HealthAid is primarily intended to help people who have health insurance but can’t afford to meet their deductibles, a sizable percentage of the US population. According to the LA Times, 39 percent of large employers offer only high-deductible plans, and half of all people who receive health insurance from their work have a deductible of at least $1,000.
Even though the tips are voluntary, Saunders said, there are a number of risks associated with Earnin and similar apps
Earnin’s latest venture seems useful – noble, even. It’s hard to criticize a venture-backed company using its resources to lower people’s astronomical medical bills, even if it’s doing little to address the root causes of poverty or medical debt. And Earnin is by no means the only fintech startup that bills itself as a way to help put low-income people on a path towards financial stability. There’s Fresh EBT, which helps people manage their food stamps; Domuso and Till, two companies that front people money for big expenses like security deposits; and Even, a “financial wellness platform” that charges users a monthly fee to balance their budgets.
Like Earnin, Even has an advanced payment feature called Instapay, though it makes its money by charging users a monthly fee instead of through a voluntary tip system. In 2017, Even partnered with Walmart to offer its services to the company’s hourly and salaried employees. Earnin is similarly integrated with several companies’ payment systems, though Palaniappan stressed that it continues to be a direct-to-consumer product. “The problem with relying on integrations is that it lets you cover the larger companies and leaves out every small business,” he said. “If you have a coffee shop in rural America or with five people, you would never let them get the benefit if you try to rely on integrations.” That’s why the company relies on a tip system, he explained: so users can pay for the service when they can afford it and aren’t penalized when they can’t payday loans in Selmer.
According to Palaniappan, users do tip when they have the means to do so, even though it’s not required. In some cases, they even tip extra to cover the cost of someone else’s transaction; Earnin claims this has happened more than 10 million times. It may seem counterintuitive to give a company money when they aren’t asking for it, but Haq, the semi-frequent Earnin user, said she feels it’s the right thing to do since Earnin is providing her with a service and she wants to keep them in business.
Lauren Saunders, the associate director of the National Consumer Law Center, told me there are few distinctions between what Earnin is doing and a more traditional payday loan
But Earnin has recently come under fire for its “tipping” policy. In March, the company was subpoenaed by the New York Department of Financial Services after the New York Post reported that the app’s tip amounts effectively translate to high APR rates. According to the Post, users who don’t leave a tip have their Earnin withdrawals capped at $100, while those who do leave tips are able to take out more money. (Earnin declined to comment on the subpoena on the record.)
“There is no single definition of a payday loan. People think of payday loans and short-term balloon payment loans as [having] high interest rates, and this is simply a short-term loan,” she said. “There is no set interest rate, but the purportedly voluntary tips that people want to leave don’t seem so voluntary if you want to borrow more than $100.”
“You turn over your bank account login and password, and that’s very risky. Even if they don’t do anything wrong with it, how secure is that data if there’s a breach?” she said. “You’re giving them the right to take money out of your account, supposedly on your payday, and sometimes they get it wrong.” (Palaniappan said Earnin refunds users’ bank fees if a mistake on its end results in an overdraft.)