NBC News spoke to 12 Earnin users, who had a range of experiences with the app. Others were wary of getting hooked on a cycle of loans and repayments, and some stopped using the app after it caused their bank accounts to overdraft. None had considered when they started using Earnin that what appeared to be a small tip would be equivalent to a high APR.
Kara Eddings, 32, of Big Bear, California, said she has been using Earnin for about 18 months. Eddings, a mother of two children, ages 5 and 6, works full-time as a clerk at a hospital and is also an Instacart shopper to supplement her income. She started using Earnin because she said she online payday SD had bad credit and couldn’t get a loan elsewhere.
Last year, Eddings got into a tough spot when she borrowed $500 through Earnin while she was on medical leave from work. While she was waiting for state disability payments to kick in, Earnin automatically took its withdrawal of the borrowed money from her account. Unlike more traditional lenders that allow loan extensions in exchange for fees, Earnin always takes the money back on a short timeline.
“After Earnin had taken all of their money out, and then after a couple of bills, I had no money,” she said. “Luckily at the time I didn’t have to go anywhere. The kids – I found a way to get some gas money to get them to school, I borrowed from my grandma, but it leaves you without any options, really. It’s definitely a vicious cycle.”
Another Earnin user, Brian Walker, 38, said that he used the app three times before souring on it. Walker, an engineer, previously declared bankruptcy and doesn’t use credit cards. He lives in Sioux Falls, South Dakota, where short-term lending is capped by law at 36 percent APR.
The first time he used the app, to take out $100 four days before being paid, he tipped $5. After Earnin pulled his money out of his paycheck, he said he thought to himself: “I’m down $105 and I’m like, damn, I need that $100 again.”
At that point, he started looking more closely at how the app works, and realized that borrowing $100 and paying $5 for it, repayable in four days, was effectively a 456 percent APR.
When he used the app most recently, in July, he says Earnin pulled its $105 two days before he expected, causing his bank account to overdraft. He complained to Earnin, and the company agreed to cover the overdraft fee, according to an email he shared with NBC News.
A fight over regulation
Advocacy groups led by the Center for Responsible Lending, a nonprofit that advocates against predatory lending, have urged the Consumer Financial Protection Bureau to regulate tip-based companies such as Earnin as lenders.
“That is part of the problem with payday loans: $15 per $100 doesn’t sound like much, but it is for a short-term loan, and it adds up with rollovers,” the advocates wrote in a 2016 filing with the CFPB. “Even if users are ‘tipping’ $3 per $100, that is expensive for a short-loan. The consumer can get into the same cycle of reborrowing as with a traditional payday loan; there is no underwriting for ability to repay; and the same problems with failed payments can occur.”
Earnin disagrees with this assessment, and said so in its own filing to the CFPB in 2016, as the agency considered new regulations to restrict payday lending.