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Can Payday Predatory Lending Ever Not Be Predatory?

The Earnin app seems to be trying to be more helping hand than rip-off. But is it too good to be true?

It’s a well-worn stat by now, but it’s also almost always germane: Namely, 40 percent of Americans don’t have enough savings for a $400 emergency expense. And so, when these types of emergencies arise, those without the cash basically have two options — sell or borrow.

The latter, of course, usually involves a dangerous amount of desperation (and interest rates), with predatory lenders all-too-happy to take advantage of those in need of a quick loan. It’s difficult to believe then that Earnin, an app that will pay out your wages/salary on a daily basis (instead of waiting for the full weekly or biweekly pay period to conclude) and deliver them to you within one or two business days (again, instead of every Friday or every other Friday), is without fees or interest charges. Rather, per the Earnin site, users are asked to leave an optional “tip” to “keep the app going.” (Once the user’s actual paycheck is available, Earnin automatically deducts the borrowed amount; users have to sync their bank accounts and employment information to the app.) 

As a point of comparison, more traditional payday lenders generally offer loans in the amount of the borrower’s future paycheck as well as charge a fee for the service (roughly $15 per $100 per the Consumer Financial Protection Bureau). And according to the Center for Responsible Lending, “[Payday lenders] take the money out regardless of whether there is enough money in the account to cover living expenses. Sometimes this leads to overdrafts or insufficient funds fees. Sometimes it compels the customer to take another loan to cover living expenses.” (Like Earnin, lenders often have access to borrower’s bank accounts.)

That’s why many believe Earnin seems too good to be true. On Reddit, for instance, there’s a lack of consensus about the validity or security of the app, and some even accuse it of being a Ponzi scheme. More largely, Earnin’s marketing doesn’t exactly encourage responsible spending and financial literacy. Because while some of Earnin’s commercials show people needing money for groceries or diapers, they also show young people asking friends for money to go to the movies, or cashing out future earnings in order to buy new clothes they want.

IsItBullshit: the Earnin app. from IsItBullshit

Earnin app, seems like a ponzi scheme. No interest and no fees? Whats the catch? from AskReddit

The “Earnin’” app is for financially stupid people who don’t understand the concept of a budget from unpopularopinion

Still, there are plenty of others who say they’ve successfully used the app. “It’s not bullshit,” writes redditor IAceWingI. “I’ve used it for about three months. I’ve borrowed and returned $1500/1600.” More specifically, they relied on it over three pay periods and tipped around $30 each time.

The term “tipping,” though, is probably a bit of a misnomer. Because, yes, it’s true that tipping isn’t required. But if you don’t, you’re limited in the amount that you can borrow. “Everyone can cash out a maximum of $100 each pay period,” the Earnin site outlines. “This has the potential to increase up to $500 as you continue using the app.”  

Not to mention, back on Reddit, users are quick to point out that in cases like IAceWingI’s, Earnin is making a significant return. “So you paid 156% APR loan percentage. ….$30 tip for 2 weeks of $500 borrowed… they got a good gig going,” opines u/myerbrigg. Even in cases where users only tip $1 per $100 borrowed, the APR is 52 percent –– more than double the average credit card APR of 24 percent.

Which reminds me of another well-worn adage: Nothing is ever truly free in this world.