Nonrecourse debt can be considered a loan by the IRS, even though nonrecourse lenders “cannot pursue you personally in case of default,” according to the agency.
Earnin requires that users give the company the right to automatically debit their account. It also reserves the right to sue users for violating its terms of service.
“Just because a loan is nonrecourse doesn’t mean it is not a loan,” Saunders said, adding that that’s a decision for state regulators.
Some complain that Earnin can withdraw funds from their bank accounts earlier than expected, spurring the overdraft fees that they were scrambling to avoid in the first place
Palaniappan admitted that Earnin does sometimes pull funds early if a payday lands on a holiday, or if the software mistakenly labels a user as being paid on floating dates every two weeks, instead of fixed days, like the first and the 15th of the month. He added that Earnin would pay its users back in those cases.
Others gripe that Earnin’s software is prone to random glitches that end up costing them money. “This service took a extra 100 out my account now they are giving me the run around,” one user, Anthony Vargas, wrote in a Facebook comment.
Abbie, a call center worker in Salt Lake City who spoke on the condition that her last name be withheld, told The Post that Earnin mistakenly charged her twice for a $60 advance, causing an overdraft. Earnin has no phone number that users can easily find to call for complaints. Abbie talked to three different company representatives in a chat room, but her charges weren’t reversed.
“They already took the $60 I had used and they charged me again,” she said. “This is a complete nightmare.”
In 2017, the Consumer Financial Protection Bureau released a report showing that payday loans can ensnare borrowers in a “debt trap” by piling on fees and pushing users to borrow more to make ends meet
But Earnin could also run into issues on a state-by-state basis. New York has a usury law that bans any loans with an APR higher than 25 percent. Nevertheless, Earnin advertises to consumers in New York, and even has a promotional video set in Harlem.
“We haven’t had much recently with the CFPB. With some of the states, we speak on and off,” Palaniappan said, e which states.
Spokespeople for the CFPB, as well as state regulators in New York and California – where Earnin is based – declined to comment.
Deandra Sullivan, a spokeswoman at the Texas Office of Consumer Credit Commissioner, said that the regulator hasn’t had any contact with Earnin. Texas is Earnin’s biggest market, according to a former exec.
While no state has yet designated Earnin a lender, Smith said he doesn’t see a big difference between the app and the payday lenders he collects for in Las Vegas.
“They are small loans because you have to pay them back. With a payday loan, you have it the same way,” he said. “You have it connected to your bank account, and when you get paid the money is out of it.”
Once Earnin users have entered their personal details, bank account number and login, they can take out cash advances in increments as large as $100. When users request money, they can tip any amount up to $14, which the company uses to pay for the service.
Saunders said it was “quite debatable” whether Earnin’s loans are nonrecourse – and that even if they were, it might not matter anyway.