Earnin Class Action: Pay Advance App Accused of Predatory Lending

Case Overview: A class action lawsuit alleges that Earnin charges excessive fees and hidden costs on its cash advance service, resulting in triple-digit interest rates and trapping users in a cycle of debt.

Consumers Affected: Earnin users who have incurred fees and tips on cash advances.

Court: U.S. District Court for the District of Maryland

Pay advance app Earnin charges users triple digit interest rates without warning, tacks on tips that go straight into the company’s coffers, and has fees on its loans that together make Earnin products worse than payday loans, a new lawsuit alleges. With the fees and tips, the average APR for an Earnin transaction is 284%, the lawsuit alleges. 

The app effectively “erodes” users paychecks and leaves them in a cycle of borrowing, it goes on to say. By failing to disclose the true costs of its products, the app, which provides users an up to $100 daily advance or $750 per paycheck, violates state and federal law, according to the lawsuit.

Earnin's Fees and Tips Lead to Exorbitant APRs, Lawsuit Claims

Alisa Johnson, Laura Day, and Korey Thomas filed the proposed class action lawsuit against Activehours, Inc., Earnin’s parent company, after they were all hit with much higher costs than expected after using Earnin’s services. 

According to the lawsuit, the trip all got cash advances from Earnin which they used for personal or family reasons, and they all paid Earnin’s fees and tips. However, none of them realized they were being charged interest on those costs. Johnson says one of her last cash advances with Earnin was for $100, and she paid an additional $11 tip and $3.99 express fee. After the two weeks she was waiting to be paid, the APR had climbed to 390%. Day and Thomas both had similar experiences, the lawsuit alleges. 

“At base, EarnIn’s cash advance product is no different than, and just expensive as, a payday loan,” the trio allege in the lawsuit. “In fact, EarnIn’s cash advance product is worse than a payday loan because EarnIn obtains payment on its cash advance product at a rate that “significantly exceeds” that of a payday lender.” 

How Does Earnin Work and What Are Its Fees?

To ensure Earnin recovers money from users, it requires they have an employer that pays them regularly, has a linked bank account, and has authorization to debit that bank account on a user’s payday, as explained in TechCrunch. Once it has established a user can make repayments, it allows them to take out cash advances to be paid back from their next paycheck through its standard or expedited service. The expedited service has a fee ranging from $1.99 to $3.99.

A user also has to go through a screen that has selected a default “tip,” and change the default amount to zero to avoid paying a tip. “”EarnIn represents that tips ‘pay it forward,’ ‘help’ people, ‘support the service,’ and ‘keep EarnIn running for the rest of the community’,” the lawsuit states. “Instead, tips serve as a profit center for Earnin—a highly capitalized company backed by venture capitalists and experienced institutional investors—and are solely intended to compensate EarnIn for lending money.”

Maryland Law Prohibits Excessive Fees On Small Loans

Because excessive fees make it difficult for consumers to pay bills, increase the likelihood that they will overdraft a bank account, and make it harder for them to become financially stable, they have been regulated in many states. In Maryland law, where the lawsuit was filed, the state caps small dollar loan APRs at 33%. 

“This is exactly why Maryland law outlaws Defendant’s products, and why federal law requires Defendant to truthfully disclose the cost of its products,” the lawsuit states. It adds that investors have paid Earnin hundreds of millions of dollars in hopes that the company can evade state law in offering the product.

Cash Advance Apps Face Growing Scrutiny Over Hidden Costs

As the popularity of cash advance apps is growing, so too is scrutiny from customers and regulators. “It’s possible it’s helping them cover their bills and avoid overdraft and higher cost loans,” Alex Horowitz, a senior officer for the Pew Charitable Trusts’ consumer finance project, told The New York Times. “It’s also possible it’s leaving them without enough money on payday so they turn to them again.”

In May, another cash advance app Klover was hit with legal action by users Natalie Pierce and Michelle Ingrodi, who allege they were misled by Klover's advertising of "zero-interest" cash advances. Similar to Earnin, the lawsuit argues the fees, combined with the "tips," result in triple-digit annual percentage rates (APRs) exceeding 1,000% for a small cash advance.

In the Earnin lawsuit, the plaintiffs want to represent other Maryland based consumers who used Earnin and they are suing for alleged violations of the Maryland Consumer Loan Law, Maryland Consumer Protection Act, and Truth in Lending Act. They want to recover all payments made to Earnin on any advance or loan on which a tip or fee was paid.

Case Details

• Lawsuit: Johnson, et al. v. Activehours, Inc. D/B/A Earnin
• Case Number: 1:24-Cv-02283-ABA 
• Court: U.S. District Court for the District of Maryland 

Plaintiffs' Attorneys

• Kevin Abramowicz, Kevin Tucker, Chandler Steiger, Stephanie Moore, and Kayla Conahan (East End Trial Group LLC)
• Jason S. Rathod and Randy Chen (Migliaccio & Rathod LLP)

Have you used the Earnin app? What was your experience like? Share your thoughts in the comments below.