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Earnin Skirts Loan Regulations with Wording Class Action


Payday loan companies are known for their very high interest rates and their ability to trap consumers into loans that are very difficult to pay off. The complaint for this class action alleges that Activehours, Inc., which does business as Earnin is a payday lender, but uses different terms in its business that it hopes will let it circumvent lending laws.

In its first paragraph, the complaint says that Earnin “claims to provide a payday advance with ‘no fees, interest, or hidden cost.’ In reality, Earnin seeks to skirt applicable financial, banking, and payday lending regulations though a linguistic trick: calling a payment to use its service a ‘tip’ instead of a cost of borrowing.” 

The Earnin app apparently asks for a “tip” from borrowers that adds up to a very high annual percentage rate (APR). The complaint claims, “Earnin allows tips up to $14 her $100 borrowed, which may compute to an APR in excess of 700%.”

The complaint claims that “Earnin makes loans in states where payday loans are illegal, without respect to state usury laws, and in contravention of federal lending laws, such as the Truth in Lending Act.” The company is headquartered in California but it does not comply with either the California Financing Law or the state’s Deferred Deposit Transactions Law. According to the complaint, Earnin is not a registered lender in any of the fifty states where it does business.

Earnin operates through an app. Users must link their bank account to the app. Earnin makes loans that it calls “early wage access,” “Cash Out,” “Payout,” “activation,” or “non-recourse liquidity product.” Then, when the users get paid, the loans are automatically deducted from the accounts and sent to Earnin.

The complaint says, “There are no expressly-named ‘fees’ or ‘interest’ charged to the user. Instead, Earnin prompts the user to pay a ‘tip.’ The suggested amounts range from $9 to $14.” Users who do not tip, the complaint says, are punished with restrictions on their credit. 

Also, the complaint says, “Many users report, however, that Earnin’s timing of withdrawals has led to unauthorized charges and insufficient funds fees.” That is, Earnin attempts to recover its loans even when accounts do not contain sufficient funds.

Earnin also offers a Balance Shield Alert service, where users are informed if their bank balance falls below a certain level. For this, they are asked to pay a “tip” as well. With the Balance Shield Automatic Cash Out, they are given an automatic $100 loan whenever they hit that level, for which they must pay a “tip.” The complaint says that reports say that “continued tipping was required to obtain Balance Shield loans.”

The class for this action is all persons who used the Earnin app to get an advance of funds and paid a tip for use of the service.

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