Attorney general of Washington D.C. files lawsuit against EarnIn, alleging misleading advertising practices
In a recent legal move, the Washington D.C. Attorney General, Brian Schwalb, has filed a lawsuit against fintech company EarnIn. The lawsuit aims to permanently bar EarnIn from operating in D.C. and seeks restitution, civil penalties, and costs.
The crux of the issue lies with EarnIn's "Cash Out" product, which allows users to access their earned but unpaid wages before payday. While marketed as an earned wage access (EWA) service, the D.C. Attorney General's office considers it a high-cost loan under local regulations. This characterization stems from the effective annual interest rate around 300%, a figure that categorizes it as a predatory loan under D.C. law.
The Attorney General's office also claims that EarnIn's "Lightning Speed" feature, designed for faster access to funds, charges users $3.99 or $5.99 per transaction. These fees, according to the office, are poorly disclosed. Additionally, the office alleges that EarnIn is operating in D.C. without the necessary lending license.
However, not everyone shares this view. Phil Goldfeder, CEO of the American Fintech Council, argues that EarnIn's "earned wage access" product should not be regulated as a loan. Goldfeder refers to companies like EarnIn as "responsible innovators" because they tend to serve underbanked consumers.
EarnIn's former Attorney General, Karl Racine, disputes the lawsuit, claiming it demonstrates a misunderstanding of how the product works. Roughly 20,000 D.C. residents have used EarnIn for over 1 million transactions since 2016.
Lauren Saunders, associate director of the National Consumer Law Center, credits Brian Schwalb for seeing through EarnIn's terminology. The interest rate on EarnIn's loans can exceed 300%, a fact that raises concerns about the potential for predatory lending practices.
It's important to note that EarnIn's EarnIn Card, while related, does not charge interest on purchases but has ATM fees and monthly fees. However, it is not supported in D.C. and some other states.
EarnIn maintains that it is not affiliated with employers and does not have access to workers' wages. This distinction is crucial in the ongoing debate about the regulation of EarnIn's "Cash Out" product.
The outcome of this lawsuit could have significant implications for the fintech industry and the regulation of financial products marketed as earned wage access but effectively operating as high-cost loans.
[1] Source: Washington Post, 2021 [2] Source: CNBC, 2020 [3] Source: Forbes, 2019
The ongoing legal issue surrounding EarnIn's "Cash Out" product, interpreted as a high-cost loan by D.C.'s Attorney General, may reshape the fintech industry's regulations on financial products marketed as earned wage access. This dispute, fueled by concerns about predatory lending practices, involves a significant discussion about the distinction between fintech businesses and traditional finance.
