EarnIn's Fees, Tips Are Usurious, Ga. Consumers Say

By Emilie Ruscoe

Law360 (August 5, 2024, 8:14 PM EDT) -- Pay advance app EarnIn has been hit with a proposed class action alleging its optional fees and tips are hidden interest payments that, on average, far exceed fair rates for consumer lending. In a complaint filed Friday in San Jose federal court, EarnIn customers Brennan Orubo, Michael Sims, Demetrice Mathis, and Cidney Lett say the bank violated Georgia's Payday Loan Act and the federal Truth In Lending Act with financial offerings that come at "an unbelievably high cost" for consumers, characterizing expedited deposit fees and tips the company receives from customers as interest EarnIn received for lending to them and calculating that its fees, "on average, yield [annual percentage rates] of 284%."

"EarnIn's users are far more likely to have costs that yield triple-digit APRs deducted from their accounts than users of traditional payday lenders, which means EarnIn's users are far more likely to have their paychecks eroded, and be unable to improve their financial situation, than users of traditional payday loans," the consumers claim.

The California-based EarnIn provides small loans to consumers and describes itself as free to use. It advertises that customers can request to borrow up to $100 a day and as much as $750 during a customer's pay period.

The suit states that consumers seeking to use the service must "verify" that they have an employer that pays out earnings on a scheduled basis, such as in a biweekly paycheck. The app must also be linked to the bank accounts where customers receive their paychecks and have access to customers' account transaction records, the suit says. When EarnIn detects a paycheck has posted to the customers' bank accounts, it automatically debits the sum of the funds the customer borrowed during the pay period, according to the suit.

The consumers say EarnIn's standard payouts take a few days to land in their bank account, but users can opt to receive an expedited deposit within minutes if they agree to pay EarnIn a "lightning speed fee" when they get their next paycheck.

The suit also points to the company's practice of requesting a "tip" before their advance goes through. If customers don't want the company to auto debit a tip out of their bank accounts when they get paid, they have to manually select a zero-dollar tip, the consumers say.

The consumers' suit takes aim at the company's use of the term tip, widely used to refer to a voluntary payment made on top of the charged cost for certain services. "Instead, tips serve as a profit center for EarnIn — a highly capitalized company backed by venture capitalists and institutional investors — and they are solely intended to compensate EarnIn for lending money," the suit states.

The complaint cites recent examples of EarnIn customer borrowing costs from the plaintiffs' personal experience, such as when one of the plaintiffs borrowed $100, to be repaid in 10 days or less, and paid a $3.99 expedited deposit fee. That fee represents an APR of over 145%, the plaintiffs claim.

The suit seeks certification of the putative class of EarnIn borrowers in Georgia, repayment of the class members' loan principal and triple any fees or tips they paid over the past 20 years. They also seek a finding that the company's loans are void and an order barring the company from seeking any more payments from harmed consumers.

Representatives for the parties did not immediately respond to requests for comment Monday. Orubo, Sims, Mathis, and Lett are represented by Gillian L. Wade, Sara D. Avila, Marc A. Castaneda, and Kristin K. Graham of Wade Kilpela Slade LLP and Kevin Tucker and Kevin Abramowicz of East End Trial Group LLC. Counsel information for the defendants was not immediately available Monday.

The case is Orubo et al. v. Activehours Inc., case number 5:24-cv-04702, in the U.S. District Court for the Northern District of California.

--Editing by Drashti Mehta

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