Hey all, Jason here.
It’s been a quiet weekend here in the Netherlands — both Friday and Monday are typically observed as holidays here. My favorite part of Easter as a kid was always dyeing eggs and the baskets of candy that would appear on Sunday morning (hey, we weren’t a terribly religious family).
Whether or not you’re celebrating anything religious this weekend, hopefully you’re able to enjoy some downtime — and this deep dive into how big tech’s policies appear to create an uneven playing field for lending apps, pushing users’ towards less transparent and, often, more expensive options.
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Apple, Google and Facebook Enable Lending At Up to 1,916% APR, in Apparent Violation of Own Policies
The mobile and fintech revolutions were supposed to usher in an era of better products offering transparency, enabling users to make informed choices.
Instead, big tech’s policies have created a perverse incentive for lenders to become less transparent — marketing products as “free” or “0% APR” while driving revenue through “tips,” “donations,” and expedited funding fees. Products that are upfront about costs are often prohibited from app stores or major ad platforms.
Consumers are the ones who lose in all of this, ending up with easy access to fewer choices and a more difficult time comparing the true cost of borrowing.
Apple, Google as Gatekeepers
Apple and Google have a smart phone operating system duopoly. Combined, ~99.7% of smartphones in North America use iOS or Android operating systems. Since the shift from Blackberrys to touchscreen phones, there has never been a serious competitor to their control of the market.
Controlling the operating system gives Apple and Google control over what applications can be installed on the device, via their iOS App Store and Android Play Store, respectively. For many users, their mobile device is their primary way of accessing the internet — and this is more likely to be true for poorer, less educated, and Black and Hispanic users.
When using the internet via a mobile device, that experience is overwhelmingly via mobile apps, not web, with ~90% of time spent in apps:
This is all to say, inclusion in Apple and Google app stores is key to reaching consumers, especially in certain demographic segments who may be less likely to have access to a home computer or broadband.
This gives Apple and Google an immense amount of power as gatekeepers, determining what apps are or are not permitted through their policies. A framework for regulating what apps are permitted makes sense — users’ phones contain a huge amount of personal, sensitive data. For a third-party app ecosystem to work, users need to trust that the apps they’re installing on their devices are legitimate.
Apple clearly understands this, having recently told the Washington Post:
“User trust is at the foundation of why we created the App Store, and we have only deepened that commitment in the years since. Study after study has shown that the App Store is the most secure app marketplace in the world, and we are constantly at work to maintain that standard and to further strengthen the App Store's protections.”
Just because a business model is legal doesn’t mean it will be allowed to be distributed via app; conversely, potentially illegal business models (and, occasionally, outright scams) aren’t necessarily blocked by app store policies and reviews.
Facebook and Google: Controlling What Users Are Even Aware Of
In a mobile app-dominated world, digital marketing channels are key to customer acquisition strategies — what better way to get users to install an app than marketing to them on their device?
There are, of course, non-digital channels to reach consumers, but digital marketing remains the most cost effective, owing to the ability to narrowly target users, rigorously test targeting strategies and creative treatments, and track and attribute performance. This just isn’t possible with techniques like radio or out-of-home adverts.
In digital marketing, there’s also a duopoly: Facebook and Google. Combined, they account for ~60% of digital marketing spend:
If Apple and Google control what apps users can install on their devices, Google and Facebook control what apps users are likely to install on their devices.
Like the app stores, Facebook and Google have elaborate sets of policies governing what marketers can and cannot advertise -- again, necessary guidelines, but ones that don’t always align with legal vs. illegal products and aren’t always enforced consistently.
What Are The Policies?
When it comes to app and advertising policies, there are a lot. For the purposes of this analysis, I’ll highlight the policies specific to financial services/lending products.
Apple App Store
In its App Store policies, section 3.2.2 addresses “Unacceptable” business models, which includes (emphasis added):
“(ix) Apps offering personal loans must clearly and conspicuously disclose all loan terms, including but not limited to equivalent maximum Annual Percentage Rate (APR) and payment due date.
Apps may not charge a maximum APR higher than 36%, including costs and fees, and may not require repayment in full in 60 days or less.”
Google Play Store
Google’s Play Store also clearly spells out requirements for financial services apps, including an app store description which contains:
Minimum and maximum period for repayment
Maximum APR, which includes plus fees and other costs
A representative example of the total cost of the loan, including all applicable fees
Google Play further bans products that require repayment in full in 60 days or less or charge APRs exceeding 36%, calculated consistently with TILA.
Facebook (and Instagram and Facebook Audience Network) has a number of ad policies that could impact ads for credit products. It’s Financial and Insurance Products and Services policy requires certain disclosures, stating:
“Ads promoting credit card applications, or financial services with accredited institutions must clearly provide sufficient disclosure regarding associated fees, including APR percentages, transaction fees, interest rates and the physical address of the entity offering the product within the ad's landing page.”
It’s not immediately clear how Facebook defines “accredited institutions.”
Further, Facebook explicitly prohibits “payday loans” or “paycheck advances” in a policy stating (emphasis added):
“Ads may not promote payday loans, paycheck advances, bail bonds, or any short-term loans intended to cover someone's expenses until their next payday. Short term loan refers to a loan of 90 days or less.”
Advertisers promoting credit products in the US also are required to indicate they are a “special ad category,” which limits the targeting options available in an attempt to comply with the Equal Credit Opportunity Act (ECOA) and other discrimination protection regulation.
Google Ads, including search and display placements, have an advertising policy largely consistent with Google’s Play Store policies, including disclosure requirements and a ban on “ultra high-cost personal loans”
What is the impact of these policies?
These policies notwithstanding, financing products with APRs above 36% and/or repayment terms less than 60 or 90 days are legal in certain states or under certain licensing models (eg fintech-bank partnerships leveraging state interest rate preemptions).
