Cash Advance App Earnin Changes Tone Amid New York Investigation


A cash advance app backed by rapper Nas has been struggling to escape regulatory heat over concerns that it has been making illegal payday loans in the Big Apple, The Post learned.

Earnin, a Silicon Valley startup whose investors also include venture capital firm Andreessen Horowitz, quietly disabled a controversial feature for New York users that links the size of their loans to voluntary “tips,” according to sources close to the situation.

The tips, which can reach up to $ 14 with a weekly loan of $ 100, are comparable to the overwhelming annualized percentage rates that have banned payday loans in 15 states, including New York, critics say.

Earnin removed the pay-per-play feature, which provided up to 10 times more in loans to users who voluntarily tipped, according to internal documents and a source close to the company, at the time of a March 28 subpoena from the Department of New York Financial Services, according to sources. While the review was not illegal, according to experts, it did surprise employees, a former employee said.

The agency launched its investigation following an exclusive March 21 report from The Post that raised questions about Earnin’s business model. Valued by investors at $ 800 million in December, Earnin is now under investigation by at least 11 states and Puerto Rico for evading state usury laws.

In a Slack message on April 10, Melissa Hudson, a senior Earnin executive in charge of development teams, said she was working on a document that explained to regulators that the maximum payouts from New York users , which could be up to $ 1,000 per pay cycle. – They were not linked to the amount of “tips”, according to a copy obtained by The Post.

The formula above, Hudson wrote, “had quite a few factors related to tips,” adding that he wanted to make sure they weren’t in the document sent to DFS.

At the time, Earnin was preparing to submit thousands of pages of documents about his business to state regulators, including those showing the mathematical formula that determined how much New York users could borrow.

“Can you confirm that there are no other tipping factors in this independent tipping model that New York users fall for?” Hudson asked, referring to the documents to be sent to DFS, according to messages from Earnin Slack.

The change came so Earnin executives could say “in the present tense” that New York users’ maximum payouts weren’t affected by how much they paid in fees, according to a former employee who helped gather information for regulators in New York. New York. The change, which has only happened in New York at this time, was not representative of the company’s broader business model, the former employee told The Post.

However, the decision to abruptly change the model is not illegal and may end up saving the company money in the future, according to legal experts.

“It sounds like a smart thing to do,” Sam P. Israel, a securities attorney who has advised companies on regulatory matters, told The Post. “If there is a problem there, they are cutting their losses.”

Eric Kuo, a spokesman for Earnin, told The Post: “There has been no change to Earnin’s top model for New York customers since the company received a subpoena from NYDFS.” He declined to comment further.

Regardless of the timing, the change appeared to have caught some of Earnin’s staff off guard.

“Did we move all New York users to an independent tipping experiment?” a product manager asked a risk manager at Earnin in a Slack message in early April.

“Yes,” replied the risk manager.

Earnin tells users that their money management practices and the number of coworkers they sign up can influence their maximum, but doesn’t make it clear that higher tips mean they can get more money.

But within the company, the connection was well known, according to former employees.

“Low-tipped users may not understand that their tip rate may prevent them from getting a raise,” according to a draft of a September 2018 memo titled “Max Fit Suggestion Messaging Experiments.”

As a company, Earnin has been sensitive to the appearance of complying with regulations, hiring former DFS superintendent Ben Lawsky and consulting with former Uber executive Emil Michael, The Post reported.

Earnin also considered going after perceived enemies.

Not long after The Post first reported on Earnin, the company’s CEO Ram Palaniappan held a meeting to discuss the consequences of the article.

An employee suggested that the company hire a private investigator to investigate the Post reporter who had written the story, a suggestion that Palaniappan did not close, according to a former employee who attended the meeting.

Subsequently, Ihsan Kabir, now the group’s product manager, approached Palaniappan with a similar suggestion, the source said.

“He turns to Ram after all, on his way back to their desks, and says they should hire a private investigator,” the source told The Post. “Ram doesn’t dispute it, it doubles. He says it’s unfair. “

When asked about the situation, Earnin’s spokeswoman Katy Feinberg said Palaniappan and the company “did not hire a private investigator.”


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