The Federal Trade Commission has hit cash advance fintech FloatMe with a $3 million penalty alleging deceptive practices and unfair acts, the agency announced last week.
On Jan. 2, the FTC released a stipulated order that claimed that the San Antonio, Texas-based company and its co-founders Joshua Sanchez and Ryan Cleary violated the law by failing to disclose material transaction terms before obtaining consumers’ billing information, charging them without consent, failing to offer simple methods of cancellation for a monthly subscription and discriminating public assistance applicants. The app can be accessed with a monthly $3.99 fee.
The commission has also called for a permanent injunction at a San Antonio federal court to prevent future violations.
FloatMe has neither admitted nor denied the allegations but accepted the facts necessary to establish jurisdiction, the FTC order said.
The FTC alleges that FloatMe lied to consumers about an automated process that it used to determine their chances of receiving advances of up to $50 — a limit that increases with time. However, the automated process does not exist, and very few people receive $50. There is also a hidden fee of $4 if a consumer wants to receive money instantly rather than wait for the standard three days. But the fintech claims that advances are instant once the app is downloaded and does not mention any surprise fee, American Banker reported.
The agency highlighted that the firm does not consider income derived from gig works, pensions, or public assistance and charges cancellation fees without their consent.
“The FTC has presented us in the worst light possible and without context, which is far beyond the truth. We disagree with the assertions and have admitted no wrongdoing, and we settled to avoid the ongoing expense and distraction of litigation,” CEO Sanchez told Fintech Business Weekly. “All of our energy is directed toward our mission of providing a customer-focused, alternative consumer funding source without the onerous overdraft fees and predatory lending practices that pervade consumer finance.”
Following the FTC order, FloatMe updated the terms and conditions on its website on Jan. 3 and included a list of varying fees for Instant Floats. The website also says, “We provide ‘Instant’ delivery of Floats for a fee,” mentioning the fee depends on the size of the Float amount.
The allegations brought against the fintech by the commission are similar to those faced by Brigit, a personal finance app. In November, the FTC slapped a $18 million penalty against the company, claiming that the provider made a false promise of an “instant” cash advance of up to $250 for consumers living paycheck-to-paycheck, and it locked them into a $9.99 monthly membership fee that was hard to cancel.
The company agreed to pay the amount as refunds to the consumers, stop misleading marketing promises, and end tactics to prevent customers from canceling subscriptions.
“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 statement in November. “Companies that offer cash advances and other alternative financial products have to play by the same rules as other businesses or face potential action by the FTC.”
