A payday loan app valued at over $800 million and backed by US rap artist Nas is under scrutiny by at least 11 US states as well as Puerto Rico for evading state usury laws.
Earnin, formerly known as Activehours, received Series C funding in December 2018 valued at $125 million from top-tier investors DST Global, Andreessen Horowitz, Spark Capital, Matrix Partners, March Capital Partners, Coatue Management and Ribbit Capital. Its app launched in 2013 and was also backed by Nas’s Queensbridge Ventures investment.
The Earnin has been downloaded more than 10 million times and enables work to be lent as much as $1,000 during a pay period in increments as high as $100. Depending onteh size of the withdrawal, users are requested to pay a “tip” up to $14, instead of interest repayments. However, regulators are arguing that the “tips” works out to be exorbitant interest payments and the business model resemble those of payday lenders.
Earnin App Controversy
Cash advance loans or Pay-day loans are banned in 16 states in the US, including New York. The cash advance loans for bad credit market grew rapidly following the financial crisis of 2008. However, the Obama administration brought in regulation to protect against predatory payday loan operators who were charging exorbitant fees and rates.
The Earnin App quietly disabled a controversial feature for users in the New York state that links the size of its loans to voluntary “tips” once investigations into its practices commenced earlier this year. However, questions are still being asked by the regulatory authorities as to whether or not the “tips” requested by Earnin are regarded as loan fees with an actual annual percentage rate. This would make the Earnin company liable under the 1968 Truth in Lending Act, which requires lenders to disclose Annual Percentage Rates and the total fees a borrower will have to pay.
