Orubo v. Activehours, Inc.

Background

Brennan Orubo, Michael Sims, Demetrice Mathis, and Cidney Lett brought a putative class action against Activehours, Inc., doing business as EarnIn. They asserted claims under the Georgia Payday Loan Act (GPLA) and the federal Truth in Lending Act (TILA).

EarnIn’s app provides cash advances of up to $100 at a time and up to $750 per pay period. Users must have regular paychecks, link the bank account receiving their pay, authorize an automatic debit on payday, and pass EarnIn’s credit check. EarnIn advertises that advances are repaid when a paycheck arrives and are due on payday, although its Cash Out User Agreement states that users have no legal obligation to repay and that EarnIn has no legal or contractual remedy if they do not.

Users seeking funds immediately must pay a “lightning speed fee” of between $1.99 and $3.99. Users may also pay a nominally optional tip. The plaintiffs alleged that EarnIn’s app design and representations pressure users to pay tips and make avoiding them difficult. They alleged that the fees and tips produced annual percentage rates ranging from 130% to 1,700% for the named plaintiffs and that EarnIn did not disclose those costs as annual percentage rates.

EarnIn moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not allege enough facts to state a legally recognized claim. The court denied that motion. The court also granted EarnIn’s motion to submit a statement concerning a recent decision under the applicable local rule.

Georgia Payday Loan Act Claim

The GPLA prohibits loans of $3,000 or less unless the lender is a bank or is otherwise licensed under Georgia law. The statute applies to transactions in which funds are advanced to be repaid later.

EarnIn argued that its advances were not loans because customers had no legal obligation to repay them. The court rejected that argument at the pleading stage. It explained that whether a transaction is a loan depends on the parties’ real intent and understanding, not merely on the wording of the agreement. Georgia law also permits courts to look beyond a purported repayment contingency when it may be a sham designed to evade payday-lending laws.

The court found the plaintiffs’ allegations sufficient because users authorized automatic debits from the accounts into which their paychecks were deposited, and EarnIn took steps intended to ensure repayment. The allegations that EarnIn represented that advances were due on payday also supported the conclusion that the parties expected repayment. The court therefore held that the plaintiffs adequately pleaded that EarnIn’s advances were loans covered by the GPLA.

Truth in Lending Act Claim

TILA requires specified disclosures, including the amount financed, finance charge, annual percentage rate, total payments, and payment schedule, when a creditor regularly extends consumer credit subject to a finance charge. EarnIn argued that it did not provide “credit” and was not a “creditor.”

The court rejected both arguments for purposes of the motion. TILA defines credit to include the right to defer payment of a debt. Regulation Z, which implements TILA, also describes as credit a transaction in which a cash advance is provided in exchange for authorization to debit a consumer’s deposit account on a designated future date. The court concluded that EarnIn’s automatic payday debits fit that description, regardless of whether customers had a legally enforceable repayment obligation.

The court also concluded that the plaintiffs adequately alleged that EarnIn was a creditor because the lightning speed fees and tips could be finance charges. A fee need not be strictly mandatory to be connected to the extension of credit. The plaintiffs alleged that users were solicited for tips while seeking advances, that the app made avoiding tips difficult, and that tips were closely connected to obtaining advances. The court further concluded that the lightning speed fee was effectively mandatory for the immediate cash-advance product because users who did not pay it had to wait days for their funds.

Disposition

Judge P. Casey Pitts denied EarnIn’s motion to dismiss. The opinion resolved only whether the complaint adequately stated the GPLA and TILA claims; it did not determine ultimate liability, damages, or whether the proposed class should be certified.