Earnin Investigated For Offering Covert Payday Loans


Silicon Valley-based financial services startup Earnin has potentially run afoul of New York State regulators with its payday advance product for consumers. The New York Department of Financial Services took interest in the matter after reports emerged in the New York Post that questioned whether the firm’s “twist” on financial services might in fact be a clever way to skirt regulations in the state that seek to limit short-term lenders.

“There is a strong incentive, given the amount of lending regulation, to design products that look as though they don’t fall within the category of loans,” Anne Fleming, a professor at Georgetown University Law Center and author of the book “City of Debtors: A Century of Fringe Finance,” told the Post.

Designed to focus on millennials and advertised as a high-minded community of users dedicated to paying it forward, the app allows users to take out as much as $1,000 in advances during a pay period. Once Earnin users have entered their data, bank account numbers and login, they can take out cash advances in increments as large as $100. Users are also offered the option to pay a tip along with their loan — $9 to $14 is the suggested tip by the service, and it is how the firm makes its money. Users can skip the tip — but those borrowers run the risk of seeing their credit capped at $100 per borrowing period. Among its more unsual features, the app also requires access to borrowers’ GPS data — perhaps to track if they are going to work.

The apps has been popular with consumers, with 10 million downloads thus far in the six years it has been on the market. About half of those were in the last year. Investors also like the firm — in December the firm announced $125 million in funding from Andreessen Horowitz, DST Global and Spark Capital. It does not disclose its valuation, but most sources believe it is at or near unicorn status with a valuation of $1 billion.

But despite all the fans, concerns are emerging — particularly about those tips. New York is one of 15 states where payday lending has been banned and interest rates have been capped at 25 percent. The complaint about Earnin, in a nutshell, is that its requests for tips is essentially a way to reintroduce sky-high fees and interest rates to the segment simply by calling them something else.

Linda Lacewell, acting superintendent of the New York Department of Financial Services, subpoenaed the company in late March for 21 different categories of records, a source told the New York Post.

Among data requested in the investigation: Earnin’s New York customers as well as the size and number of their transactions. Regulators also requested the firm convert the “tip” amounts it has requested for advances into annual percentage rates, or APRs — and to assume that the fees count as interest, the source said. The DFS also wants to see all documents that Earnin has shared with venture capital firms as well as any research “to encourage consumers to voluntarily leave tips,” the person said.

A spokeswoman for Earnin didn’t immediately respond to the news outlet’s request for comment.

Earnin CEO Ram Palaniappan has in the past denied that the company was a payday lender, according to the newspaper.

Consumers have complaints about Earnin, according to the report, but most of them aren’t related to fees or concerns the firm is a covert payday lender. The main complaints seem to be technical — and that software glitches and spotty customer service have left them mired in debt. One such customer, AJ Smith, told the Post he had been happily using the service and paying $9 fees until a $100 advance he took to go shopping at Walmart failed to pay into his account on schedule. That, he said, set off a cascading rush of overdraft payments in his bank account that have left him both behind financially and “dependent” on future advances from Earnin as he attempts to solve the issues.

But whether interest rates are the problem consumers are having or not, that issue is what regulators seem most concerned about investigating at this point. Earnin’s parent company, Activehours, has until April 16 to respond, according to sources speaking to the newspaper.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.