The United States has taken the fintech app Dave and its Chief Executive Officer to court for engaging in what the government says are misrepresentations to the public. The case focuses on the business model and advertising which are claimed to have misled the company’s customers on fee and service. The two grievances filed by the Federal Trade Commission (FTC) allege that Dave tricked users into accepting they are getting free financial services but charged them at the same time. The case reveals the increasing attention given to the fintech industry and how the players manage their relationship with customers.

Highlights

• The lawsuit targets deceptive advertising and hidden fees.
• FTC claims Dave misrepresented its financial services to users.
• Dave’s CEO is personally named in the lawsuit.
• Allegations include false promises of no fees for services.
• The case highlights increasing regulation of fintech companies.

It comes at a time when the activity in the fintech sector is growing, and the companies providing digital banking and financial services are under extra pressure. The FTC’s actions against Dave is to safeguard consumers from such companies while continuing to abide by fee disclosures. It forms part of the government’s enlarged policing of fintech firms for any misconduct that may be financially prejudicial to the consumer.

Dave’s business model involves advertising free, which is prohibited by the FTC under a disguise of ‘No-Fee’. The app allegedly promoted its services as free of charge, however, users were faced with appearances that trick them into registering for their services for free but end up being charged fees they never agreed to. This legal case underscores some of the dangers that are posed by loosely monitored digital financial services and a message to all the other fintech businesses. The decision in the case could redefine how such businesses market and conduct business to be clear with consumers via their user agreement terms.

Much the same as the growth of the fintech industry, so has there been a corresponding increase in legal risks. The case with Dave is another step in increasing the protection of consumers in the context of providing digital financial services. It could lead to improvements in the whole sector, leading to prosecution of all the Fintech firms into changing their strategies. It is, therefore, possible that the innovation of the regulatory frameworks might pose greater hurdles to fintech in winning the trust of consumers as well as beating competition.