(Reuters) - The payroll advance industry is under investigation by New York’s financial regulator and other states over whether its companies are charging usurious interest rates and engaging in potential violations of payday lending laws, the regulator said on Tuesday.
New York, joined by financial regulators from 10 states and Puerto Rico, sent letters to payroll advance companies requesting information, the New York Department of Financial Services (NYDFS) said.
The payroll advance industry gives consumers access to wages earned before payday. The companies, which operate through websites and apps, generally claim to charge low or no interest while charging monthly membership fees, tips and other fees.
The probe focuses on whether those companies are engaged in high-cost lending, or “payday lending,” in violation of usury, licensing and other laws.
“High-cost payroll loans are scrutinized closely in New York, and this investigation will help determine whether these payroll advance practices are usurious and harming consumers,” said NYDFS Superintendent Linda Lacewell.
In March, NYDFS launched a probe into Earnin, a cash-advance app, about whether the company is violating New York lending laws, a person familiar with the matter confirmed. The regulator subpoenaed numerous records, including details about its New York customers and tipping.
An Earnin spokesman said in a statement on Tuesday that the company “is a brand new model,” adding: “So we expect, and welcome questions from regulators like the New York Department of Financial Services.”
On its website, Earnin says it does not charge fees, interest, or have hidden costs to use the app.
“We depend on our community to support us by tipping what they think is fair when they use the app,” the company’s website says. But tipping is not required, according to the website.
Reporting by Suzanne Barlyn in New York; Editing by Lisa Shumaker and Matthew Lewis
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