The attorney general for the District of Columbia is suing instant payday loan fintech Earnin for “deceptively marketing and providing illegal high-interest loans,” the AG alleges.
Earnin allows its users to get loans against paychecks. It advertises that users can get $150 a day, up to $750 per pay period, with “no interest, credit check or ‘mandatory’ fees,” according to its website. But, in order to get the money immediately, users are charged what it calls a “Lightning Speed” fee. Earnin then pays itself back by withdrawing the loan amount, plus any fees, from the customer’s bank account or debit card on the next payday, the lawsuit describes.
Like most of the other fintechs in this category, Earnin says that the service is free if users don’t want their pre-payday loans immediately, but are willing to wait up to a couple of business days for funds to transfer. The AG alleges that the fees Earnin collects are equivalent to an interest rate of 300% on average, which is “more than 12 times the District’s 24% interest rate cap,” it says. On top of that, the AG says that Earnin is operating in the District without proper licensing.
Earnin’s lawyer, Karl Racine, says that the AG’s “lawsuit demonstrates a fundamental misunderstanding of how our product works and why so many DC residents benefit from it.” Racine argues that “DC workers who use our EWA product have the choice to access their earned money at no cost, in which case money is received within 1-2 business days.”
Earnin was a fintech darling back in 2018, when it raised $125 million from a host of big-name VCs including DST Global, Andreessen Horowitz, Spark Capital, Coatue, and Ribbit.
Founder Ram Palaniappan has consistently positioned the service at those who were at least financially sufficient to wait for paydays — that is, people who lived “paycheck to paycheck” — and said that granting these folks early access to wages was “an issue of fairness,” he told TechCrunch in 2018.
But these types of instant payday loans that advertise themselves as free are facing increasing regulatory scrutiny and legal action. Earlier this month, the The Federal Trade Commission (FTC) took action against the online cash app and neobank Dave, making similar allegations regarding how it advertises, versus how it charges fees. Dave told TechCrunch it plans to defend itself saying that the FTC “asserts many incorrect claims regarding Dave’s disclosures.”
The Consumer Financial Protection Bureau (CFPB) sued SoLo Funds, which operated a similar consumer loans fintech, in May. SoLo was backed by Serena Williams, Alumni Ventures, and Techstars. SoLo was also sued by, and settled with, DC’s AG. Its CEO told TechCrunch in May that “regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”
The payday loan industry has, and will likely continue to be, under scrutiny. New protections against lender auto withdrawals as part of CFPB regulations are scheduled to take effect in March, 2025.
Meanwhile, Chime introduced its payday loan feature earlier this year. It too advertises the feature as “no interest, no credit check, and no mandatory fees.” But, like the others that use this phrasing, it does charge fees for immediate cash transfers.
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Finastra, a London-based financial software company that serves most of the world’s top banks, has confirmed it’s investigating a data breach after a hacker claimed a compromise of the company’s internal file-transfer platform.
In a statement given to TechCrunch, Finastra spokesperson Sofia Romano confirmed the fintech giant detected what it calls “suspicious activity” related to an “internally hosted Secure File Transfer Platform (SFTP)” on November 7.
News of the breach, first reported by cybersecurity journalist Brian Krebs, comes after someone claimed on a known cybercrime forum to be selling stolen files allegedly belonging to Finastra’s largest banking clients. In a since-deleted forum posting, the hacker said they were in possession of 400 gigabytes of data from Finastra, including client files and internal documents.
In an incident disclosure shared with customers, obtained by Krebs, Finastra confirmed data was exfiltrated from its systems. Finastra’s spokesperson, who declined to share a copy of the disclosure with TechCrunch, said the company first communicated the incident to customers on November 8 and has been “keeping them informed about what we do and do not yet know about the data that was posted.”
Finastra declined to name the compromised file-transfer platform, but the data seller claims the stolen data from Finastra’s network was sourced from IBM Aspera, a file-transfer software that allows organizations to move large files and data sets over the internet.
When asked by TechCrunch, Finastra would not say how many customers are affected or what types of data were accessed in the breach.
“We are analyzing affected data to determine what specific customers were affected, while simultaneously assessing and communicating which of our products are not dependent on the specific version of the SFTP platform that was compromised,” Finastra’s spokesperson Romano said in an emailed statement. “The impacted SFTP platform is not used by all customers… so we are working as quickly as possible to rule out affected customers.”
Finastra added that the company continues to investigate the root cause of the data breach, but said that “initial evidence points to credentials that were compromised.” This suggests the organization was compromised through the theft of someone’s username and password. It’s not yet known if the system was protected with multi-factor authentication, which can prevent some credential theft attacks.
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Welcome to TechCrunch Fintech! This week, we’re diving into PayPal’s new holiday shopping-friendly feature, Klarna’s 2025 IPO ambitions, and sales tax automation startup Kintsugi doubling its valuation in less than a year.
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PayPal makes group purchases much easier
PayPal is launching new features that let users pool together money with friends or family to collectively pay for trips, travel, gifts, and more. And most importantly, those contributing to the pool don’t need to have a PayPal account to pay their fair share.
PayPal actually had a pooling feature in place way back in 2017, but the service was shuttered globally in November 2021. A PayPal spokesperson told TechCrunch the feature is returning “due to high customer demand” and will launch in the U.S., Germany, U.K., Italy, and Spain ahead of the holidays.
Klarna is on its way to becoming a public company after confidentially filing a draft registration statement with the U.S. Securities and Exchange Commission.
After launching in the U.S. in 2015, the buy now, pay later giant hit a hefty valuation of more than $45 billion by 2021, a figure that swiftly plummeted to $6.5 billion due to market “corrections” amid what remains a tough environment for technology IPOs. But Klarna’s valuation has reportedly risen to $14.6 billion after one investor increased its stake.
We still don’t know how many shares will be offered, or the price range of the IPO, but the announcement makes it likely for Klarna to go public sometime in the first half of 2025.
Indian travel and hospitality aggregator MakeMyTrip has agreed to acquire expense management platform Happay from fintech CRED. The financial terms were not disclosed, but Happay was acquired by CRED in 2021 for $180 million.
Sales tax automation startup Kintsugi raised a $6 million Series A round valuing it at $40 million in April. The company has reopened the round, taking on additional $4 million in capital and doubling its valuation to $80 million.
Senegal’s Socium told TechCrunch it has raised $5 million in seed funding to fuel the growth plans for its HR solutions business in Francophone Africa.
Minu closed a $30 million Series B round of funding led by QED to help the employee benefits startup further expand its sales and customer success presence across Mexico and implement new HR tools.
Prosus is aiming to list fintech firm PayU in 2025 as the Dutch investor looks to shift more focus to India. The market has been described as a pillar for its investment business after Swiggy’s stellar listing netted gains of $2 billion.
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