Companies like Enova (CashNetUSA / NetCredit), LendUp, OppLoans, RISE Credit, and FigLoans work to serve these high credit risk populations in a legal, compliant manner, including by disclosing rates and fees before a user applies for a loan (full disclosure: I worked at Enova and LendUp, and I own a tiny equity stake in LendUp).
Apple, Google, and Facebook policies lock these legal, legitimate, licensed lenders out of mobile app stores and digital advertising — leaving room for potentially less transparent options to fill the void.
Companies Offering Apps May Be More Expensive, Less Transparent
Dave: “Banking for Humans”
Dave has numerous ads running across Facebook and Instagram, including units promoting “up to $200 in 90 seconds” and “0% interest and pay it back on payday.”
Dave even promotes itself as “A Mark Cuban App” and an association with R&B singer Jason Derulo.
On its face, this certainly appears to violate Facebook’s stated prohibition on short-term loans or paycheck advances.
Available in the Apple App Store and Google Play, Dave makes the same claim, of up to $200 with no interest or credit check. I should note, it is possible to qualify for an advance with Dave paying only the app subscription fee of $1/month.
However, Dave defaults to a 10% tip and encourages tips as high as 15% of the advanced amount, going so far as to de-emphasize the cost by linking it to a meal donation program:
Without an express funding fee as high as $5.99, users must wait up to 3 business days to receive their funds.
On a hypothetical $100 advance repaid in 14 days, a 10% “tip” would equate to a ~261% APR; with the additional “express” funding fee of $5.99, if repaid in 14 days, total tip and fees would equate to ~417% on an APR basis.
Dave’s advances are typically repaid on a user’s next payday, which, for many users, would be 14 days or fewer. Costs are not disclosed as an APR, making it difficult for users to compare costs with other borrowing options.
The max possible cost and short repayment timeframe appear to violate Apple and Google policy.
Like its competitor Dave, MoneyLion is advertising heavily on Facebook and Instagram, where its “Instacash” offering is heavily featured. Its ads promise “cash advances” of up to $250 for free, anytime, with no credit check.
Again, Facebook policy specifically prohibits “paycheck advances,” loans intended to cover expenses until someone’s next pay date, or that require full repayment in less than 90 days.
MoneyLion’s own Instacash explainer states that the advance will automatically be deducted based on a user’s “recurring deposit cycle (usually in about two weeks).”
While MoneyLion may argue that it’s not a loan, it would still appear to be in violation of Facebook’s ad policies.
Like Dave, MoneyLion accepts optional tips and charges a $3.99 - $4.99 “Turbo” delivery fee. Without the “Turbo” fee, MoneyLion states it takes 3-5 business days to fund to an external account (note normal ACH processing is next business day, if initiated before end of business day).
MoneyLion allows users to advance a maximum of $50 at a time — meaning potentially incurring multiple “Turbo” fees and tips. I’m unable to confirm MoneyLion’s default tip amount; assuming no tip and a $4.99 funding fee on a 14 day, $50 advance would still equate to a ~260% APR.
When a third-party fee, like an expedited funding fee, is marked up and a portion is retained by the lender, it is typically considered to be a finance charge.
Both the implied APR based on the expedited funding fee alone and certainly the repayment timeframe would appear to violate Apple and Google app store policies.
I’ve detailed some of the potential problems with this company's product in great depth previously.
The company has been and is still running adverts on Facebook touting “easy and affordable” loans and the ability to “Borrow and lend from anyone in the country” — even going so far as to state the app is “Trusted by hundreds of thousands of users.”
The app has only 6,600 ratings on the App Store as of time of publication.
Even without opening the app, a quick look at SoLo’s app store description (which serves as landing page for its Facebook ads) confirms it hasn’t changed its core product — touting “no approval needed.”
With “tips” and “donations” equating to APRs up to 1,916% and repayment periods as short as 4 days and a max of 15 days, SoLo appears to be in violation of Facebook’s advertising policies prohibiting short-term loans as well as Apple’s App Store policies prohibiting APRs above 36% or repayment in 60 days or less (SoLo currently isn’t available for Android).
Klover also heavily advertises “cash advances” on Facebook, though the amounts it promotes varies - sometimes $100, $130, or as high as $250 — all with “no interest” and “no waiting.”
While Klover has some interesting differences, including monetizing through targeted advertising based on user data, it appears to rely on some of the same questionable practices as others; namely, large expedited funding fees.
Klover’s terms and conditions state that, without expedited fees, users will typically receive funds in 3 business days, and details the fee structure:
“Expedite fees are the following: Up-to $100, ($9.99); Up-to $50 ($7.49); Up-to $25 ($2.99); Up-to $10 ($1.99)”
These fees are considerably higher than competitors, and are almost certainly marked up from the actual cost Klover is incurring. A $2 fee on a $10, 14 day advance is the equivalent of an 521% APR. Even at $100, the APR equivalent is 260%.
Even ignoring the potential APR equivalent, the “cash advance” structure and short repayment timeframe would appear to violate Facebook advertising and Apple and Google app policies outlined above.
App Store, Ad Policies Push Users Towards Less Transparent Choices
I can’t help but feel that these apps — enabled if not encouraged by Apple, Google, and Facebook’s policies and their uneven enforcement — are a step backward. Good-faith lenders who are clear and transparent in their offerings are blocked from these platforms.
In order to distribute their products as mobile apps (all of these companies are app only) and promote them via digital ad channels, these companies are incentivized to make the terms and costs less transparent. Even where ad copy or app store descriptions appear to flagrantly violate policy with short repayment terms, platforms are inconsistent in their policy enforcement.
Users who mistakenly believe these platforms have policies in place to protect them are ultimately the ones who end up losing.