Nas investment in payday loan application under review

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Earnin, a cash advance app backed by rap icon Nas, is in the hot water for its predatory practices. Valued by investors at $ 800 million, the company is under investigation by at least 11 states and Puerto Rico for circumventing state usury laws. Since all investigations began, Earnin recently got rid of its feature that ties loan amount to voluntary “tips” in New York City. The question remains whether the tips offered by Earnin count as loan fees, with an effective annual percentage rate?

The breakdown you need to know

The app presents workers with a portion of their paychecks earlier and allows them to withdraw up to $ 1,000 during a pay period. Over 10 million people have downloaded Earnin since its launch in 2013. CultureBanx reported that in addition to the investment from rapper Queensbridge Ventures, they are also backed by heavyweight Silicon Valley venture capitalists like Andreessen Horowitz, DST Global and Spark Capital.

The cash advance app allows users to withdraw money in increments of up to $ 100 and they can tip up to $ 14. Earnin uses the tips to pay for the service. If the app’s platform was considered a loan, Earnin’s suggested $ 9 tip for $ 100, a week the loan would amount to an APR of 469%, according to the New York Post.

Critics say that Earnin’s marketing and business models resemble those of payday lenders and operate in the gray area of ​​payday lending regulations. So far, 16 states have already banned payday loans, including New York, due to ridiculously high interest rates.

Stolen paychecks

It appears that Earnin is trying to avoid complying with the Truth in Lending Act 1968, which requires lenders to disclose APRs and the total fees a borrower will have to pay. Many cash strapped people are being thrown into the lion den as the Trump administration effectively seeks to reverse consumer protections against predatory payday loan operators. The Consumer Financial Protection Bureau (CFPB) wants to repeal regulations that require lenders to confirm whether borrowers can afford to repay their high-interest loans.

Removing these Obama-era restrictions could create damaging barriers for black communities striving to close the racial wealth gap. Since the average wealth of African American households is $ 17,600, or less than 15% of white households, they are twice as likely to take out a payday loan as other ethnic groups.

Broken bankroll: Earnin claims that cash advances are not loans, but “non-recourse transactions,” which means they don’t charge interest and don’t give the business the right to collect. However, the IRS may treat non-recourse debt as a loan, even if the lender is unable to personally sue a borrower for default. In the company’s terms of service, they make it clear that they reserve the right to sue users for violating Earnin’s terms of service, which looks a lot like a form of recourse.

U.S. consumers borrow $ 90 billion each year in the form of small, short-term loans. It’s easy to see how this type of installment loan has become a profitable juggernaut, with revenues dropping from $ 4.3 million to $ 6.5 million over a four-year period. Traditional payday lenders, which Earnin does not yet fall into this category, may command interest rates north of 900%.

Interestingly, Earnin has had ties to the hip hop community before, as its current CEO, Ram Palaniappan, was the chairman of RushCard. it’s a prepaid debit card company that was riddled with trouble and co-founded by hip-hop mogul Russell Simmons.


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