFPB had collected 1,340 complaints against MoneyLion, including 143 service members. That's a small number compared to the 4.9 million customers the company had as of July 2022.
Overall the CFPB's lawsuit against MoneyLion "just isn't a key variable," Goetsch said. MoneyLion's share price plunged 29% the day the CFPB announced the lawsuit, but the stock rebounded over the intervening week.
Dee Choubey, MoneyLion's CEO, said Tuesday he disagreed "categorically" with the notion that the credit his company issues is "
Those analysts argued that the membership fee, credit line APR of up to 29.99% and a savings feature one described as "forced," all increased costs for borrowers. MoneyLion did not comment at the time, but on Tuesday, Choubey disagreed.
"If you compare to secure credit cards, if you compare to other credit building capabilities out there, we actually release right up front a portion of the proceeds to consumers, and what we bundle into that membership is above and beyond what any of our competitors provide," Choubey said.
In contrast to the characterization as a predator, Choubey said the financial wellness content that MoneyLion serves customers — no membership required — helps "promulgate best practices," delivered by athletes, content creators and other brand voices.
"We can demystify and educate, especially in moments like this where you have a dislocation and consumers need to be educated even more," Choubey said.
