Earnin is a payday loan app supported by hip-hop legend Nas. Nas has been chastised for its exploitative behavior. The company, which is valued at $800 million by investors, is being investigated by at least 11 states and Puerto Rico for allegedly violating state usury laws. Earnin recently removed a feature that linked the quantity of a loan to volunteer “tips” in New York since the investigations began Ipass: Loans near me. The question of whether Earnin’s suggestions count as loan costs with an effective yearly percentage rate remains unanswered.
What You Need to Know About the Breakdown
Workers can withdraw up to $1,000 per pay period using the app, which allows them to receive a portion of their paycheck early. Since its inception in 2013, Earnin has been downloaded by over 10 million individuals. According to CultureBanx, they are supported by Silicon Valley heavyweight venture capital firms like Andreessen Horowitz, DST Global, and Spark Capital, in addition to the rapper’s Queensbridge Ventures investment.
Users of the payday loan app can withdraw money in $100 increments and tip up to $14. Earnin pays for the service with tips. According to the New York Post, if the app’s platform is considered a loan, Earnin’s $9 tip for a $100 one-week loan would result in a 469 percent APR.
Earnin’s marketing and business models, according to critics, are similar to those of payday lenders, and they operate in the gray area of payday lending legislation. Payday loans have already been banned in 16 states, including New York, due to their exorbitant interest rates.
Paychecks that are piling up
Earnin appears to be attempting to circumvent the 1968 Truth in Lending Act, which mandates lenders to disclose APRs and total fees to borrowers. As the Trump Administration attempts to pull back consumer protections against predatory payday loan companies, many cash-strapped consumers are being forced back into the lion’s den. The Consumer Financial Protection Bureau (CFPB) wants to repeal a rule that requires lenders to determine whether applicants can afford to repay high-interest loans.
Reversing these Obama-era regulations could obstruct Black communities’ efforts to address the racial wealth divide. Because African Americans’ average household wealth is $17,600 less than that of 15% of white households, they are twice as likely to take out a payday loan as other ethnic groups.
Earnin maintains that cash advances are not loans, but rather “non-recourse transactions,” in which the corporation does not charge interest or have the authority to collect. Even if a creditor is unable to directly pursue a debtor in the event of failure, the IRS can treat non-recourse debt as a loan. The company’s terms of service plainly mention that they retain the option to sue users who violate Earnin’s terms of service, which appears to be a sort of remedy.
Consumers in the United States borrow $90 billion in small-dollar loans each year. With revenue rising from $4.3 million to $6.5 million in only four years, it’s clear to understand how this form of installment financing has become a successful juggernaut. Traditional payday lenders, of which Earnin is not yet a part, can charge interest rates of up to 900 percent.
Earnin, surprisingly, has historical ties to the rap world, as its current CEO Ram Palaniappan was the president of RushCard. It’s a troubled prepaid debit card company that was co-founded by hip-hop superstar Russell Simmons.