Advocates Applaud Enforcement Action Against the Payday Advance App for Violating DC’s Interest Rate Cap and Deceiving Borrowers with False Claims and Advertising
WASHINGTON – In an enforcement action filed yesterday by the Attorney General of the District of Columbia against the payday advance app EarnIn, the AG rejected EarnIn’s claim that its loans are not loans and that its “Lightning Speed” expedite fees, required to get an instant advance, are not covered by DC’s interest rate cap. EarnIn offers payday loans with over 300% annual percentage rate (APR) in violation of DC’s 24% interest rate cap and without obtaining the required DC license. The complaint also alleges that Earnin deceived DC borrowers by luring them in with false claims and false advertising and burying the cost of the loans in fine print.
“A payday advance that is repaid on payday is a payday loan, and fintech cash advance apps like EarnIn that call themselves ‘earned wage access’ are just high-cost lending in disguise,” said Lauren Saunders, associate director of the National Consumer Law Center. “The DC AG has seen through the veneer of EarnIn’s payday advance app, making clear that cash advance apps cannot hide the cost of the loan or charge 300% APR in DC.”
While EarnIn advertises supposedly free options for obtaining advances, it pressures borrowers to pay so-called “tips” and requires fees of $3.99 to $5.99 for the instant advances it advertises. DC found that 89.7% of DC borrowers paid a Lightning Speed fee and that 83% of all transactions included the fee. Like other payday loans, EarnIn’s balloon-payment payday advance apps lead to a cycle of reborrowing that multiplies costs. DC found that borrowers who completed at least 10 transactions with EarnIn paid an average of $12.81 to borrow an average of $293.80. Considering only the Lightning Speed, those loans averaged 315% APR. With tips included, the APRs would be far higher.
“EarnIn claims its payday advance loans are free, but its definition of ‘free’ strains credulity when nearly 90% of borrowers pay fees,” Saunders said. “Payday advance apps that hide under the ‘earned wage’ label also increase overdraft fees and put people who are already financially stressed in a cycle of debt where their paycheck is always short, effectively making them pay to be paid.”
A study that heavily focused on EarnIn found that overdraft increased 56% on average consumers began using payday advance apps and that people were taking out advances repeatedly, with three quarters (75%) taking out at least one advance on the same day or day after making a repayment.
The State of California also compiled data on payday advance apps, finding an average APR over 330% and an average of 36 loans a year.
Related Resources
- 165 Organizations and Academics Support the CFPB’s Paycheck Advance Interpretive Rules, Aug. 29, 2024
- CFPB’s SoLo Funds Enforcement Action is a Warning for Fintech Payday Lenders, May 20, 2024
- Consumers Need Strong Protections from Fintech Cash Advances that Create Debt Traps, Oct. 11, 2023
- State Recommendations for Earned Wage Advances and Other Fintech Cash Advances, Oct. 11, 2023
- Earned Wage Advances and Other Fintech Payday Loans: Workers Shouldn’t Pay to be Paid, April 20, 2023
- Data on Earned Wage Advances and Fintech Payday Loan “Tips” Show High Costs for Low-Wage Workers, April 10, 2023
- CFPB Urged to Reverse Earned Wage Actions that Threaten to Create Dangerous Fintech Payday Loan Loopholes, Oct. 12, 2021
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