Class Action Claims Earnin App Disguises Lending Fees, Excessive Interest as ‘Tips’

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Earnin is at the center of a proposed class action lawsuit that claims the company behind the cash advance app has attempted to skirt lending regulations by disguising fees and interest as a purportedly optional “tip.” In reality, the case argues, defendant Activehours, Inc. is a payday lender—despite not being licensed as such in California or any other state—that charges borrowers, many of whom are considered “economically vulnerable,” undisclosed, excessive interest rates on small-dollar loans.

The lawsuit explains that Earnin is marketed as an “earned income access” product that allows users to draw upon earned wages before they are paid. In order to use the app, users must allow Earnin to access the checking account into which their direct deposit is paid, as well as their employment information and location, the suit says. Once a user’s information is verified, the case explains, the app tracks each day’s earnings and allows the individual to “cash out” wages before their paycheck hits their bank account. Additionally, Earnin “strongly encourages” users to pay a “tip” for each transaction and recoups the cash advances directly from consumers’ checking accounts after they get paid, the lawsuit says.

According to the complaint, while Earnin purports to offer consumers a payday advance with “no fees, interest, or hidden cost,” the app is set up to demand a default “tip” amount that ranges from $9 to $14 for each transaction, which the suit claims can equate to an annual percentage rate (APR) as high as 700 percent. Although users can manually choose not to pay a tip, the lawsuit claims that doing so comes with consequences. According to the suit, Earnin punishes those who choose not to pay tips by lowering their maximum borrowing limit, which ranges from $100 per day to up to $1,000 per pay period.

The case further alleges that Earnin’s “Balance Shield” feature—which allows the app to automatically deposit a cash advance into a user’s account when the amount falls below a certain level—can be activated only one time without paying a tip. Recurring use of the feature requires that users set a fixed tip of at least $1.50, according to the complaint.

The lawsuit argues that Earnin’s cash advances are essentially small-dollar loans for which the defendant charges disguised fees and interest in the form of “tips” that exceed state usury limits. Nowhere in the app or its terms of service does the defendant disclose that tips are a cost of borrowing and are “computed as an APR,” the case argues.

Moreover, the suit claims that although Activehours markets its services as a way for users to avoid paying fees, including overdraft fees, some users have reported that the timing of Earnin’s withdrawals has caused them to incur such. Earnin, the case says, withdraws funds to recoup loans even when users have insufficient funds in their accounts yet fails to warn consumers that overdraft fees “are a potential consequence” of using the app.

All told, the lawsuit argues that while Earnin purports to offer what it calls a “non-recourse liquidity product,” the app is merely a payday loan service in disguise and therefore falls under state lending regulations. The suit claims that the defendant is neither licensed as a California finance lender nor deferred deposit transactions lender and is similarly unauthorized to perform lending services in all other states. According to the complaint, Earnin is under investigation by 11 states and Puerto Rico for possible “predatory lending” practices and potential violations of state usury laws.