Earnin cash advance app changes tone amid investigation in NYC
A rapper Nas-backed cash advance app has struggled to evade regulatory pressure over concerns it made illegal payday loans in the Big Apple, The Post has learned.
Earnin, a Silicon Valley startup whose investors also include venture capital firm Andreessen Horowitz, quietly turned off a controversial feature for New York users that ties its loan amounts to voluntary “tips,” according to reports. sources close to the situation.
The tips – which can be as high as $ 14 on a $ 100 weekly loan – are comparable to the crippling annualized percentage rates that have banned payday loans in 15 states, including New York, according to critics.
Earnin removed the pay-to-play feature – which granted up to 10 times more loans to users who voluntarily tipped, according to internal documents and a source close to the company – at the time of a subpoena. New York Department of Financial Services’ March 28 appearance, sources said. While the overhaul is not illegal, experts say, it raised eyebrows among staff members, a former employee said.
The agency launched its investigation following an exclusive report published on March 21 by 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 circumventing state usury laws.
In an April 10 Slack post, Melissa Hudson, Earnin’s senior executive in charge of development teams, said she was working on a document explaining to regulators that the maximum user payouts in New York City – which could reach 1,000 $ per pay cycle – were unrelated to the amount they “tip”, according to a copy obtained by The Post.
The previous formula, Hudson wrote, “had quite a bit of tip-related factors,” adding that she wanted to make sure these were not in the document sent to DFS.
At the time, Earnin was preparing to submit thousands of pages of documents about its activities to state regulators – including those that showed the mathematical formula that determined how much New York users could borrow.
“Can you confirm that there are no other tip factors in this independent tip model that New York users are falling into?” Hudson asked, referring to documents to be submitted to DFS, according to messages from Earnin Slack.
The change came so that Earnin executives could say “in the present tense” that the maximum payments from New York users weren’t affected by the amount of fees they paid, according to a former employee who helped collect information for New York regulators. The change, which has only taken place in New York City for now, was not representative of the company’s larger business model, the former employee told The Post.
Still, the decision to abruptly switch models isn’t illegal – and can end up saving the company money, legal experts say.
“It seems like a smart thing to do,” Sam P. Israel, a securities lawyer who has advised companies on regulatory matters, told The Post. “If there is a problem there, they cut their losses.”
Eric Kuo, spokesperson for Earnin, told The Post: “There has been no change in Earnin’s max model for New York customers since the company received a subpoena from NYDFS.” He declined to comment further.
Regardless of the timing, the change seems to have caught some of the Earnin staff off guard.
âWe moved all NY users into an independent tip experience? A product manager asked an Earnin risk manager in a Slack post in early April.
âYes,â replied the risk manager.
Earnin tells users that their money management practices and the number of coworkers they enroll can influence their maximum, but that doesn’t clearly mean that higher tips mean they can withdraw more money.
But inside the company, the connection was well known, according to former employees.
“Low-tip users may not understand that their tip rate may prevent them from getting a raise,” according to a draft September 2018 memo titled “Max Adjustment Tip Messaging Experiments.”
As a company, Earnin has been sensitive to appearing to comply 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.
Shortly after the Post’s first report on Earnin, the company’s chief executive, Ram Palaniappan, held a bare-knuckle meeting to discuss the fallout from the article.
An employee suggested the company hire a private investigator to investigate the Post reporter who wrote the article – a suggestion that Palaniappan did not shut down, 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 hands free, on the way back to their offices, and says they should hire a sleuth on you,” the source told The Post. âRam doesn’t dispute it – he’s doubling down. He says it’s unfair.
Asked about the situation, Earnin’s spokeswoman Katy Feinberg said Palaniappan and the company “had not hired a private investigator”.